Escrow is an important element in any real estate transaction. It is used to protect both the buyer and seller throughout the transaction. Knowing how to prepare for escrow will make the process go smoothly and lead to less frustrations.
Due to the money laundering laws of Costa Rica, escrow is actually the most difficult part of purchasing a property. However, once you meet the due diligence requirements, it is a piece of cake. So put on your patience hat.
What is Escrow?
Escrow is a legal arrangement in which a third party escrow company temporarily holds money until the fulfillment of a purchase agreement. Escrow companies are legal financial entities authorized and licensed to hold funds as a neutral third-party real estate and other dealings. Escrow companies in Costa Rica must be registered with SUGEF.
What is SUGEF?
“SUGEF” stands for “Superintendencia General de Entidades Financieras” (Superintendent General of Financial Institutions). This organization audits financial institutions such as banks, savings and loans, and employee credit unions, as well as institutions or persons that handle large money transactions such as real estate agents, escrow companies and even property management companies to ensure they are complying with federal and international financial regulations. SUGEF is similar to the Office of the Comptroller of Currency (OCC) in the United States.
How to prepare for Escrow
Have your documents ready! Every transaction must be supported with the following documents. Each individual depositing funds into the escrow account needs to provide the following items: All documents must be in English.
- Copy of your passport or Costa Rican cedula for locals & driver’s license. It must be a color copy and full page of the picture and signature page. Even all four corners must show of the passport and drivers’ license.
- A “Know Your Client” form filled, printed and signed with ink. This form will be supplied to you by the escrow company. Your signature must match exactly the same signature you have in your passport.
- The latest tax return/tax filing/tax assessment. This is to comply with FATCA law (U.S Citizens) or CRS Reporting Standard for other nationalities.
- Bank Verification Letter issued by your bank indicating the age of the account and average balance. If the letter is generated outside Costa Rica it must be apostilled by the Secretary of State
Documents that support the origin of funds to be received by the escrow company. This may be, but not limited to, proof of property sale, salaries, dividends, inheritance, or any other document considered to support where funds have originated.
- Please consider if the origin of funds are salaries and/or savings from salaries you must provide bank statements of the last 6 months showing funds available to cover the transaction.
- If the origin of funds are dividends payments you must provide proof of ownership of shares*/financial statements (certified by public accountant) or tax filings from the corporation*/and last 6 months of account statements where funds are allocated.
- If the origin of funds is a real estate sale you must provide all closing documents (sale deed and closing statement) and proof of payment (incoming wire to your bank account).
- If the origin of funds is inheritance you must provide legal document that confirms inheritance or beneficiaries* and last 6 months of bank statements where funds are being held.
*Legal and financial documents need to be certified and apostilled for the bank's purposes.
Please also take into consideration that if the funds are transferred from a company/corporate bank account, the escrow company will need the incorporation documents. Documents coming from outside Costa Rica must be apostilled by the Secretary of State.
When wiring funds they must come from the same accounts you provided for compliance purposes. If you plan to send the initial deposit and final closing amount of funds from different banks or financial institutions, all documentation from each bank/financial institution must be supplied in the beginning process to make the final closing as smooth as possible.
All escrow companies will require you to send documents via a secure link or portal to ensure the safety of your documents.
The last word on setting up escrow in Costa Rica
Escrow companies may seem like a lot of paperwork and headache but they are truly advantageous to both buyer and seller. Escrow tracks the entire purchasing process and gives the buyer a verification when everything is completed. For the sellers, the escrow company ensures payment. Both parties are well represented and taken care of. The process does not have to be difficult. Good preparation and a solid understanding of the process will make the transaction go smoothly.
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