What Happens If a Borrower Doesn’t Pay? How Your Loan Is Protected in Costa Rica

Every GAP loan has a real guarantee: the property. Each loan is secured by a first-degree mortgage registered in the National Registry (Registro Nacional), on titled Costa Rica real estate that is worth far more than the loan. If a borrower ever stops paying, Costa Rican law gives the lender a direct, court-supervised path to recover the loan from that property. This page sets out the rules GAP applies to private lending in Costa Rica and explains, step by step, how a foreclosure works under the Código Procesal Civil (Law 9342) if the payments stop.

Lea esta página en español: ¿Qué pasa si el deudor no paga? Cómo está protegido su préstamo en Costa Rica.

GAP’s loan rules

• First position, always. Every loan is secured by a first-position mortgage on titled Costa Rica real estate, registered in the National Registry. GAP never arranges second-position loans, and any existing mortgage is paid off at or before closing, so your mortgage is the first one on the property.
• Conservative loan-to-value. GAP prefers loans of about 30% of the property’s value, and 50% is the maximum it considers. At 30%, the property is worth more than three times the loan.
• From US$50,000. Lending starts at US$50,000, with terms of 6 to 36 months and interest paid monthly.
• Reviewed before you see it. Before a lender is introduced to a deal, GAP has already reviewed the property, the title, the documents and the closing. Each opportunity is presented with the property details, GAP’s valuation, the loan-to-value and the borrower’s exit plan.

If a borrower stops paying, the property is the guarantee

What protects a lender is not the monthly payment. It is the property behind it. Costa Rica’s Código Procesal Civil (Law 9342), in force since 2018, sets out exactly how a registered mortgage is enforced:

• A registered mortgage is an enforceable title (article 166). The lender does not have to win a long ordinary lawsuit first: the lender goes straight to mortgage enforcement in court.
• The borrower’s objections are very limited (article 168). The borrower can only argue that the debt is not yet due, that it has been paid, or that it has expired under the statute of limitations, and must do so within five days. An objection does not stop the auction from being held.
• Everything runs through the court. In Costa Rica a lender cannot simply keep the property by private agreement: a clause giving the lender the right to take the mortgaged property on default is void (Civil Code, article 421, the prohibited pacto comisorio). Enforcement always goes through a court-run auction, called a remate. That gives everyone a clear, legal path.

How the auction (remate) works

1. First auction. The starting price, or base, is normally the value the parties agreed in the mortgage deed (article 157.3).
2. Second auction. If nobody bids at the first auction, a second one is held at least five days later, with the base lowered by 25% (article 161).
3. Third auction. If there are still no bidders, a third auction is held, starting at 25% of the original base.
4. Award to the lender. If nobody bids at the third auction either, the court awards (adjudica) the property to the lender, for 25% of the original base.

Who gets paid, in what order

Article 164 sets the order in which the money from the auction is paid out:

1. The legal costs (costas) of the process. As a rule, the court orders the losing party, the borrower, to pay them (article 73), and they are the first thing paid from the auction.
2. Storage, custody and maintenance costs of the property, from the seizure until the auction is final.
3. The lender’s interest and capital.

Any remainder, el remanente, is handed back to the borrower.

Why a low loan-to-value protects the lender so well

Take a simple example: a lender funds a US$100,000 loan against a property valued at US$500,000. If the borrower stops paying and the property goes to auction, there are two outcomes:

• A buyer bids. The proceeds pay the legal costs, then the lender’s interest and capital. Whatever is left goes back to the borrower.
• Nobody bids. After three auctions without bidders, the court awards the property to the lender.

Either way the lender is very well covered, because the property is worth several times the loan. That is the whole point of GAP’s conservative loan-to-value and its first-position rule: the property’s value sits far above the amount lent.

Who handles all this

You do not need to learn Costa Rican procedure. GAP and its lawyers handle the title review, the mortgage deed, its registration in the National Registry and the closing, and, if it is ever needed, the enforcement. What you need to know are the rules on this page, because every GAP loan follows them. For more on how GAP sets loan sizes, see loan-to-value in Costa Rica private lending and property-backed lending with GAP.

Frequently asked questions

Is my loan registered?

Yes. Every GAP loan is secured by a first-degree mortgage registered in the National Registry (Registro Nacional).

What is my guarantee?

The property itself. Your loan has a real guarantee: titled Costa Rica real estate worth far more than the loan.

Who pays the legal costs if there is a foreclosure?

As a rule, the borrower. The court orders the losing party to pay the legal costs, and they are paid first from the auction.

Can the lender end up owning the property?

Yes. If nobody bids after three auctions, the court awards the property to the lender.

Who handles all this?

GAP and its lawyers handle the title, the documents, the closing and, if it is ever needed, the enforcement.

Do I need to live in Costa Rica to lend?

No. You do not need residency or a local address to lend in Costa Rica. GAP and its lawyers handle the closing and the registration of your mortgage in the National Registry.

This page explains the general process under Costa Rican law (Código Procesal Civil, Ley 9342); every case is handled by our lawyers.

Ready to see a property-backed loan? Visit gapinvestments.com · WhatsApp +506 4001 6413

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)