Dominican Republic Real Estate Law

Upon completion of the money transactions, the title is transferred to the name of the buyer or the company and registered with the registrar of titles in the Dominican Republic.

In the event of the owner's death, property owned in the Dominican Republic will automatically become the property of the owner's named beneficiaries. There is a one time transfer tax of 3% of the purchase price of the property. The attorney fees are an additional 1% of the purchase price. Residency is not required to buy property in the Dominican Republic, however, our attorney will be happy to assist you in obtaining residency if desired. Requiring about 4 months to complete, the residency process is not difficult and is very affordable.

Is it risky to buy real estate in the Dominican Republic? Many first time buyers ask this very question. Perhaps they have heard horror stories of crooked realtors, incompetent attorneys and disorganized government offices. A newspaper article sometime ago described the corruption in the Superior Land Court in Santo Domingo (pipes were clogged from files flushed down the toilets) and wondered how any property owner could sleep well at night. A visitor to the Registry of Titles in any of the major cities unfamiliar with the realities of the Third World will certainly be shocked at the open filing cabinets and the stacks of folders tied with strings covering the floors. This is the reality real estate lawyers work with every day.

In fact, the risk in buying real estate is very small, if you deal with a reputable realtor, a competent surveyor and a good real estate attorney: a combination not as difficult to achieve as some might think. For the moment, we will concentrate our efforts on the legal aspects of the property purchase, leaving the discussion of realtors and surveyors for a later date.

What makes a real estate attorney good? A good real estate attorney comes up with strategies and methods to neutralize the deficiencies in the system in order to protect his clients' interest. Mediocre or bad lawyers neglect to take any special protective measures and end up harming their clients. The difference may be illustrated analyzing an important aspect of every real estate transaction: the title search.

In theory, a title search under Dominican real estate law should be an easy undertaking. You go to the Registrar of Titles in the jurisdiction where the property is located, show her (in Puerto Plata, it's usually a lady) the correct Parcel and Cadastral District numbers, and ask for a certification describing the status of the property. The Registrar will then search the appropriate registry books and files and upon finishing her task will issue, under her signature and responsibility, the required certification detailing all the liens and charges, if any, encumbering the property. An attorney's obligation in the title search is limited to requesting the certification. While in many countries, the title search is done by an attorney who then issues a legal opinion; in the Dominican Republic the search is by law the responsibility of the Registrar who as a government officer will attest to and certify the condition of the property in question.

In the real world, the overworked and underpaid Registrar of Titles has neither the time nor the staff required to do a thorough title search. As a result, many certifications stating that a certain property is free and clear are incorrect and the buyer doing a transaction will find himself later with a lien or mortgage on his property. It is true that as a purchaser of good faith the buyer will not be legally responsible for the lien. However, he must go to Court to lift it and this may entail expensive litigation (maybe against a bank with deep pockets) and time. In theory, the Registrar is legally responsible for the incorrect certification and should pay from her own pocket the party with the lien or mortgage who suffered harm because of his mistake. In the real world, Registrars are insolvent and therefore unable to compensate their victims.

Under these circumstances, any conscientious lawyer will do the title search himself, going to the registry and spending the hours or days required to do a thorough job. The Registrar is usually more than happy to allow any lawyer to do the work for her and will sign, at the end of our search and after a cursory review, the legal certification. The real estate lawyer must learn how to do his job amid the clutter. He or she must know in which drawer of which desk the Registrar keeps the latest notices of liens. Sometimes, he or she will go as far as to donate filing cabinets to keep the records of certain Parcels of interest to his or her clients.

Unbelievable as it may seem, many attorneys don't even take the trouble of asking the Registrar for a certification, much less inspecting the Registry themselves. It is a sad truth that the standard of practice in the legal profession in the Dominican Republic is very uneven. We do have many reputable law firms with good track records in dealing with foreign clients. Yet we also have many attorneys who are inept if not crooked. You cannot just assume that the average lawyer is competent to do even a simple real estate purchase. Do your homework, consult with your Embassy or your attorney back home (he'll check legal directories), get recommendations from previous buyers, and you will end up with a qualified attorney who will make sure things go right.

To finish on a positive note, the Dominican Supreme Court and the Superior Land Court have initiated a complete study and overhaul of the land registry system under the auspices of several international organizations. Noticeable improvements have been made at the organizational level. Judges and Registrars are required to attend regular courses and seminars coordinated by the Supreme Court. Corruption has diminished considerably. Perhaps, sometime soon, getting a good attorney to assist you in a real estate deal won't be that important!
 

