Unpaid mortgages and liens in Costa Rica? ☎️ The civil execution process.
Private money lending in Costa Rica, is an investment option. As a civil attorney and notary public, I am an expert in all fields regarding money loans, their legal implications, and risk assessment. Our firm can assist you with your financing and money-lending endeavors in Costa Rica. From legal advice, risk assessment, and loan-notarized structures to debt collection litigation. Costa Rica offers a secure legal environment for home financing and loan investments. In this article we will cover everything related to mortgages and liens, and the legal process to execute these loans in case of debtor default. The “Pure Execution Civil Process”, is used to collect unpaid property mortgage loans and vehicle liens in Costa Rica. This type of civil action is also used to collect loans that are guaranteed with vehicle liens.
What are the usual interest rates for mortgages in Costa Rica?
Interest rates in the market vary depending on the type of loan. For mortgages in Costa Rica, creditors usually lend with interest rates that vary from 7% to 11% in American dollars. Car loans on the other hand, can go up to 40% per annum. These types of loans, are guaranteed with a lien over the vehicle. Both liens in cars, and mortgages in properties, are encumbrances that get registered over the asset. Lien loans on vehicles, and mortgages on properties, must be notarized for validity.
The newly established Usury Laws in Costa Rica, limit the amount of interest any creditor can expect. To minimize risk, assessing the securities involved in money lending is essential. Mortgages and liens are known as “royalty” rights and are ways to secure your loan. Money lending can take the form of mortgage loans to assist buyers with their real estate property purchases. You can expect a higher return rate with car lending and personal loans, but a higher return involves higher risk.
How can you assess the debtor´s personal risk when financing in Costa Rica?
Private money lending in Costa Rica is all about risk assessment. The first step is to assess the debtor himself. Research must be performed with the different loan bureaus to see if he has failed to comply with loan payments. His loan history provides a clue as to whether or not he behaves responsibly. This is a sort of “debtor due diligence”. The credit bureaus will inform of any judicial procedures due to loan agreement breaches. But that is not enough. It´s also essential to request proper proof of income, such as statements from Costa Rican banks and other information to determine the debtor´s credit score.
What other sorts of due diligence should be performed for risk assesment?
After you determine if the prospective debtor´s credit score, it´s essential to perform other types of financial due diligence. For home financing, you will want to perform real estate due diligence. You will want to have the legal due diligence performed by our legal team, to assess any legal issues with the home in Costa Rica, that you wish to finance. Going to see the actual house, or property, is also essential, in order to spot any issues with the property itself.
Can you provide details on the different guarantees used for private money lending in Costa Rica?
You have several financing options if you wish to do private money lending in Costa Rica. The debtor can secure the loan with Personal or “Real” Guarantees. Personal guarantees are those where no individual asset is used to guarantee the loan. All of the debtor´s patrimony is the guarantee. Usually, personal loan agreements are guaranteed with promissory notes or letters of exchange.
On the contrary, Real Guarantees are those that are guaranteed by a particular asset, such as a home in Costa Rica, a private real estate property, or a vehicle. Real estate and home financing use mortgages, while mobile assets such as cars use a lien, or “prenda” in Spanish.
What are the differences between a mortgage loan and a lien mobile loan?
Both mortgages and liens are rights over somebody else´s ownership of real property. Allow me to explain. A person can own real estate property and mortgage it to a money lender through a loan structure. As a notary public, I will register the mortgage, which becomes an “encumbrance” over the asset. The same example applies to car loans, guaranteed with vehicle liens. As a creditor, you get a right over the debtor´s ownership rights – be it a mortgage (for properties) or a lien (for cars). In re aliena is Latin and translates to “a right in someone else´s property”.
The statute of limitations of these loans vary. However, 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 mobile asset can be moved from location to location without losing its essence. Mobility loans fall on vehicles, boats, and animals because they are mobile assets. It´s pretty standard in Costa Rica to guarantee loans with cars. Therefore, a lien is an encumbrance on the vehicle to secure the loan. To conclude, a mortgage is to a property what 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 if it´s transfered to 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.
What is the pure execution civil process?
This civil process is the judicial route for debt recovery regarding real guarantees. You can only access this civil action if the loan was guaranteed with a mortgage or a pledge. You should know that a mortgage is to a property, as a pledge is to a vehicle.
Why is it called a pure execution process?
This civil action is called a pure execution because the creditor does not need to demonstrate his right to the judge as a creditor of the loan. The registered mortgage or pledge opens the way. This process is reserved for a creditor with a registered mortgage or pledge in the Public Registry. Once the lawsuit is filed, the Judge will immediately set a date for auctioning the property or vehicle. After that, the debtor has five days to file a minimal array of defenses: the opposition can be filed because he has already paid the debt (a payment defense exception) or a statute of limitations defense.
How does the auction help with debt collection?
If you have a first-degree mortgage or pledge, you have a privileged position over personal creditors regarding the asset. When the loan is executed, the Judge sets a date for a public auction. An edict is published so that people know about it. The auction will occur in Court, and the higher bidder will become the asset owner. The deposited money will pay your attorney fees, loan interest, and the principal loan amount. If nobody goes to the auction, you can request that the property be allotted to you.
As a debtor, can I pay the loan even if the loan execution process is ongoing?
Yes. As the debtor, you can pay for the loan at any moment, and with it, you can stop the property auction. You can do this by making a deposit in the court´s bank account. However, keep in mind that you must deposit enough to cover the creditor´s attorney fees, interest and principal.
Is there any way to speed up debt collection by avoiding the auction?
Yes and no. You can settle with your debtor, who gives you the mortgaged property or pledged vehicle in payment of the loan. In Spanish, this is called a “dación de pago.” This liberates the debtor completely. Another way to speed things up is through trusts. However, due process must always be observed, and the public auction must always happen. Therefore, any clause that eliminates the need for an auction is null and void. These are called “confiscation clauses” or “pactos comisorios” and are prohibited by law in Costa Rica.
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 money lending 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 private money lending in Costa Rica?
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.