“Do you think he’d take US$10,000?”
“Yes, I’m pretty sure he’d jump at that.”
“Would he take US$8,500? At US$8,500, I’d cash him out on the spot.”
“Well, that’d be US$1 a meter. He might go for it. Then you’d have money left to use to title the property if you decide you want to.”
“Right… but maybe I won’t worry about it. I’ll fix the house up, and it’ll be a great place to stay when we want to go fishing. If you really think I could get the place for US$8,500, that’d be tremendous. Other places I’ve looked at that could work as a fishing getaway have been US$200,000 and more.”
“Yes, well, you need to understand. You can have problems with rights of possession property. You need to be careful. Still, US$1 a meter… you can’t beat that… not a lot of downside…”
This conversation took place between two American guys sitting across a wooden table from each other. They were whiling away another sunny afternoon in paradise, sipping local US$1 beers beneath the shade of a thatched roof. I was a few feet away, swinging in a hammock. If they knew I was there, they didn’t seem to mind, so I swung back and forth slowly, eavesdropping in silence.
Rights Of Possession In Panama
In Panama, rights of possession (ROP) property can cost a fraction as much as titled property, but there’s a reason for that. To say that you “can have problems with rights of possession” is understating the reality, because, while you can purchase rights of possession property, you don’t own it. All you’ve bought is the right to “possess” the property. That doesn’t make it yours.
Treat it like it’s yours—investing in improvements, building a house on it, making plans related to its long-term use—you can have a shock one day when you show up after some absence to discover someone else living in your house, enjoying your improvements, and making his own plans related to the property’s future.
Rights of possession land isn’t uncommon in parts of Panama, specifically Bocas del Toro, for example. You want to understand the distinction between ROP and free-hold title before you make a purchase, not only in Bocas, but anywhere in Panama. “I’ve learned my lesson,” one frustrated gringo buyer told me years ago. “I just don’t believe anyone, not any attorney, certainly not any real estate agent, who assures me ROP’s no problem. I know better.
“My attorney insisted all along, from the first day I notified him of my intended purchase, that I’d be able to have the property titled. I went through the titling process, filed all the paperwork, paid all the fees, then my application for title was returned with a big ‘Denied!’ stamp on the front. No reason that made any sense, simply denied.
“I went back to my attorney, who made further filings (and charged more fees), only, again, to be told that, no, my ROP land couldn’t be titled. I still don’t really understand why, and now I have no idea what to do,” the poor guy concluded.
Sometimes ROP land can be converted to titled property. Meaning that an ROP purchase can be one of the best ways to buy for investment, because, as the gentleman sitting across from me that day I lay swinging quietly in my hammock in a local Panama hangout pointed out, the cost can be a fraction the cost of comparable titled land. Buy for US$1 a meter, successfully convert the ROP to freehold title, and you can turn around and flip for many multiples of what you paid. The key is to be really, really sure you’ll be able to convert the ROP to title.
To make that determination with confidence, you need the counsel of an attorney who knows what he or she is talking about and who has experience dealing with ROP issues. As the American buyer I quote above discovered too late, this is not the case with all attorneys you might find in an area where ROP land is being sold.
When buying a piece of real estate in the United States, we take clean title for granted. We don’t wonder whether the guy offering to sell us a house in fact owns the house. We don’t ask the young man who takes us to see his uncle’s beachfront lot if the uncle knows that the kid is trying to sell off the old guy’s land. It doesn’t occur to us that a piece of real estate is being offered with anything but freehold title or that we need to investigate the history of ownership. When shopping for real estate overseas, you can’t take any of those things for granted.
Rights Of Possession In Nicaragua
I got my first taste of how fuzzy things to do with the ownership of a piece of property can be in Nicaragua. The history of ownership of property in this country can be complicated. Land in Nicaragua can be “cooperativa,” “Somoza,” or “agrarian reform.” Bottom line, these descriptions translate as: risky. Buy a piece of beachfront property once held by a cooperativa, and you run the risk that dozens of claimants could appear at some time in the future to dispute your ownership. Buy a piece of Somoza land, and the Nicaraguan government could someday lay claim.
When I began spending time in Nicaragua, I was scouting on my own account but, as well, as a writer covering this beat. I began reporting on the title issues as I understood them, telling my readers that they couldn’t take for granted that any piece of property they might be interested in buying in Nicaragua would transfer to them with clear, clean freehold title.
