Bought! Don't own?

Article from International Living, a newsletter for 25 years, now an online publication. Background on purchasing property you may end up not owning. Heads up. Worthwhile for Bahia and Brazil, too.......

An essential fluid subject to take a close look at. Especially if it's your money.

More on (really) buying real estate on the Peninsula, later....


Know More Than the Seller

International Living Postcards--Saturday Edition
http://www.internationalliving.com
Saturday, Jan. 6, 2007

You can't own land that belongs to someone else, right? Yes...and no.

As an international real estate investor you will, from time to time, come across the opportunity to buy land without holding fee simple title. This process has more than one name and the exact details differ depending on the market, but basically it comes down to you having use of the land until such time as the rightful owner (usually the government) takes it back. The critical point is whether this arrangement is made by agreement or by accident.

First, a heads-up: If the idea of not holding fee simple title doesn't sit right with you, you don't need to read any further. Although I'm now comfortable with this method of purchase--under certain strict conditions--I've had reservations in the past. There exist enough real estate opportunities with fee simple title around the world for you not to have to investigate alternatives.

However, if you plan to operate in foreign markets, you need to know what you might come up against.

In Panama, "rights of possession" is possession of a property with the expectation that title may be obtained at some point in the future. You should not buy this type of land. But that doesn't mean there aren't plenty of people willing to sell it to you. Although they may offer vague guarantees and implied compliance with the law, ignore them all. Know the facts.

It used to be the case that you could register rights of possession land, but that is no longer true.

Rights of possession land is not transferable (ownership of the land can be "transferred" if it's held by a corporation, but that is merely a loophole, as it's ownership of the corporation, not the land, that is being transferred.)

Private land can be converted from rights of possession to fee simple title by a court, but this takes 15 years and is basically an instrument for accruing adverse possession rights to squatters.

Rights of possession on islands cannot be converted to fee simple title. This is due to a change in the Panamanian constitution disallowing the private ownership of islands. However some islands--including the Pearl Island of Contadora--were privately owned prior to the constitution change. These islands can have titled land.

Unused public land in some agricultural areas (excluding islands or certain coastal areas) can be converted from rights of possession to fee simple title by the Agrarian Reform or Ministry of Economy (depending on where the land is located) upon paying the purchase price to the government.

In Nicaragua, concession land is an agreement by the government to lease you the land for a specified time. Leased land is not uncommon elsewhere in the world, including the U.K., New Zealand, and Ireland.

It is possible to get a perpetual or long-term lease and a title insurance policy on the leasehold.

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Holding land this way can work to your advantage. For example, you pay no property taxes on leasehold land in Nicaragua (but you may have to pay concession fees on an annual basis). On the other hand, when it comes time to resell, future buyers may not like the idea of leased land.

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The main risk, of course, is that the government might revoke the lease. A title insurance policy will help protect against the risk of the government changing its mind down the road...though it won't eliminate it entirely. Should the government come back at some point and say the lease wasn't valid in the first place, the title insurance company (such as First American, contact tmurdock@firstam.com) would back you up. Your remaining risk would be that the government might decide someday to cancel the lease altogether. In this case, your title insurance policy wouldn't help you. However, this is unlikely, as many rich Nicaraguans hold leases on beachfront property along Nicaragua's coast.

In Thailand, although foreigners can't own land freehold, some of the ways you can hold land are through a long-term lease or through usufruct interest (like rights of possession).

Lief Simon
Real Estate Editor, International Living