Wednesday, December 19, 2007

BUYING PROPERTY IN COSTA RICA


Costa Rica Property Scam

Every few years, Costa Rica floats to the top of the offshore charts and then falls back down again. Well, those of you who don’t already know it, Costa Rica is again all the rage. We have had countless calls from folks who are interested in setting up structures in Costa Rica for tax and other purposes, and who claim to have friends who have been successful with these structures. They all want to set up a Costa Rica structure to avoid taxes and use the proceeds to purchase Costa Rica property -- and that’s where the scam comes in.

No doubt, Costa Rica is a beautiful place which abounds in opportunities and it appears to be one of the leading jurisdictions for U.S. expatriates to settle down in. Unfortunately, too many of these expatriates are expatriates because they were caught in the U.S. committing some sort of scam or fraud, or committing tax evasion. And so, it is a notoriously corrupt little country, with at least as many scammers as Belize, Antigua and Nevis.

So, faithful readers, let me chronicle here the infamous Costa Rica real property scam, a scam which seems to occur most often in Costa Rica, but happens with varying frequency in other countries throughout Central America.
This starts with successful American businessmen who think they know it all. From their point of view, it is pretty simple -- form a Costa Rica company with bearer shares and deposit a lot of money with an offshore bank. Then, use the Costa Rica company to go buy a beautiful piece of Costa Rica real estate at bargain basement prices. At retirement, you simply cash out of the United States and go to Costa Rica to live happily ever after.

Unfortunately, in the words of fellow Oklahoman the late Will Rogers: "It ain’t what you know, it’s what you know that ain’t."
Here, the ain’t is adverse possession law and squatters rights. Most of the visiting Americans blindly assume that Costa Rica has adverse possession laws which are roughly similar to those of U.S. states, which typically require 10 years or longer to establish any meaningful rights. Unfortunately, it ain’t so and directly to the contrary Costa Rica has elaborate laws which give squatters immediate and immovable rights, and there is simply no way to get them off the property once they are on, except to pay them to agree to move off.

Let’s look at this from the viewpoint of the Costa Rica real estate salesman, which is radically different. For him, it’s easy: Simply get a bunch of wealthy Gringos to come to Costa Rica. Show them some beautiful (and vacant) Costa Rica property, and get them to pay you big dollars for it. Then, as soon as they get back on the airplane, move some squatters onto the land. When the Gringos show back up again, they own beautiful property that they can’t use because of the squatters.

Thus, the Costa Rica salesman approaches the Gringos and tells them that it is unfortunate that the squatters showed up on the property, but there is nothing either he or the courts can do to get them off. However, out of the kindness of his heart he will purchase the land back at some nominal sum, say 10% (which the Gringos take because the land completely worthless with the squatters on it). Then, the salesman moves the squatters off the land, once again leaving it vacant, and repeats the process. The local economy and the salesman are much enriched by this transaction, and the Gringos go back the States wishing to hell that they’d never heard of Costa Rica.

This scam has been around for as long as we can remember, and fades in and out as people remember or forget it and others get the word. It hasn’t made headlines anywhere lately, so it is back to booming again. Doubtless, there are a bunch of folks back here in the U.S. who are dreaming of finally retiring to their new property in Costa Rica. Unfortunately, for many these dreams will be nightmares.

This is big business in economically-distressed Costa Rica, just like the Nigerian Central Bank letter is the 3rd biggest industry in Nigeria. Be careful not to be a part of this particular international financial aid program.
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