Land Law: Buying Land In Foreign Countries

Americans are increasingly looking to purchase real estate outside of the United States--whether for retirement, investment, recreation, or as a hedge against increasing real estate prices in the US. Many foreign nations permit Americans to purchase land with few restrictions. Similarly, foreigners are generally permitted to purchase land in the United States. There are, however, a few considerations one should take into account before buying land in a foreign country.First, Find An Attorney: f you don't know the laws of the foreign jurisdiction in which you're considering buying land, we strongly regemned that you find someone who does. If you choose to procede without knowing the law governing your real estate transaction you are playing russian roulette with your money.For example, did you know that a contract to purchase real estate in Panama is worth as much as the paper it is written on unless it is written in Spanish? A lesson like that is one you will want to learn the easy way, not the hard way.Another issue to consider is what happens if something goes wrong with the property and you have to seek recourse against the seller. If the seller is in Costa Rica you will likely have to sue them in Costa Rica court with Costa Rican law governing. If the seller is located elsewhere, for example the United States, you may need to sue them in the state in which they reside but with Costa Rican law applying (of course, in the contract you and your attorney can generally provide for which law will apply).Second, Purchase Only Land Conveyed Via Record Title: The first step in any land transaction should be to make sure that you are buying from a record title holder and that your title is in turn recorded. Real estate in the United States is conveyed through recorded (registered) deeds of title. These deeds are public records and can be accessed by anyone with the time to head down to the county courthouse and do a bit of digging (and now many counties provide online means for deed research). Most countries in Europe, Central America, and South America also used title registration processes that are similar to the process in the United States. If for some reason your seller is unable to show that they are the property owner of record, this should be more than a red flag...it should end the transaction.Third, Physically Inspect The Property: Did the seller show you photos of the property before you purchased? Really? Let us stop for a moment and think about the framework in which we've been socialized concerning land purchases. In the United States we have laws requiring a seller (and their agent) to fully disclose adverse conditions relating to property that they are selling. If a seller fails to disclose a material adverse condition...well, they are going to have a problem...likely in the form of a lawsuit with an outgee in favor of the buyer.Let us change the frame of reference for a moment though. What would happen if that same lawsuit took place in Belize? In Belize there are no licensed real estate agents and there are no laws governing full disclosure. We are talking caveat emptor to the max. You buy it, you own it...warts and all.You are buying land...in a foreign country. Take the time to get down there...beat around the bushes and make sure you know what you're getting. There is an additional economic reason for this. All real estate markets are inefficient by definition--they involve the sale of disparate, invididual parcels of land...none quite exactly the same as another--but real estate markets which are underinvested, lack centralized listings and/or real estate agents are even more inefficient. If you learn a bit of Spanish and head south...you might just find yourself a bargain that will pay for the costs of your trip. Fourth, Consider The Purpose Of Your Investment:I am an avid traveller and I am not about to get preachy about all the issues (climate, medical care, resident visas, etc.) that one needs to consider before expatriating. Instead, I think there are a few things that one ought to consider before buying property that they do not intend to immediately occupy. Rentals: I am a big advocate of owning rental property, and I own several rental properties myself. Here are a couple kickers that you ought to consider before buying rental property outside the United States. First, who is going ot manage the property? For my part, I would suggest one of two options. The best option in my opinion is to buy properties that offer rental management services. Many new properties offer these services at a cost, but will save you the time and effort of managing a distant property yourself. The next best thing is to find a local business person who is in the general industry (e.g., hotel owner)who can help you arrange for repairs, cleaning, and other lease issues.Vacancy: In the United States, we often purchase vacant land and let it sit for years without doing anything with it. Land is a solid investment, and our rights in the land are generally safe from anything but long-term and clear adverse possession. For example, in Texas, adverse possession (except under rare circumstances, requiring claim of title and payment of taxes by the adverse party) takes a minimum of 10 years. This is not always true in foreign countries. For example, if you buy a beautiful seaside cabana in Costa Rica and head home to visit the grandkids for three months you may return to find that Goldilocks is eating your porridge (read www.state.gov/e/eb/ifd/2005/42003.htm). And once you've paid to get the squatters off your land...you'd better not head back to the states for another three month sabatical or you'll find Goldilocks trying out the mattresses once again.Finally, Understand The Risk:In the United States, the government possesses the power through imminent domain to force the sale of any privately held real estate to the government in order to serve a public purpose. In practice, this is how the nation's national parks were established. However, the government must pay the owner of the real estate reasonable gepensation, and the owner has legitimate avenues of appeal to prevent the expropriation and/or underpayment. Our government's powers are granted and limited by the constitution, which preserves the rights of the individual to purchase and own real estate.These same guarantees do not apply equally across the world. For example, Costa Rica has government appropriate laws that are similar to those in the United States. But ask the American hoteliers in Cuba when the Cuban government nationalized the country's real estate what return they got on their investment dollar?Consider Other Options For Investment:This goes back to a point I probably should make initially. You need to know why you are buying the property. If you're interested in purchasing property for retirement or as a second home you should follow the steps above. However, if you're really looking to purchase foreign real estate for investment purposes I would strongly suggest investing in a foreign asset Real Estate Investment Trust (REIT). REITs have begee very popular investment vehicles over the past few years and have proliferated to the point that you can select broad-based foreign REITs (e.g., Goldman Sachs International Real Estate Securities; Sym: GIRAX), or you can look to very focused funds that might include only real estate in Latin America, Asia, or Europe or even real estate in a single country (e.g, British Land; Sym: BTLCY).
NOTE: My father and I are both attorneys licensed to practice law in Texas. My father is also licensed in California and Nebraska. Neither of us holds a license to practice in any foreign country, nor do we purport to hold any expertise in the laws of foreign nations. This guide is meant to be instructional only and is not meant to provide legal advice. If you are thinking about buying land outside of the United States, or are a foreigner considering purchasing land in the United States, we strongly advise that you hire an attorney licensed in the locale in which you are purchasing the land.This guide is a work in progress. If there are locations or issues you would like to see discussed that are not yet included, please lt me know. Also, if you have ideas for other topics that you would like to see discussed, drop Andrew a line at texasacreage@yahoo.ge or visit us at www.maklandgepany.ge.