Buying Property in Colombia: Preliminary Considerations
The following is intended to complement our video tutorial “Buying Property in Colombia 101: Introduction.” Anyone planning to buy property in Colombia should review all the videos and articles in this series prior to actually making an offer.
Buying property in Colombia is definitely not for the faint of heart. From fraud considerations to cultural differences, buying property in Colombia is a much more involved process than what you might be used to back home. Here are some key considerations that you should keep in mind prior to making an offer:
One of the questions that clients have consistently asked over the past decade or so is this: “Is it safe to buy property in Colombia?”. Our answer is always the same: so long as you engage in a comprehensive title analysis/due diligence process and take certain precautions you shouldn’t have any problems.
The reality is that the property purchase process in Colombia is fairly antiquated. There are holes in the process that could be used by unscrupulous sellers and other third parties to attempt to defraud buyers. These include:
- sellers selling the same property to multiple buyers at the same time (yes, this is technically possible);
- sellers convincing buyers to register a sale at a lower value (leading to significant tax consequences for the buyer); and
- sellers selling a property that may be subject to seizure by the Colombian government (usually because illicit funds were used in a prior purchase).
Don’t be too worried about this issue. We’ve been in the market for over a decade and at this point we have handled thousands of transactions, and over that time we can tell you that out and out fraud is statistically very rare. However, that being said, we do recommend certain strategies that can help you mitigate some of the risk involved including:
- Use an Independent Attorney: Absolutely, positively use an INDEPENDENT ATTORNEY when purchasing property. Most of the risk arises when your agent recommends their “trusted” attorney to handle your transaction. We will be discussing this issue at length in future videos/articles in this series.
- Use a Reputable Real Estate Agent: Here is our take on the local real estate agency industry: it’s horrendous! For this reason, you will need to be careful how you use a local agent in order to minimize risk. We will be providing tips on how to navigate this issue in later videos/articles in this series.
- Request Originals: Have your independent attorney secure as many of the documents they will use to draft the title analysis directly from public entities. This won’t be possible for all documents but it will decrease the chance that fraudulent documentation is reviewed.
- Background Checks: Requesting a background check on potential seller and even prior sellers and purchasers can provide some insight into any possible risks in purchasing a property.
Keep in mind that buying property in Colombia will mean having to navigate a legal process that is structurally different from what you might be used to. Here are two key differences:
- No Escrow: Bottom line, escrow accounts are just not used in connection with real estate transactions in Colombia. This means that you may be paying off mortgages, back taxes, liens, etc, weeks, maybe months before you even sign the deed/documentation at closing.
- DMV Treatment: The actual mechanics of purchasing property in Colombia involve lots of standing in line/queues, making sure every single document is put together just the way public/private entities expect, etc. Hopefully, your local counsel does their best to minimize most of this stuff to be bare minimum so that you only show up when it is absolutely necessary.
There are two cardinal rules here:
- Be Patient: This is definitely our go-to rule for pretty much any process you engage in Colombia involving any public and/or private entities in Colombia. Patience is a virtue.
- Be Flexible: Don’t be surprised if your initial purchase strategy needs to be reevaluated more than once along the way. Colombia is a place where you have to roll with the punches even as you keep an eye on your overarching goal: securing clean title to your new property.
Depending on the parties involved and where your target property is located, this is a pretty significant consideration. While you can expect some local sellers to be sophisticated investors with a solid professional background, many sellers may not have graduated from university and may have never sold a property prior to your offer. This can create any number of headwinds for your purchase, including having to:
- constantly educate the seller about the legal intricacies of the transaction;
- provide legal/logistical assistance to the seller if the seller does not retain an official agent/attorney; and
- navigate any pushback from seller who may assume the process should be much less formal than it should be.
There are a variety of ways to handle these issues including:
- Attorney/Agent Fixer: Confirm whether your attorney/agent works with local “fixers” who have experience in the community where you will be purchasing property. These “fixers” may be able to liaise with the seller and smooth over any cultural minefields that may come up.
- Blame Your Attorney: This one is gold. Basically, you “are a foreigner who doesn’t really understand this process;” you “are relying on those ‘darn’ attorneys to help you with this process;” and “yeah, they are pain but if you [the seller] could help them with what they need you can finish this process and pay asap.” Feel free to be mean here. Don’t worry, we are used to it.
POWERS OF ATTORNEY
If you are not going to be present in Colombia at any point during the property purchase process you will likely need a power of attorney. A power of attorney is a legal document that you sign authorizing a third party to act on your behalf.
If you can physically travel to Colombia, you should sign your power of attorney at a local notary. It is just much easier and less expensive than the alternative. If you cannot physically travel to Colombia, you should sign your power of attorney at your local Colombian consulate abroad. If you cannot physically travel to Colombia OR to a local Consulate, check with your local attorney to determine whether you can notarize your power of attorney for use in Colombia.
This post is being published for general informational purposes only and it is not intended to provide specific legal and/or tax advice. It should not be used as a substitute for competent legal/tax advice from a licensed attorney and/or accountant in your jurisdiction.