There are different ways to purchase Panama real estate which surprises many foreigners.
Most foreigners are familiar with “titled” real estate which involves a deed which is usually filed in a government office which is available to the public to verify who owns specific real properties. However, while Panama has “titled” real estate, it also has a unique “Rights of Possession” (ROP) structure where an individual can “possess” government owned real estate in order to make improvements to it. This article will explain the differences between the two ways to purchase real estate in Panama.
Titled Panama Real Estate
The most secure method of purchasing real estate in Panama is by receiving title to it. This entails receiving a deed of title and filing it with the Panama Public Registry office so the public can verify that you own the real property. While you can purchase real estate in Panama as an individual, you can also use a Panama corporation or a Panama Private Interest Foundation to take title. Lenders will be free to loan funds as a mortgage lien to secure titled property as long as the title deed is recorded with the Public Registry.
The Process to Purchase Titled Real Property
1. Negotiate with the seller: While you are free to contact Panama real estate sellers and negotiate directly with them, our real estate agents are available to do all of the negotiating on your behalf at no cost. The terms and conditions including the sales price can all be negotiated with the seller.
2. Promise to Purchase Contract: This is a formal written contract with all of the negotiated terms and conditions. It is expected that a small down payment will be made when the parties sign this contract. This contract is registered with the government’s Public Registry office to keep the seller from selling to other parties. After signing, the buyer has the time to verify that the seller truly is the owner.
3. Title Search: Hire a Panama real estate attorney to conduct a thorough search of the title and all other important matters affecting the property (such as liens and encumbrances) at the Public Registry. The lawyer can also search the government water and sewer agency (IDAAN) to make sure all bills are paid prior to the Closing.
4. Buy & Sell Contract: This second contract is signed after verification of the seller’s title and all liens on the real property and the water and sewer payments are up to date. This contract is also referred to a Title Deed Contract because it can serve the purpose of a title deed. It is recommended to hire a Panama escrow company or a real estate law firm to hold the buyer’s funds and make all necessary payments (like real estate commissions, unpaid debts, etc.) and the final payment to the seller when filing the deed transferring title to the buyer at the Public Registry.
5. Title Transfers: This is referred to as the “Closing” in the U.S. where title transfers from the owner to the purchaser. The Buy & Sell Contract is filed with the Public Registry.
Rights of Possession (ROP)
Panama allows individuals to “possess” unused government lands in order to make improvements upon them. This is called the “Rights of Possession” which carries over to the next generation family members. In addition, this right may be sold to third parties, including foreigners.
The ROP can be a simple document certifying the rights to possess a specific government property. Certifications for a ROP may be issued by government agencies, municipal mayors, and local sheriffs.
No property taxes are paid because the possessor does not own the government land. However, if a structure is built on the property, it may be subject to property taxes if the improvement is registered.
ROP’s cannot be mortgaged because the government own them and not the possessor.
2 Types of ROP’s in Panama
There are actually two different types of Right of Possession lands in Panama.
1. Lands used specifically for agricultural purposes are overseeing by Panama’s Ministry of Agriculture.
2. Most beaches, islands, and marine floors are owned by the national government which maintains its rights up to 200 meters beyond the high tide mark. The Ministry of Economy and Finance administers these ROP’s.
ROP’s are not titled and can’t be filed with the Public Registry as a deed or Buy & Sell Contract. In fact, there is no central database for ROP’s in Panama. Therefore, anyone wishing to research ROP’s must personally inspect documents at the local municipalities, sheriff’s offices, and government agencies.
ROP’s can be Titled
The government can sell ROP land to third parties which is in the form of a title deed which can be filed with the Public Registry. However, this involves petitioning the government for permission to purchase the land. Such petitions may be denied at the full discretion of the government.
Foreigners can Purchase Rights of Possession
A holder of a ROP can sell the rights to a foreigner. However, given the difficulty with researching ROP’s at municipal and government agencies, verifying their authenticity can be difficult. In addition, banks will not lend funds to purchase a ROP.
The Procedures for Purchasing ROP’s
The following are the procedures for purchasing non-titled Rights of Possession from a possessor of the rights:
1. Promise to Purchase Contract: A formal notarized contract for the purchase of ROP property normally requires a small deposit after the parties sign the contract. The contract should provide the buyer with enough time to do the due diligence and obtain the necessary cash to make the purchase.
2. Due Diligence: Without a central database like a Public Registry to research the property, due diligence of a ROP purchase requires these steps:
(a) Verify ROP Certification: Locate the municipal or government agency which originally issued the ROP to verify the possessor is in fact the true possessor. Also verify the boundaries, location, size, and property description.
(b) Verify the Survey: Obtain the original survey to verify that a licensed surveyor conducted the survey and signed and placed the correct stamp. Surveys must include the possessor’s full name, property location and boundaries and more information contained in the Certificate of Possession Rights.
(c) Inspection: Conduct a physical inspection of the property to confirm the occupancy, possession, and that no third parties are possessing it. Speak with neighbors about who really possess the property and that no border disputes exist. Look at the boundary markings and if the property is fenced.
(d) Verify Permits: If the purchaser wishes to develop the property, verify that no national or municipal laws or rules prohibit the type of development.
(e) Buy & Sell Contract: After completing all verifications, a formal contract can be prepared and signed by all parties. We recommend either using a Panama escrow company or a real estate law firm to hold the buyer’s funds to make the final payments when the Possession Rights Certificate is transferred to the purchaser’s name. Use a Notary Public to authenticate every signature since this document cannot be filed with the Public Registry.
(f) Possession Rights Certificate Transfer: After the Buy & Sell Contract is signed by all parties the Certificate is transferred to the buyer’s name. If the possessor is a corporation and the seller is only selling the corporate shares without transferring the name of the possessor to the buyer the transfer can quickly occur.
Concession Properties in Panama
Nationally protected lands such as beaches, islands, parks, and coastal areas are generally never titled. The Panama government grants “Concessions” to third parties so the land may be used for commercial purposes. Typically, Panama Concessions are granted for marinas, hotels, restaurants, or tourist related purposes.
Panama Concessions are normally granted for 20 years and are renewable. On rare occasions, a Panama Concession may be granted for 40 years which is renewable in specific designated tourist areas.
Visitors are surprised to find out that there are different ways to purchase real estate in Panama. Besides the typical “titled” real properties which are owned, you can also purchase one’s right to possess real estate without being an owner. Rights of Possession are intended to make improvements upon unused government lands. In addition, the government grants long term “Concessions” in popular tourist areas for commercial purposes.