Buying Real Estate in Nicaragua

MombachoIf you’re planning to invest in real estate in Nicaragua it is important to use common sense. There is an old saying, “If it seems too good to be true, it probably is.” Caveat Emptor, “buyer beware”, applies in all real estate purchases the world over, but is especially applicable when buying property in Nicaragua.

Do your due diligence…

Nicaragua employs a civil law system. This differs from the common law system of the United States, Canada and European nations. Civil law is based solely on statutes, so there’s no facility to reach a compromise resolution should problems arise.

The official language for all real estate transactions in Nicaragua is Spanish. However, it is possible for an English contract to be legally binding. The English language contract is only legally binding though if it is presented to the court. The contract will have to be translated into Spanish, after which a judge will interpret the contract, and verify the signatures. The judge’s interpretation of the contract will be binding, even if that interpretation is not exactly how the buyer and/or seller understood the transaction it to be.

Hotel de Sonrisas, Granada, Nicaragua

Court proceeding in Nicaragua take time… months, sometimes years. So you do not want to have to depend on judicial arbitration to resolve any issues that arise while purchasing a property. Therefore it’s imperative to have all the i’s dotted and the t’s crossed. Half of the clients Nica Investments serves are purchasers who seek assistance in sorting out a real estate purchase that has gone bad.

Following are some tips to help with a purchaser’s due diligence and to avoid problems:

  • Hire An Attorney – Have your own attorney capable of speaking your language. Your lawyer will look out for your interests. Do not depend on an attorney hired by the seller or the seller’s agent.
  • Conduct A Thorough Title Search – Be sure to carefully review the chain of title to the land being purchased. The chain of title to be reviewed must trace back at least 30 years. If the property being purchased is located on any body of water, even a river, the full chain of title dating back to before 1917 is required.
  • Agreement To Purchase Terms – Be sure the agreement states the purchaser will receive a free and clear title without any encumbrances, including mortgages. There must also be a clause stating that the purchaser will be released from any purchase obligation if there is a serious issue with the title, and that any deposit will be returned.
  • Make Sure the Property is Properly Surveyed – Assure that the survey marks all the corners of the lot. Also, be sure the survey is an approved, official (cadastral) survey, which will bear the official stamp and a signature.
  • Escrow and Closing Process – In January 2011, the Nicaraguan National Assembly approved a new Trust Law. Unfortunately the regulations have not been issued yet. Local companies are already offering escrow services but it isn’t wise to use them until the regulations to the Trust Law are approved. If you do you may find you have lost your money. Nica Investments prefers to deal with US banks and take advantage of their escrow services. On rare occasions this insistence has resulted in a seller refusing to cooperate, but most legitimate sellers are happy to work with US banks provided the purchaser is covering any escrow fees and transfer costs.

Securing Your Interest In Nicaragua Real Estate…

It is recommended that all real estate transactions be registered in the Public Registry. This include a purchase, lease, mortgage, possession right or any other transactions. Nicaraguan law isn’t clear as to whether the Public Registry serves as a means to establish property rights or serves merely as a means of publishing an existing right, but it is advisable that any claim to a property be registered. That said, the Nicaraguan legal system does recognize the registration of a title as establishment of property rights, so title must be properly registered with the court.

Different government agencies involved in the registration process in Nicaragua constantly change, while existing agencies add new requirements. These changes to the registration process make the registration of a property title challenging, so it is recommended that purchasers employ the services of a competent lawyer or real estate acquisition consultant like Nica Investments.

Important Differences In Real Estate Transactions…

Worth noting is the fact that “real estate agents” in Nicaragua are not the same as their counterparts in the USA, Canada or Europe. There are no “real estate brokerages” in Nicaragua as foreigners would understand them to be. Nor are there trained, licensed and monitored “real estate agents”. In fact, there is no Nicaragua equivalent to “real estate boards”, nor is there anything like a “Multiple Listing Service” (MLS) that monitors and tracks real estate transactions. To find comparable property values one has to search titles. Unfortunately this can be a futile effort because often the selling price is reduced so the buyer will pay less transfer tax, or the price is inflated to secure more financing from an institutional lender.

Only owners of a property sell their real estate. Anyone presenting themselves as the seller’s agent is generally a middle man, with the exception of estate lawyers. In most cases the seller has demanded a net amount they want and these middle men will add on a profit margin for themselves. The additional amount is often significant, far more than the few percent USA, Canadian and European realtors could hope to receive. This is in part due to the need to have a negotiating cushion, but of course greed is a factor too.

