Mortgages and liens in Costa Rica. ☎️ Debt Attorney.
Loan mortgages and liens are known as “real” rights. Both mortgages and liens are rights over somebody else´s ownership of real property. Allow me to explain. You can own real estate property and mortgage it to a creditor through a loan structure. Once the notary public registers the mortgage, it becomes an “encumbrance” over your property. The same example can be said about vehicle liens. The creditor, therefore, gets a right over your ownership rights -that of a creditor of the mortgage or lien. In re aliena is Latin and translates to “a right in someone else´s property.
What is the difference between a lien and a mortgage?
The statute of limitations of both rights is different. But the main difference is that mortgages can be placed over real rights regarding immobility assets. Houses, land, real estate properties, and usufruct rights can all be mortgaged. Liens, on the other hand, are placed over real mobility rights. A mobility asset can be moved, from location to location, without losing its essence. Vehicles, animals, clothes, furniture, etc., are all mobility assets. It´s pretty standard in Costa Rica to guarantee loans with vehicles. Therefore, a lien is an encumbrance on the vehicle to secure the loan. To conclude, a mortgage is to a property, as a lien is to a vehicle or mobility asset.
Can you give a definition of a mortgage, liens, and the statute of limitations?
A mortgage is a loan structure guaranteed by a real right, such as a property. The real estate property remains in the debtor’s name except for a mortgage trust. A lien works in the same way. First, the date is set for the principal loan amount to be paid entirely. This is the loan maturity date. Next, simple and moratory interest is also established. Once the maturity date happens, the creditor has ten years to execute the mortgage loan and four years for vehicle liens upon the loan{s maturity. If he doesn´t, the statute of limitations may occur. The law of limitations is the time frame the creditor has to execute his rights as the creditor.
Types of mortgages and liens in Costa Rica
What is a simple mortgage and a common lien?
A standard mortgage and lien (prenda) are both unilateral loan contracts. Therefore, they must be constituted in a public scripture by a notary public and then registered in the Public Registry.
What is a mortgage bond?
A mortgage bond is a curious form of a mortgage. A real estate property is encumbered with the mortgage to guarantee a loan obligation. However, there is no debtor, just bonds guaranteed with a property. The only right in this type of loan is against the property, as established in the bond. The bonds are transmitted by endorsement, as per the rules of title bonds.
What are "Legal Mortgages"?
They are created by law for specific debts. The owner´s consent is unnecessary, as these types of mortgages arise when the situation specified by law manifests itself. A few legal mortgages are the HOA quotas, the ones established by territorial taxes and water works. If the owner does not pay, these specific debts will have a privileged position for debt collecting. The property will be auctioned.
How are property mortgages and vehicle liens registered in Costa Rica?
Property mortgages and vehicle liens must be constituted in a public scripture by a notary public. Due diligence must be performed on the assets to serve as guarantees. It´s essential to establish who the owner is and, most notably, if there are any pre-existing encumbrances on them. Once the notarized document is filed at the Registry and duly registered, the lien or mortgage will appear in the assets as encumbrances.
Can guarantees be used in a trust structure?
Yes. If done correctly, trusts (known as fideicomisos in Spanish) can be a valuable tool for credits and loans. A Guaranty Trust can be established, but I can only recommend these structures for mortgage trusts. There is a reason for this. If you wish to execute a guaranty trust for a mortgaged property, you will have no problem. It will be an extremely expedited procedure. However, the problem will arise with vehicle liens in a trust. When you execute the trust privately, you are excluding the figure of the civil judge. In a pure judicial execution, the judge orders the vehicle used as the guarantee to be captured by police. In a private trust, you will have no order to capture the car. To conclude, property guaranty trusts work fine in Costa Rica. However, I can´t recommend the use of trusts for liens.
What are the statutes of limitations for mortgages and liens?
Most loans in Costa Rica are commercial, and thus, civil law does not apply. By principle, all commercial loans have a statute of limitations of four years. For example, if you signed a promissory note, the creditor has four years (after the deadline) to file the lawsuit and serve you. If the fatal time-lapse passes, that statute of limitations on the principal occurs. However, mortgages are different and have a statute of limitations of ten years that begin when the payment deadline passes. It´s worth noting that the statute of limitations on interest has a smaller time frame of just one year.
Dr. Christopher Pirie Gil.