Costa Rica’s Legislative Assembly enacted a new policy for the collection of secured and unsecured, defaulted debts on the 16th of October 2007. It was a much needed change as there were many loopholes in past legislation which allowed delays in the foreclosure and collection processes. Credit grantors essentially had no recourse, taking the grantor anywhere from 8 months to 2 years to foreclose on a property. Only paying the debt in full will prevent a foreclosure with the new legislation.
The mechanism is amazingly simple. Today three auction dates are set up front for each property in foreclosure. In the past, the second and third auction dates were set only after the outcome of the first auction proceeding. Since with past legislation practically anything could stop the foreclosure process, setting a new date and getting the process started took months. Today’s legislation has cut this time to a maximum of 90 days as nothing, other than payment in full can stop foreclosure proceedings, the three dates are set up front, ten-business days apart.
Costa Rica Foreclosure process is as follows:
All participants on the day of auction must present a certified check representing between 30% to 50% of the opening bid prior to entering the court room; without it they cannot participate in the auction. The starting bid is the total of the original note. It is not established upon current market value. This is one of the foreclosure wonders of Costa Rica.
If at this first auction there is a successful bidder, they have three business days to pay the remaining balance or the auction is forfeited and their down payment is disbursed; one third to pay down the balance of lien and the other two thirds to the court. This is never returned to the forfeiting bidder. The foreclosure proceeds to the second date but 100% of the remaining balance must be presented in a certified check in order to enter. Usually, if there were no bidders present for the first auction, the opening price for the second auction would begin at 25% less than the initial bid. In essence, 75% of lien amount and a certified check representing 50% of that figure is needed to participate. By the third and last auction date, a certified check for the full amount of the bid must be presented as this final auction begins at 25% of the initial lien amount.
Another notable amendment in the policy has provided for court appointed representatives, specialists in foreclosure proceedings, to conduct the auctions. The process is no longer a judge’s dominion as in the past.
Due to the agility of the new legislation, there has been a thirty percent increase in foreclosures since May 1, 2008, when the law went into effect. Mortgage grantors waited for passage of this new legislation to begin foreclosure proceedings. Government entities are also using the new legislation to their advantage to collect on real property tax payments in default, as are local banks. Four years ago, banks began issuing millions of dollars worth of credit to their cardholders, and as in the U S, many card holders have defaulted. Banks are now attaching the debt as a lien on cardholders’ real estate - and foreclosing.
Understand that all mortgages in Costa Rica carry a variable rate: there are no fixed rate mortgages. Many of the mortgages issued were in US Dollars when it was more economical to borrow dollars verses Colones. The prime rate in the country has increase to the point that the amount of money initially borrowed, coupled with the rate adjustment has caused many monthly mortgage payments to rise above what is affordable for the borrower. Hence, more foreclosures are now on the horizon. Most likely, by years end, or first quarter 2009, there will be a fifty percent increase in foreclosure.
Please email me if you have any questions. val@forbescr.com
The mechanism is amazingly simple. Today three auction dates are set up front for each property in foreclosure. In the past, the second and third auction dates were set only after the outcome of the first auction proceeding. Since with past legislation practically anything could stop the foreclosure process, setting a new date and getting the process started took months. Today’s legislation has cut this time to a maximum of 90 days as nothing, other than payment in full can stop foreclosure proceedings, the three dates are set up front, ten-business days apart.
Costa Rica Foreclosure process is as follows:
All participants on the day of auction must present a certified check representing between 30% to 50% of the opening bid prior to entering the court room; without it they cannot participate in the auction. The starting bid is the total of the original note. It is not established upon current market value. This is one of the foreclosure wonders of Costa Rica.
If at this first auction there is a successful bidder, they have three business days to pay the remaining balance or the auction is forfeited and their down payment is disbursed; one third to pay down the balance of lien and the other two thirds to the court. This is never returned to the forfeiting bidder. The foreclosure proceeds to the second date but 100% of the remaining balance must be presented in a certified check in order to enter. Usually, if there were no bidders present for the first auction, the opening price for the second auction would begin at 25% less than the initial bid. In essence, 75% of lien amount and a certified check representing 50% of that figure is needed to participate. By the third and last auction date, a certified check for the full amount of the bid must be presented as this final auction begins at 25% of the initial lien amount.
Another notable amendment in the policy has provided for court appointed representatives, specialists in foreclosure proceedings, to conduct the auctions. The process is no longer a judge’s dominion as in the past.
Due to the agility of the new legislation, there has been a thirty percent increase in foreclosures since May 1, 2008, when the law went into effect. Mortgage grantors waited for passage of this new legislation to begin foreclosure proceedings. Government entities are also using the new legislation to their advantage to collect on real property tax payments in default, as are local banks. Four years ago, banks began issuing millions of dollars worth of credit to their cardholders, and as in the U S, many card holders have defaulted. Banks are now attaching the debt as a lien on cardholders’ real estate - and foreclosing.
Understand that all mortgages in Costa Rica carry a variable rate: there are no fixed rate mortgages. Many of the mortgages issued were in US Dollars when it was more economical to borrow dollars verses Colones. The prime rate in the country has increase to the point that the amount of money initially borrowed, coupled with the rate adjustment has caused many monthly mortgage payments to rise above what is affordable for the borrower. Hence, more foreclosures are now on the horizon. Most likely, by years end, or first quarter 2009, there will be a fifty percent increase in foreclosure.
Please email me if you have any questions. val@forbescr.com
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