There are rare occasions when an agent for the seller is granted an exclusive right to sell a property on behalf of the owner. If you’re told such an agreement exists, demand to see it. I’ve yet to be shown anything granting exclusivity other than by lawyers in possession of a Power of Attorney. However, I’m not saying that there may not be exclusive agreements a seller and an agent entered into… just that I have never seen one. If no exclusivity exists it’s possible the same property will be advertised by other agents for more or less money, so research is recommended.

All real estate transactions must be carried out through a Public Deed (known as an Escritura Pública), to be legally binding in Nicaragua. The Public Deed must be written in Spanish and it is the responsibility of the purchaser to retain a translator if he or she does not understand the language.

When purchasing a property the buyer must make sure that the public deed transfers possession and ownership, that the size of the property is verified with a surveyor’s map, and bounds are detailed in the title document, and it’s approved by the Cadastral Office. The purchaser must physically inspect the property to ensure that it’s in accordance with the topographers’ map and the property description on the Public Deed.

The purchaser is advised to insist on vacant tenancy. If anyone is living on land, domiciled inside a main or out building, or a tenant in a residential or commercial property, insist that the seller have them vacate. It can be a lengthy and costly undertaking to remove both legal tenants and squatters. No matter what relationship the seller says the occupant has, insist that the seller will provide vacant tenancy, and that includes the seller if it’s the seller’s home being offered for sale. I personally know of two cases where the seller was paid the full amount of the purchase then refused to vacate the property. These were not transactions I was involved in, but I know of the buyers’ trials and tribulations.

Special Laws, Rules And Regulations…

Depending on the type or origin of property being purchased or leased, special regulations may affect properties rights.

Coastal Law

The 2009 Coastal Law applies to property bordering beaches, rivers, lagoons or lakes, or any other body of water. The Coastal Law regulates private and public domain, coastal access, as well as the use and development of properties located in these areas.

According to the law, the open area between low and hide tide, plus 50 meters from the high tide mark is open to public use. Regulations established in this act may also affect ownership, use, construction, lease, and possession rights beyond the 50 meter boundary with such properties. Real estate transactions involving waterfront properties require a thorough due diligence that traces back the title to before 1917, or to when the title originated.

No Objection Letter (Carta de No Objeción)

The Attorney General’s Office requires a No Objection Letter to register real estate that historically belonged to the Nicaraguan state, or are coastal properties, properties previously owned by cooperatives, titles that are based on a Supplementary Title, and properties whose titles were obtained through Laws 85, 86 and 88.

Registration of titles of properties that fall under one of these categories is not possible without a No Objection Letter. Once you initiate the registration process of one of these properties, the Cadastral Office will request this letter. Once registration goes through the Cadastral Office, the Public Registry will also request the No Objection Letter.

The process to obtain a No Objection Letter can vary from time to time. It is recommended a purchaser visit the Attorney General’s webpage at www.pgr.gob.ni for the latest requirements. It is also recommended that the services of an attorney or competent real estate acquisition consultant be retained. Failure to obtain a No Objection Letter will result in a denial of the registration of a title. The best approach is to insist that the seller of a property falling under a category requiring a No Objection Letter provides it, or an official document stating a No Objection Letter is not required.

Border Law

The 2010 Border Law prohibits foreign ownership of some properties located along the border. It is necessary to confirm the status of any property within close proximity of any of Nicaragua’s land borders. A good rule of thumb is to assume all properties within ten (10) kilometers of a border fall within the 2010 Border Law restrictions.

Indigenous Community Properties

Properties that belong to indigenous communities fall under special regulations and ownership is not transferable. This is important to know because there are people actively trying to sell land belonging to indigenous communities. It is possible to acquire concessions or lease rights, but it is not recommended to do so because any disputes over rights that may arise are difficult to settle. Environmental use and development laws also apply to a vast majority of properties owned by indigenous communities. Many of these properties cannot be used to build on. Nica Investments policy is to avoid properties belonging to indigenous communities.

Conclusion

What has been shared here is current as far as the rules, regulations and laws pertaining to real estate purchases in Nicaragua as of January 1, 2017. The one constant in Nicaragua real estate investing though is that nothing is constant. Rules and regulations change, and occasionally new laws are passed or existing laws modified. It is strongly advised that anyone looking to invest in Nicaragua real estate engage Nica Investments as their acquisition consultant and/or retain the services of a reputable and competent Nicaraguan attorney. Doing so will assure your property buying experience goes smoothly and disappointment is avoided.

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