Buying Real Property in Panama

Foreigners have the same rights in Panama as natural citizens. Buying real estate is easy if you understand the slight differences.

Under Panama Civil Law one can have control over a land parcel or property not only as a duly recorded owner but as a possessor. Generally speaking, if a title of transfer is deeded before a Public Notary and said title is duly recorded in the Public Registry, the individual or entity who appears in said deed as the transferee will become the owner, in other words, Deed + Proper Recording in the Public Registry = Ownership of Real Estate. If one follows the chain of titles of a property back to the original owner, the first transfer, when the first owner acquired the property, -this is to say, when the property was born in the Public Registry- is a transfer from a government entity – Municipality, Cadastre or Agrarian Reform, for instance- to the individual or entity that was holding said property without title. There are still land parcels and properties in Panama that are under the control of individuals or entities who have never filed an application before the competent authority to obtain title. Those in this situation have rights of possession. According to the Civil Law System an individual -or entity- has rights of possession over a property when he/she occupies/controls/holds a piece of land or a property, under certain conditions, and considers him/herself the owner of said property, without having title. In general terms, rights of possession can be transferred, inherited, attached, encumbered, foreclosed and titled subject to the law in affect at the time. They are protected by law as a stage prior to titled property. Those who hold rights of possession are entitled to file lawsuits against squatters, build improvements, apply for title, prevent/demolish improvements from third parties, etc.

Note: The following refers only to titled property, not to rights of possession.

The Panamanian Public Registry is one of the world’s largest open registries of merchant vessels and offshore companies. Both the maritime industry and the international business community together with the Panamanian authorities have established one of the most efficient, transparent and secure Public Registries in the Americas. Since the real estate buyer becomes the owner when the transfer deed is recorded in the Public Registry, foreign real estate investors benefit from these developments in the Public Registry as they create a safe, expeditious and open environment in which to conduct real estate transactions. The Public Registry allows you to review online not only the status and history of every legal entity, vessel or property therein recorded, but the deeds and documents related to any of them.

Here is a list of nine steps that will help you finalize your real estate transaction successfully:

1- Get a title report. Ask for the number of the real estate property from the owner or broker. Then go to the Public Registry (www.registro-publico.gob.pa) and apply for an abstract of title (historia de la finca, in Spanish), which is a written report that shows the history of subsequent changes of ownership on a piece of real estate as well as the area, borders, and any claim or encumbrances affecting the property such as liens, mortgages, attachments, court rulings and the like.

2- Pay for what you get. Sometimes, due to the use of not so precise surveying tools, especially when properties were titled in the 40s, 50s and 60s, the area in the official surveys (hence in the Public Registry) is more than the de facto area you are receiving and for which you are paying. Therefore it is advisable that the Buyer hires an expert in order to conduct a survey of the property and then compare the figures with the ones found in the Public Registry and/or official surveys. For the same reasons, it is also recommended to establish a price per square meter in the purchase contract, not a lump sum price, so that if the amount of land is less than the area represented by the official survey, the Buyer will be entitled to a proportional price reduction. A due diligence period in the pre-purchase contract will allow the Buyer to conduct the survey of the property.

3- No conveyance, no payment. Once the bill of sale is duly signed before the Public Notary and recorded in the Public Registry, the buyer becomes the owner; hence, payment can be made. If the seller requires the buyer to secure the amount due, the buyer may deposit the total amount in a bank, which in turn will issue an irrevocable letter of payment, whereby the bank guarantees the payment to the seller once the deed has been duly recorded in the Public Registry free and clear from encumbrances. Bank Letters to secure payments are common place in the Panamanian legal environment. If the seller asks for a partial payment in advance in order to close the bill of sale, the buyer may agree with a partial payment following the rest of the advice herein mentioned, in order to reduce legal risks. Another method to withhold payment of the balance owed to Seller until the transfer has been completed, while still securing the payment to the Seller, is to put the balance of the purchase price in an escrow account managed by a reputed licensed Trust Company or Law Firm. The Trust Company or Law Firm will be obliged to release the balance of the purchase price once the transfer deed is recorded in the Public Registry free and clear, but will withhold said sum, if the transfer deed is not recorded.

4- Easements. An easement is the right, attached to real estate, to use the real property of another person for a specific benefit, for example: entry and exit easement in favour of a land locked lot, use of a water spring, not to build where the view is obstructed, etc. Title reports and title abstracts will usually describe all existing easements affecting a property; but, in some cases, depending on the structure, location and nature of the land, some neighbours or others could have a right (not to be found in the Public Registry) to claim for an easement, and so it might be useful to check all possible easements in the civil code to see if one could apply to the particular piece of land that the buyer is trying to acquire.

