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 about five years.  The lender has few rights, the borrower many.  The last mortgage loan made by Casa Canada was on October 24, 2006. 

Investing in mortgages in Costa Rica not a good idea.  Because mortgages in default are very difficult and time consuming to collect, financial institutes have huge amounts of money tied up in court, which restricts their lending ability.  Those mortgages that are made have comparatively high interest rates, due to the risk of not being able to collect in a timely manner.  The impossible court system makes the country a 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 - 6.25% up to the point of the auction, then the other 6.25% is added.  A further 4% in registry and legal fees are required 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 in their right mind would 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 are slow, but because of interminable appeals by the borrower, which go to a higher court no matter how ridiculous they may be, taking forever 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.

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 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 if there is a building on the property.  Casa Canada has cases where nothing was left but concrete block walls, but it is more common to lose the electrical panels, wiring, electrical and plumbing fixtures, gutters, doors and other easily removed items.  At times we have lost all or part of the roof, particularly when made of metal sheeting.

5.  Once possession is granted, a parade arrives at the property.  This usually consists of the lender’s lawyer, the judge and the police.  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 five years old and the information not previously presented to the court.

Once all possession hurdles have been overcome, what is left of the building and the property is now available to the lender to sell.

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

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