Further, I advised, they couldn’t believe every property agent who assured them that cooperativa land was the same as freehold title or that Somoza title could be “cleaned up.” Agents I met made these claims but had neither the intention nor the resources to back them up.
After I’d been reporting on this market for a couple of years, one of the real estate agents operating in Granada, Nicaragua, who I’d gotten to know well, stopped me in Granada’s central square to say: “Kathleen, you’ve got to stop pushing this title thing. It’s interfering with sales.”
Rights Of Possession In Mexico
You’ve likely heard of the potential title complication In Mexico. It’s referred to as “ejido land.” This is land the government gave to locals to farm. It’s something akin to cooperativa land in Nicaragua, as it’s owned by the community working it, not by any individual, and therefore isn’t titled. Ejido land can be titled if the entire ejido votes to do so.
As with rights of possession land in Panama, you want to have an ejido in Mexico title the land before you pay them for it. Most of the “confiscated” land stories that have come out of Mexico and been so well-publicized by the U.S. media have had to do with ejido land. In most cases, a gringo developer “bought” from the ejido but never actually had the property titled. The Mexican government technically still owned it. When the Mexican government decided, in each case, to exercise its claim and take back the land from the ejido (as the ejido was no longer using it for the intended purpose of community farming), it wasn’t doing anything wrong, and it certainly wasn’t stealing land from the foreign “owners.”
The foreign owners weren’t owners at all. In reality, they were squatters. Maybe they had been duped by the developer who sold to them. Maybe the developer didn’t realize himself that he was selling land without title and that he, therefore, didn’t in fact own.
Before we go further, we should address a common initial concern among would-be overseas property buyers—namely, can foreigners own property in another country? The general answer is yes, but there are exceptions, most commonly in Asia. Some countries in this part of the world do place heavy restrictions on or outright ban foreign ownership. Sometimes, in these countries, foreigners intent on owning find ways to work around the rules, with the help of local partners, for example. This is risky, and I don’t recommend it.
However, in most countries where you might want to buy real estate, you can, in some cases, with some restriction. The most common restriction has to do with foreign ownership of land within so many kilometers of an international border or a coastline. In Mexico, for example, a foreigner can’t own within 100 kilometers of an international border or within 50 kilometers of a coastline unless you hold the property in a fideicomiso (a trust). The government has allowed this trust workaround since 1993. Before then, foreigners had to hold property in those zones as leasehold.
The distance from an international border restriction varies by country. Panama has a 10-kilometer rule that is absolute, i.e. no workaround allowed as it is in Mexico.
Rights Of Possession In Argentin
Argentina imposes the restriction but only generally. No specific distance is stipulated, but you can figure that, as a foreign buyer, you’re going to have to get government approval to buy anything within 50 kilometers of a border.
Recently, Argentina also put in place restrictions to do with the amount of agricultural land that foreigners can own. The maximum number of allowable hectares per individual foreign owner is now 1,000, and the total amount of agricultural land owned by foreigners in Argentina can’t exceed 15% of the country’s total available agricultural land. Brazil has a similar rule, stipulating that no more than 2% of that country’s agricultural land can be owned by foreigners. In Brazil, though, the rule is state by state (that is, no more than 2% of the agricultural land in each state can be held by foreigners).
Rights Of Possession In Croatia
Croatia imposes one of the most interesting foreign ownership restrictions I’ve come across. A foreigner can purchase property in Croatia if Croatians can own property in that foreigner’s country. This gets interesting for us would-be American buyers. The United States imposes no foreign ownership restrictions on Croatians, so, in theory, we Americans should be able to buy without restriction in Croatia.
However, Croatia, in making that determination, considers not the United States as a country but each individual state. If you’re from Arkansas, Croatia is going to want to see documentation showing that Arkansas allows Croatians to own in that state. The fact that Arkansas places no restriction on Croatian ownership isn’t enough. Croatia wants to see documentation from Arkansas affirming the idea. As no such documentation exists (or could ever exist) for any U.S. state (individual states can’t put international treaties in place), while, in theory, Croatia should allow Americans to purchase property in Croatia (because Croatians can own in America), in reality, it balks.
When we came to this bump in the road during the purchase process for our farmhouse in Istria, we had to re-apply for title as Irish citizens. Fortunate for us, we hold both U.S. and Irish passports. If you don’t hold a second passport, the workaround would be to purchase the property in the name of a Croatian corporation (noting that this could have negative tax implications).
Founding Publisher, Overseas Opportunity Letter