5- Latent/Hidden Defects. Be sure that the bill of sale includes a “latent defect clause” by which the buyer is entitled to rescind the contract and claim damages if a latent or hidden defect (i.e. a hidden flaw or a legal weakness of the title) entails significant loss of property to the buyer.

6- Real Property Taxes. Although most land in Panama is tax exempted, Real Estate Taxes are charged on a quarterly basis to some real properties by the Dirección General de Ingresos, the Panamanian IRS. The current owner is liable for any unpaid real property taxes. As a consequence, it is important that the Buyer checks that the quarterly payments are within his/her budget and that the property is free from previous real estate tax debts.

7- Double titles. It is a very rare event I must say, but some times the buyer may encounter two titles, held by different persons, that overlap, totally or partially, upon the same piece of land. It follows, that the buyer could acquire from one owner and the other owner will contend to have a better right. To reduce this risk, your surveyor should ask the neighbors if they have any contentions regarding the official boundaries of the lot or parcel. You could search with the authorities in charge of issuing real estate titles (Agrarian Reform Directorate, Municipality and National Cadastre), in order to determine if someone, other than the seller, has filed and completed a title petition, in order to acquire a title over the land in question.

8- Protect your Assets. Once you have found your own private haven, protect it from unknown future creditors. One of the best legal entities to protect and transfer assets is the Panamanian Private Interest Foundation. The assets belonging to these legal entities, in principle, cannot be seized or attached. In addition, it is easy and cost effective to transfer assets to the next generation when held by a Private Interest Foundation. The buyer can also put a mortgage on a property to secure loans with Banks or third parties. This encumbrance in most cases deflects the attacks from future unknown creditors.

9- Insure your title from eviction risks. Several insurance companies offer title insurance and several US title insurers have established operations in Panama. Make sure that the insurance covers not only risks or situations that are recorded in the Public Registry but also those that are in connection with elements or facts that are not recorded in the Public Registry.

Thomas H. Brymer II

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Real Property or Personal Property?

Federal law classifies all property as either real property or personal property. Real Property is defined as the physical land and everything attached to it, plus the rights of ownership (bundle of rights) in real estate. Real property is also called realty. Personal property is defined as tangible items not permanently attached to, or part of, the real estate. Personal property is also called chattel.

People tend to think of the land itself when they hear the term “real property”. The term refers to much more than rocks and dirt, however. It also encompasses items attached to the land (attachments or improvements), rights that go with ownership of the land (appurtenances), and limitations on the use of land (public and private restrictions). These are important because homeowners must be aware of issues and distinctions that may impact value for property they are considering as collateral for a loan.

The distinction between real property and personal property becomes important whenever the ownership or possession of land is transferred. Unless otherwise agreed, the law says that all of the real property is included in the transfer, but personal property that happens to be on the land is not included. Because of this legal doctrine, buyers and sellers, landlord and tenants, owners and foreclosing lenders often disagree about whether something is real property or personal property. Determining what type of property certain items are can sometimes lead to serious disputes and court battles.

For example, a built-in dishwasher would be considered part of the house but a refrigerator would most likely be considered a personal items and therefore not included in the sale. Built-in bookcases are considered real property but a sofa is personal property. An in-ground pool is real property, but an above ground pool is not. Lenders must be aware of this because the presence or absence of built-in items might affect the value of the property, but personal items should not influence value.

One less clear-cut example to contemplate is carpeting. Wall-to-wall carpeting would be considered real property, unless there are hardwood floors underneath. The idea behind that is that removing carpet and leaving hardwood floors does not diminish the value of the property, whereas leaving unfinished sub-flooring would. Often, disputes arise over things like storage sheds, satellite dishes, and chandeliers. Potential buyers and sellers of real estate should always discuss these things openly with their real estate agents and have issues resolved clearly before settlement to avoid potential problems and disputes. When necessary, property that will be staying in the house and used by a new buyer should be specifically stated as such in the purchase agreement.

Joe Jesuele is the founder and president of NJ Mortgage [http://nj-mortgage.net], a residential mortgage lender in Southern New Jersey. He is also the founder of Northern Liberties Real Estate [http://northernlibertiesrealestate.net], a residential and commercial real estate development company based in Philadelphia.

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