Escrow and Trust in Costa Rica Property Lending

Two words come up constantly once a lender starts looking at Costa Rican files, usually without much explanation attached: escrow and trust. They do different jobs, they appear at different moments, and neither is compulsory. This is what each one is for.

Escrow: how a lender abroad closes a deal without being here

This is the arrangement that makes lending from another country straightforward, and it is the most common reason our lenders use it.

You are in Calgary or Miami or Madrid. A file interests you and you want to be ready when it closes, but you are not going to fly down for a signing. You place the funds with an escrow company ahead of time, and they sit there — not with us, and no longer exposed to a change of heart on anyone’s part. When the file is genuinely ready, we say so, and the closing happens on the day: the mortgage is signed and presented for registration, and the escrow agent releases the money against the agreed conditions. You never left home.

It also answers the smaller awkwardness that exists even when everyone is in the same room. On closing day the lender is expected to hand over funds and the borrower is expected to sign — somebody has to go first. A neutral third party holding the money means nobody has to.

In practice the funds sit with the escrow agent, the mortgage is signed and presented for registration, and the money moves when the paperwork is where it should be. Nothing more mysterious than that.

Expect paperwork, and take it as a good sign rather than an irritation. An escrow agent will ask for identification and for evidence of where your funds came from, and a provider who does not ask those questions is the one to be wary of. Escrow agents here are regulated and supervised by SUGEF, the financial regulator. Worth being precise about what that does and does not mean: SUGEF supervises the providers, but it does not run or manage individual escrow accounts or loans, and it is not standing behind your money. Our article on understanding SUGEF in Costa Rica covers who supervises what. If you want the specifics for your own situation, ask us and we will point you to the right people.

Trust: how the security is held

A trust — fideicomiso in Spanish — is a different animal entirely, and it is not about closing day. It concerns how your security is held for the life of the loan.

The usual arrangement in Costa Rica is a mortgage registered against the property in the National Registry. It is well understood, quick to put in place, and it is what most files use.

The alternative is a guarantee trust, where the property is placed into a trust for the life of the loan, with a trustee holding it and written instructions covering what happens when the loan is repaid — and what happens if it is not. The appeal for a lender is that those instructions are agreed at the start, so the route if something goes wrong is set out in the document rather than worked out later. How that plays out in practice depends on how a particular trust is drafted, which is worth going through file by file.

The reason to reach for one is enforcement. Under a trust, what happens if the borrower stops paying follows the instructions written into the document rather than a court’s timetable — which makes it considerably faster than foreclosing on a mortgage. That is why experienced lenders here so often ask for a trust: they have seen how long a foreclosure runs and would rather not wait it out.

A trust does carry a modest ongoing cost for the trustee that a mortgage does not — small against the loan amount, and set out for your specific file before you decide. For an ordinary loan on a well-located property, plenty of lenders find a registered mortgage does the job perfectly well.

When lenders reach for a trust

Patterns rather than rules. Larger loans, where the sum at risk justifies the tighter structure. Development and construction files, where money is released in stages and everyone wants the mechanics written down. Situations with more than one party on the lending side. And, most commonly of all, experienced lenders who want the faster enforcement route and know exactly why they want it.

Tell us which you want and the file is built that way. Nobody is going to push you toward one structure for the sake of it, and nobody will refuse the other if that is your preference.

Where crypto fits

Some lenders fund using crypto, and that is workable. The security side is unaffected — a mortgage or a trust behaves exactly the same regardless of what the money looked like before it arrived. The practical questions are about the funding leg itself, and they are best answered against your specific situation rather than in general terms. Ask us and we will walk through it.

Who arranges all this

We do. Title is pulled and read, liens searched, the property valued, the loan to value set, the documents drawn and the security registered — whichever form you have chosen. The whole run up to and including the closing is ours; afterwards we stay contactable. The attorneys we work with close loans of this type constantly and know both structures well. If you want your own counsel to review the arrangement too, that is welcome.

After closing the borrower pays you directly, and the ordinary business of watching insurance and the maturity date sits with you.

Questions

Is escrow required?

No. Many closings use it, some do not. It is a convenience for both sides rather than a legal requirement.

Is a trust safer than a mortgage?

They are different instruments rather than better and worse. A registered mortgage is a strong, well-tested security. A trust is quicker to enforce, because the route is set out in the document instead of being set by a court, which is why experienced lenders often prefer one. Neither removes risk.

Do I need residency, or to be in Costa Rica, to use either?

No, and no. Anyone can lend against Costa Rican property from anywhere. Lenders in Canada, the United States and Europe hold both mortgages and trust arrangements here without ever visiting.

Who pays for it?

Closing costs, including the legal work, run to roughly 8% for legal and GAP fees. The figures for your particular file, under either structure, are set out before you commit to anything.

What if the borrower stops paying?

Under a mortgage, you may pursue foreclosure; under a trust, enforcement follows the terms written into it. Our formal role ends at closing, though lenders in that position tend to call and we help from knowing the file. See what happens in a foreclosure in Costa Rica.

Set the structure before you fund

If you are weighing up how you would want a loan held, say so early — it is far easier to build a file that way than to change it later. Look at the current lending opportunities or contact GAP Investments and tell us how you prefer to work. Nothing proceeds without your agreement, and no outcome is promised.

This article is for general information only and is not investment, legal, or tax advice. All lending and investment decisions should be made based on independent due diligence and with qualified professional guidance.

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