Grupo Casa Canáda was a major mortgage lender in Costa Rica, syndicating mortgages with investors and its own funds.  In the 1990s it was possible to foreclose a mortgage in about eight months, however today, due to a legal system that barely functions, it is taking up to ten years.  The lender has few rights, the borrower many.  The last mortgage loan made by Casa Canada was October 2006.  Since then financing has been through alternate methods.

Investing in mortgages in Costa Rica not a good idea.  Because mortgages in default are expensive and time consuming to collect, financial institutes have huge amounts of money tied up in court, which restricts their lending ability.  The sluggish courts make the country an unscrupulous borrower’s paradise and a lender’s nightmare.

Legal steps to Foreclose a Mortgage

1.  Hire a lawyer to begin the foreclosure process.  The lawyer will usually send a final letter advising the borrower than the loan is headed for legal action.  Legal fees run 12.5 % of the amount of the mortgage.  An advance of 6.25% is required to the point of the auction, then the other 6.25% is payable before title is registered.  A further 4.5% in registry and legal fees must be paid once title to the property is granted.

2.  The legal action begins.  The court will set an auction date, usually within a year or so.  The minimum bid at the first auction is the amount of the original mortgage loan, however no one is likely to bid at an auction.  Bidders are required to deposit 30% of the sale price, and then pay the balance in 3 days.  It can take years for the auction to be confirmed, not only because court decisions take forever, but because of interminable appeals by the borrower.  These go to a higher court no matter how ridiculous they may be.  Each appeals takes months to resolve.  A bidder’s funds can be tied up in court for many years - the court does not refund the money unless the auction is annulled, and even then the refund takes a long time.

3.  Once the auction is confirmed the lawyer applies to receive title, which involves another long wait.  When title is granted the property will be registered in the central registry in the name of the lender or the lender’s company after the payment of fees.

4.  When title is received, the former mortgage holder is still not permitted to enter the property - the next court procedure is the get possession.  During this period the borrower will sometimes strip anything of value from any construction on the property, leaving little but walls.  It is more common to lose the electrical panels, wiring, electrical and plumbing fixtures, gutters, doors and other easily removed items.  The courts do nothing about this theft as it is often done while the borrower still has title and possession.

5.  Once possession is granted, a parade arrives at the property.  This usually consists of the lender’s lawyer, the borrower’s lawyer, the judge, the police and perhaps the borrower & lender.  If no one is home, possession will be rescheduled, or if there is an objection from the borrower at the property, such as a possible discrepancy in the lot plan, the possession will be annulled even though the case may already be many years old.   If this happens it goes back to court.

Once all possession hurdles have been overcome, what is left of the building and the property is now available to the lender. During this entire process the lender must pay municipal and national property taxes, and if the property is a condominium, pay homeowner fees.  If these fees are not paid it is possible the property will be taken.  Rents from the property go to the defaulting borrow right up until possession is granted.  The lender cannot claim these rents.

Casa Canada Group currently finances properties, its own real estate sales and its own development projects, however different legal instruments are used, not mortgages.

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