Purchasing Property in Nicaragua

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Whisper to someone that you are thinking of buying property to anyone in Nicaragua and you will be besieged by dozens of people that know about the best deals. Even the guy selling cashews in the park will advise you. I can tell you dozens of stories of people that paid too much, were poorly advised, did not get a clean title, lost a lot of cash in the construction process, just had bad timing or never saw their home built. As in any transaction that involves much money, do your due diligence and be careful where you put your trust.

Assuming this is your first purchase here, you will need a good realtor and a good lawyer. The realtor is to help you find the right property at the right price and the lawyer will ensure you have a clean title and hopefully, help you pay the correct taxes and fees in the purchase process. In Nicaragua a realtor is not required to have a license though the major realtor chains usually have some requirements of training to sell real estate. Dealing with a big name office does not guarantee an honest, knowledgeable realtor and a small local office may have excellent realtors. Ask for references and talk to local expats about their experiences. In Granada, for example, there are only two full service real estate offices. Find someone you like and trust then assume you need to double check on everything. If buying in a development, the developer-owner may act as the realtor.

Remember, if something does not exist, there is no guarantee it ever will. There are so many developments that still do not have any infrastructure such as water or electricity or that clubhouse. It is not always the case that the developer was dishonest, they just did not know what they were doing. In Nicaragua, everyone thinks they can start a restaurant, a hotel, sell real estate or build a development. During Nicaragua’s real estate boom, many people bought lots with no intention of ever building. With the real estate bust in 2006, then the 2008 global economic crises, many developers were dependent on the revenue from building homes which never happened. Whether it was dishonesty or incompetence you still lose your investment.

Finding a good lawyer is also no easy task. Find one with a lot of real estate experience and that many of the local expats will recommend. It is not a good sign if the lawyer is related to the seller. The number one concern of expats buying property is getting a clean title to their property. In any case, there may be title issues that come up during the search through the history of the property ownership. You may find there are some legal procedures that have to be completed before the title can be conveyed to you. For example, the owner of the property may have passed away requiring a death certificate to be created and the title lawfully conveyed to the rightful heir. This will delay the closing but does not mean there are unusual title issues.

Of a more serious nature is the discovery that there are title issues such as confusion on the identity of the true owners, property ownership by a large group of people, property lines not being clear and other issues that may not be easily or ever resolved. In these cases, the realtor or lawyer will advise against buying the property and return your deposit. Do not blame the realtor or the lawyer, they are only doing their jobs of protecting you.

Below are the usual steps in purchasing property in Nicaragua. You experience may be somewhat different.

1. The realtor will help you find the right property for the right price at the right location. They will discuss your needs and arrange to show you properties that fit your criteria. They will advise you of any factors that may affect your choice of property.
2. Eventually you select your desired property. The realtor will assist you in making an offer on your chosen property including sales terms. Seller will accept, decline or counter-offer. During this time, a cursory investigation of title is usually performed.
3. Once the offer is accepted by seller the realtor will usually ask for a 10% deposit which is kept until the closing and it should not go to the seller. The sales contract is written then signed by seller and buyer which includes terms, sales price, estimated closing costs and identification of power of attorney if you cannot be in the country for the closing. Contract should explain that your deposit will be returned if any irregularities are found. Unless you are a resident they may require a copy of your first two pages of your passport.
4. Document procurement. All documents should identify the property by its legal description including the Finca, Tomo, Folio and Asiento identification numbers. From the seller the realtor requires: Copy of the deed (escritura) and site plan (plano). Unless the site plan is fairly recent it is a good idea to have a surveyor create or provide it. Letter of no objection (LNO) may be required if near a lake, ocean or river. The LNO usually is completed after the closing since it may take months to complete.
5. Document  processing with the assistance of a lawyer. You can provide the lawyer or the realtor will suggest a lawyer but you have your choice. At this point a detailed title search is being performed, usually at least 30 years back. The property is investigated to ensure the taxes and other obligations to government are paid and up to date i.e. garbage pickup fees, cemetery fees (this research is called the solvencia). Ensure no liens, ownership issues nor encumbrances against the property (libertad de gravamen). All utilities must be paid up to date by the seller, surprisingly the utility companies will expect the new owner to pay and does not pursue the seller. If there is a cuidador (caretaker) or other on-site employees, ensure all obligations to these employees are resolved by the seller. If you decide to keep the employees, it is better to have the previous owner terminate them then start new contracts else you are liable for their accumulated termination pay which can be six months of pay.

