In this blog post we will explore everything related to how foreclosed homes are brought to auction, the foreclosure process, how they are advertised, and whether there are deals to be had or not.
What is the definition of a foreclosed property in Costa Rica?
As in most countries, a foreclosed property in Costa Rica is a property that has been repossessed by a bank, or other lending institution, due to the buyer being in default. Lenders, such as mortgage lenders and banks, follow a complex series of procedures related to the Costa Rica foreclosure process to get the property to the auction stage.
What is the foreclosure process?
The Spanish word for mortgage is "hipoteca". If the buyer fails to pay their loan, the lender will initiate the foreclosure process. Here is a basic overview of the steps to get the property to public auction stage:
The plaintiff files a certification of the property
The plaintiff (lender) files a certification with the court naming all parties that have a claim on the property. It will also indicate which creditors have priority in recovery of the capital.
The court reviews the documents
The court reviews all the documentation and determines when each contract expires. After the court has reviewed all the documents it confirms which party has priority in recovery of the debt. The court will then issue a resolution to begin the auction process.
The legal process to reach the auction stage begins
Once the resolution to begin the auction process is issued by the court the lawyers for the plaintiff perform a number of other legal procedures in order to get from the court order to the actual auction. These include determining the minimum price the property will be auctioned for (sometimes the total of the loan amount stated in the mortgage or at a new appraised amount).
The foreclosure process can take a very long time. We're talking many months or even years depending on the situation. If you have many claimants there could be a battle over which one should have first shot at the available assets.
The auction begins
Once the plaintiff has provided all the necessary documents they make a request to the court to begin the auction. Public notice is given through established legal channels and the bidding begins. If no one bids within a set period of time the price is reduced and the bidding process continues.
Once the property is sold there are various expenses, which are usually charged to the debtor unless there is some legal issue blocking such.
How are foreclosed homes advertised?
Foreclosures are advertised in many ways. The first notification is through the official Judicial Bulletin (AKA "La Gaceta"). The notification occurs two times and must be published at least 8 days before the auction is set to occur.
Occasionally banks will promote the property to be auctioned to their customers and the public via their website, social media channels, or email list.
On rare occasions real estate companies in Costa Rica will also list the property if the bank requests it (for example if a property is not sold through the normal auction process).
The reason realtors rarely list such properties is that the banks offer very low commission rates and often the property is listed at a price above market value - not the kind of house we would recommend a client to purchase.
Is a foreclosed home cheaper than other homes?
Not always. Many banks try to get a higher (perhaps a more current appraisal), value for the house, condo or plot of land being offered rather than just the original mortgage amount. If they decide to sell a home below market value it often goes to persons or institutions they are familiar with (let's call these "insiders").
If you are fortunate enough to become good friends with a bank manager, with numerous mortgages on his books, you may get a good bargain!
Aside from the complications of dealing with banks, many foreclosed homes in Costa Rica are located in remote locations. Such properties are very difficult to sell. If you have some sort of emergency requiring you to liquidate your assets you may be waiting years to find a buyer unless you sell the property at a fire sale price.
How to finance a foreclosed property in Costa Rica
Often the bank will offer attractive rates to buyers on foreclosed properties for local buyers. It is very unusual for a bank to offer financing to foreigner buyers unless they have some serious local guarantees in place (such as another local property or a cash guarantee).
There are several creative ways to finance property in Costa Rica. Be sure to read our primer on this subject: "How to finance a property in Costa Rica".
Other ways to get deals on "almost" foreclosed properties
As mentioned above, bank owned properties often only represent a good deal if you have an inside track to the decision makers at the bank. A great alternative is to contact a realtor with a list of distressed properties for sale in prime locations.
Realtors with a significant number of listings often have several "almost" foreclosed homes on their books. Some of these are located in private communities with pools, golf courses, and ocean views, selling below market value. A seller having trouble paying their mortgage will sometimes offer homes or land at as the sellers seek to keep from defaulting on their loans.
Most homes are built to U.S. or Canadian standards and sold in U.S. dollars at a fixed term.
How to get started
There are many real estate agents in Costa Rica. The most important step is to choose an experienced one and define your exact requirements. The agent should be a long time resident of Costa Rica and hold the appropriate real estate licenses.
A reputable agent won't just show you any listing and try to sell you whatever falls within your budget - they will perform a detailed search and give you sound advice on the best places to buy based on your personal needs. They will also keep in mind resale value and how long it would take you sell the property if you had an urgent need to liquidate.
The agent will also help you get a current, true appraised value for the property. They will help you find vetted local services such as real estate attorneys and local tax specialists.
Be sure to read our blog "How to choose a qualified real estate agent".
Very important! A house or plot of land located in the right location will almost always increase in value. We've all heard the the three most important words in real estate: location, location, location.
How can I find more information?
If you have more questions about buying bank owned properties or distressed properties give us a call. One of our highly experienced agents will be happy to help.
Another way to get to know more about real estate opportunities in Costa Rica is to read a few of our detailed blogs about living and buying real estate in Costa Rica:
- How to Choose a Real Estate Agent
- Should you Retire in Costa Rica?
- Facts about Buying Property in Costa Rica
- What's it like to Live in Costa Rica?
- Home Financing for Foreigners in Costa Rica
- What is the Cost of Living in Costa Rica?
- What ROI to Expect on your Real Estate Purchase
Disclaimer: This article should not be considered legal advice. The content of this article is based on our many years experience in real estate, which includes working with many attorneys specializing in this field. If you plan to purchase a foreclosed property you should seek the counsel of a qualified attorney. If you need help finding an attorney, we can help.