Why escrow deposits make sense when purchasing a property
“Your funds haven’t arrived yet, sir. Please try again tomorrow,” said the bank manager to my client.
The next day, we went in person and the answer was, “Sir, your funds were frozen by SUGEV and it might take a few days until they clear. Unfortunately, we cannot tell for how long.”
When you send more than $10,000 to your bank account in Costa Rica, be ready to have a dialogue like this with your bank manager. When you want to purchase a property in Costa Rica and the funds to pay for that property come from outside the country, your funds will be frozen for sure. The reason for the Costa Rican government’s control over the arrival of new funds to bank accounts is to monitor money laundering and drug trafficking.
But don’t despair. It is very easy to get around it, if you are not a money launderer or drug trafficker. You only need to hire an attorney who uses an escrow company with a SUGEF approved escrow account or “fideicomiso” as it is called in Spanish. Escrow accounts are audited by SUGEF, so not every attorney holds an escrow account because of the red tape that goes with it.
There are certain policies and procedures to be followed when using escrow. In addition, SUGEF has implemented financial disclosure requirements for all escrow companies that operate in Costa Rica.
Before you plan to wire the money, the escrow company will send you a form called “know your customer,” where you will be asked to provide proof of the origin (source) of funds, which will be wired to the escrow account. SUGEF is just looking for a paper trail, so normally it is sufficient to just provide a bank or brokerage statement that demonstrates where the funds come from.
You will probably want to know how much the escrow services are going to cost you, so that is something you want to ask before using the services. Some charge you a percentage of the funds and others charge a fixed fee. Real estate attorneys with their own escrow company will probably charge you a fixed fee if you use their office for the purchase/sale of the property.
When you are moving from another country and buying property in Costa Rica, you might not have legal residency yet and without it, it will be difficult to open a bank account in your name. If you open one in the name of the same corporation that will own the property you are purchasing, it might be a lot easier. But, when wiring over $10,000 into that account, you will still have the problem that SUGEF will require proof of origin of the funds. You don’t want to miss your closing date because SUGEF is taking forever to allow the release of those funds. They will take a lot more time to do so from a personal or a company bank account than from an escrow account.
Costa Ricans customarily hand over the earnest money of their real estate purchase to the seller, which is a habit I do not recommend. If you find an attorney’s office that works with an escrow company, you can deposit the earnest money into escrow, describe the purchase well in a purchase–sale agreement and your money will be in safe hands until closing.
Ivo Henfling is a Dutch national, resident in Costa Rica since 1980 and a Costa Rica real estate broker for over 20 years. He is the founder of GoDutch Realty, with offices in several locations in the Central Valley, including Escazú, Atenas, Cariari and Grecia.
You may be interested
Adaptive surfing, part II: The story of Dean BushbyEllen Zoe Golden - May 22, 2018
A three-part look at adaptive surfing in Costa Rica. Read Part I here to learn how a Central Pacific coach is…
Costa Rica launches Pride Connection networkElizabeth Lang - May 22, 2018
As Costa Rica continues to grapple with the disagreements about marriage equality and gender identity that dominated the second round…
Costa Rica at a glance: top news from the past weekThe Tico Times - May 21, 2018
Newly inaugurated Costa Rican President Carlos Alvarado is closing in on two weeks on the job. Here are some of…