You can see that the realtor should be informing you of all these things. This is why you pay them a commission.

Power of Attorney

If you plan to be out of the country at time of closing, you can execute a power of attorney (POA). The cost of this is around $30 and allows your chosen representative to perform the closing procedures for you. The POA is limited to buying this property. Give the POA only to a trusted friend since they are signing for you. Surprisingly, many people give the POA to the realtor which I find amazing.

These procedures usually take 2-4 weeks depending on difficulty on obtaining documents, issues uncovered, lawyer availability, etc so expect at least a month from the offer to the closing.

Closing Costs

Closing costs including sales commission are normally paid by the buyer but all things are negotiable. You will be provided a detailed list of closing costs to the best of the realtor’s and lawyer’s knowledge. Some of the fees are based not on the sales price but on a symbolic or catastral value which may be determined after the closing during the registration process. Catastral value is normally much lower than the sales price. Also, the magnitude of the sales price may change the percentages. For the lawyer, it is almost the same amount of work for a small sale as a large sale.

As stated before, all things are negotiable. Commission costs can be 6-7% of the sales price and 10% if the sales price is under a certain amount or for property with a house.

Normally closing costs are around 3 to 3.5% of the sale price

1% to the lawyer, Managua lawyers charge sometimes 1 ½%

The lawyer’s fee includes all document processing and creation

Registration fees are usually around 1% of the catastral value to a max of C$30,000. This may have changed since I have not bought anything recently.

The property gains tax (DGI or la renta) which is 1% up to $50K, 2% 50K to 100K and 3% over 100k of the catastral value. I hear there is now a 4% rate for high-valued properties. My opinion is that this should be paid by the seller since it is an income tax but many realtors charge it to the buyer.

At some point before the closing you must wire the remaining funds. This can be a frightening process since you have not closed yet. Most people time it to occur just before the closing to minimize the risk. There are very few mortgages here and they are expensive. There are few escrow services available. This is why you must have a realtor and lawyer you trust.

At the Closing

At the closing will be the seller, buyer’s attorney and buyer (seller and/or buyer may be represented by whomever holds the power of attorney). Since there is no MLS service and few exclusive listing contracts, there is usually only one realtor and one lawyer present at the closing. Again, a frightening realization for the newbies buying property.

You will sign the new deed (escritura) and provide the remaining purchase funds.

You are now the owner of the property and in full possession.

Ensure you have a copy of the unregistered deed (testimonio)) and the plot (plano).

Post Closing Processing

The attorney proceeds with the registration process i.e. new deed (escritura) is registered.

Fees are paid and the property is usually registered within 1 to 6 months.

If a letter of no objection is required, this may take 6 to 8 months.

When documents are completed, they will be given to the buyer.

Since the catastral value of your property is unknown until the registration after the closing, the exact amount of your fees is unknown. A settling then occurs and the realtor rebates any overpayment on the registration fees or charge you for the underpayment. Similarly for the seller, if they are paying the property transfer tax, the exact amount for the property transfer tax is determined and the difference  is settled.

As any property owner, you have rights and obligations. Remember that you are responsible for paying taxes, paying utilities, paying for employees and providing security for your property. You also have a responsibility to maintain your property in consideration of your neighbors. This is especially important to remember if you do not plan to live full-time in Nicaragua.

Conclusion

Some of these procedures may seem loosey-goosey to people from North America or Europe. Just use your head, find people you can trust and buy your dream property. Remember, you do not get a registered title until sometime after the closing. 30 days after the closing, start bugging the realtor and/or lawyer to follow up though it may take several months.

Darrell Bushnell

Note – I am not a realtor and this is my understanding of the procedures after having been at many closings. Each realtor handles things a bit differently.

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