Why do we use escrow when you purchase real estate in Costa Rica, and how does it work? Some foreign buyers think that this works the same as it does in North America, but it does not!
So, we are here to help you to learn how escrow accounts in Costa Rica function ….
Why Escrow?
There are several good reasons to use escrow when purchasing a property, especially in a foreign country:
- By using escrow, the buyer only has to present all the documents required by law one time. The escrow company shares the documents with the buyer’s lawyer and the real estate company. It’s a one-stop thing. You can also use the same documents to open a bank account!
- The buyer’s earnest money deposit is tied up by the “Sales Purchase Agreement” and is held by the escrow company until closing is completed.
- All the funds will be available at closing, after legal team confirms closing of sale.
- The seller can give the wire instructions to the escrow company well in advance, and have the funds sent anywhere in the world you want.
Therefore, the use of escrow takes the stress out of the purchase / sale for all parties!
Here are the laws that we all need to comply with, to complete a real estate purchase, and the reasons for using the escrow process:
Money Laundering Law
Law # 7786, referred to as the “Drug, Money Laundering and Financing of Terrorism Law” (Ley sobre estupefacientes, sustancias psicotrópicas, drogas de uso no autorizado, actividades conexas legitimación de capitales y financiamientos al terrorismo) now regulates the movements of large amounts of money.
This is controlled by “SUGEF”, the Financial Institution Superintendency of Costa Rica. These financial controls are worldwide and controlled by The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.
Origin of funds Law
Law # 7786 obliges your banker, your lawyer, and your real estate broker, to request proof of the origin of funds. If you have nothing to hide, you have nothing to fear. SUGEF only wants to know where you acquired the money that you are using to make a property purchase in Costa Rica.
You can prove this by supplying the last 6 months of bank statements, a copy of a property sale in your own country, income tax statements, or other proof.
Earnest Money
Once you have agreed with the seller on a sales price, you’ll probably want to take the property off the market until closing. That’s done by making an “earnest money deposit”. You don’t want to give this earnest money deposit directly to the sellers! Escrow is the perfect and safe solution for this. Your attorney will be able to describe what will happen to the earnest money deposit in the “sales purchase agreement”. That way, your money is safe until closing.
Before you sign the “Sales Purchase Agreement” though, ask your real estate agent for escrow company options. Contact one of them and complete all the requirements before you wire any money. Setting up your escrow account may take up to 3 weeks, so allow for that time frame. Once set up, the escrow company will give you the wire transfer information.
If you purchase a property through our office, the agent will assist you as much as possible with the escrow company, legal team, etc. For any questions, be sure to contact us!
Questions about this article or buying costa rica real estate? Feel free to contact us!
