Buying Property in Colombia: Title Analysis
Securing a comprehensive, independent property title analysis is essential when purchasing property in Colombia. Bottom line, you do not want to proceed with a real estate transaction in Colombia without having an experienced and independent lawyer conduct a comprehensive analysis to determine if there are any risks in purchasing your target property.
A GOOD TITLE ANALYSIS
A good title analysis will determine whether the property has:
- any mortgages;
- any liens;
- past due tax liabilities; and/or
- legal encumbrances.
- whether the actual property boundaries match the registration documentation;
- if there are any current tenants on the property; and
- whether the death of an earlier owner created heirs that could contest ownership.
Your local lawyer MUST provide you with an official AND comprehensive written legal opinion that you can use to adequately evaluate the risk involved in purchasing the property.
Be careful because what you don’t want (and what you actually get all the time in Colombia) is either (1) a 1-page summary of the deal terms or, even worse, (2) the seller, the seller’s agent, YOUR own agent, or even some random person representing the seller assuring you that the target property has a clean title and that your future investment is risk-free.
THE RIGHT APPROACH
Now, there are various ways to organize a viable title analysis. However, over the years, we have developed what we consider to be the most organized, most comprehensive approach to ensure that we minimize risk for all our property purchase clients.
Here is a quick summary of how our local law firm manages this process:
- Step1: Introduction: Client does a formal introduction to the seller/seller’s agent or provides us relevant contact information.
- Step 2: Info Request: Our local law firm requests a ton of documents and information from the seller/seller’s agent. This can include everything from a copy of the property deed to the marital status of the seller.
- Step 3: Analysis: Our local law firm will then conduct a formal analysis of that documentation and information. The actual analysis process will depend on the specific property involved (pre-construction, condo, property lot, rural vs. urban property, etc).
- Step 4: Formal Legal Opinion: Once our local law firm has completed its analysis it will draft and finalize a formal legal opinion that is shared with the client. These written legal opinions will ultimately outline one of three broad conclusions:
- No Significant Legal Risk: Our local law firm often concludes that there are limited legal risks in purchasing specific target properties. This gives our clients peace of mind as they make a significant financial investment in a foreign jurisdiction.
- Some Legal Risk: More often than not, our local law firm will conclude that purchasing a target property involves a certain amount of risk. This could be as a result of a mortgage, a lien, a past-due tax bill or some other legal/financial issue. In general, we will conclude that the purchaser may proceed with the purchase so long as (i) the seller delivers clean title prior to closing or (ii) the purchaser is comfortable cleaning up any issues post-closing because the risk level is manageable.
- RUN!: Occasionally, we conclude that purchasing a particular property represents an unacceptable amount of risk to our clients. And this can sometimes be a little awkward, particularly in situations where clients have absolutely fallen in love with their target properties.
CAREFUL WITH LOCAL AGENTS
Our take on local real estate sales agents is pretty well-known: while there are some great local agents, in general, it’s a terrible industry. We will delve deep into this issue in future articles. For now, just note that one of the most significant issues we have seen with local agents are concerted efforts to push their clients to close on sales involving risky properties. These efforts often start with the title analysis process and can include the following strategies:
- “I Know This Great Lawyer”: Many local agents will suggest that you secure your title analysis from “this great lawyer” they know who can review the transaction documentation quickly and efficiently. The reality is that, quite often, “this great lawyer” is actually a less-than-reputable local lawyer that issues clean title certifications without conducting an in-depth legal analysis for a small fee. Obviously, the contractual relationship between the agent and this type of lawyer means that that lawyer has a significant incentive to minimize any potential risks in their title certifications BECAUSE they represent the agent more than they represent you, the investor.
- Commission Sharing: Another concerning strategy we keep seeing in the market is where a foreign client believes that they have retained a local lawyer to represent them but, in reality, the agent has already offered the lawyer a cut of their commission in order to “massage” the title analysis and ensure closing.
- Undermining Legal Advice: Even if you retain a competent, independent lawyer to draft a solid title analysis, don’t be surprised if your agent attempts to undermine any legal advice warning you about the potential risks involved in purchasing a specific target property.
- Retain Experienced, Independent Lawyers: If possible, avoid using lawyers recommended by your agent. You do not have to use our law firm; there are plenty of solid local law firms in the market.
- Second Pair of Eyes: If you prefer to work with a lawyer affiliated with your agent you should retain an independent lawyer just to ensure that they concur with the conclusions of the title analysis.
- “Manage” Your Agent: Just being aware of these issues will allow you to better manage your relationship with your agent in order to minimize any risks.