Before you buy Real Estate in the Dominican Republic

Upon arrival in the Dominican Republic, you may see places that advertise properties around the particular destination you are visiting. Be careful to take the time to investigate properties all over the area you are interested in, as properties that are advertised do not necessarily reflect the true market value of all available properties. Knowing how real estate purchases work in the Dominican Republic, what's involved, the other costs that may be associated, what questions to ask, etc., will help ensure you make an informed purchase decision.

You may hear that when a foreigner purchases property in the Dominican Republic, there are no annual real estate taxes and/or no title transfer taxes. Neither of these statements are completely true. Depending on the property purchased, as well as how it is purchased, there may or may not be an annual real estate tax liability and a title transfer tax. There are situations where tax exemption can occur, but it is important to find out where this is legally the case. The best thing to do is to speak with Real Estate Agents/Agencies or Attorneys/Law Offices to learn what your options are for the particular property you are interested in purchasing.

If you decide to purchase directly from the owner, there are some things that you should keep in mind. There is no real estate or governmental body that sends real estate and property tax reminders to owners if these fees have not been paid. If an owner does not pay these dues, the government will ensure they collect any arrears at the time of sale, if not up to an additional 50% penalty on these arrears as well, before enabling the title of the property to be transferred. This could prevent the sale from happening if the seller does not have the money to pay these arrears (and any penalties), or, depending on what has already been transacted between the buyer and the seller, put the buyer in a position to pay any outstanding dues before obtaining title of the property. To prevent this from happening, ask the seller to provide proof of the previous tax payments that have been made on the property.

A seller should always be able to provide you with at least a photocopy of the title to the property so that you can verify with the titles office that the title is good and that there are no liens against the property. It is also wise to have the seller provide a recent copy of the tax assessment of the property, matching it against the title to ensure it fully describes the property and all of its buildings. If the title office has only registered the piece of land, and a home or building was built afterwards without being registered, you could be liable for the arrears in taxes on this home or building since it was built.

If you are looking into purchasing a new residential property, the developer may not be able to provide you with anything but a photocopy of the 'master title' for the entire development. This is okay, but you will need to also complete a 'contract of sale' if you decide to purchase, to make your purchase legal and binding. Ensure the 'contract of sale' is notarized by an Attorney and is filed properly with the applicable department. Once the entire project is completed, the developer cancels the 'master title' in exchange for providing individual land titles to each of the project's buyers. Once the development is completed, the developer should provide you and all other buyers with an individual land title for your portion of the project, but to be sure, at the time of sale, along with the 'contract of sale', you
 

Introduction

Real estate transactions in the Dominican Republic are governed by the Land Registry Law of 1947 and its amendments. Ownership of property is documented by "Certificates of Title" issued by Title Registry Offices. The required steps to convey or transfer ownership of real estate from a seller to a buyer are the following:

• Buyer and seller must sign a "Contract of Sale" before a Notary who will authenticate it. (Notaries in the Dominican Republic are required to have a law degree). The Contract of Sale will contain the legal description of the property, the price and other conditions of sale.

• The authenticated Contract of Sale is then taken to the nearest Internal Revenue Office for review by the tax authorities and payment of the appropriate taxes (see Taxes below).

• The Contract of Sale and the Certificate of Title of the seller are deposited at the Title Registry Office for the jurisdiction where the property is located and the sale is recorded.

• The Title Registry Office issues a new Certificate of Title in the name of the buyer and cancels the old Certificate issued previously to the seller. The time from the filing of the Contract of Sale to the issuance of the new Certificate of Title may vary from a few days to a few months depending on the Title Registry Office where the sale was recorded.

Due Diligence

Before purchasing property, it is recommended that buyers retain a real estate attorney to do the due diligence. Although possible, it would be too risky for the buyer to do it on his own. To start the due diligence, the seller should provide the buyer or the attorney with the following documents:

• Copy of the Certificate of Title to the property.

• Copy of the survey to the property or plat plan.

• Copy of his or her identification card ("Cédula") or Passport and that of his spouse, if married.

• Copy of the receipt showing the last property tax payment ( IVSS ) or copy of the certificate stating the property is exempted from property tax.

If the seller is a corporation:

• Copy of the corporate documentation, including bylaws, up-to-date registration at the Mercantile Registry and resolution authorizing the sale.

• Certification from the Internal Revenue Office showing the corporation is current with its income tax filings.

• If the property is part of a condominium:

• Copy of the condominium declaration.

• Copy of the condominium regulations.

• Copy of the approved construction plans.

• Certification from the condominium administration showing the seller is current condo dues.

• Copies of the minutes of the last three condominium meetings.

If the property is a house:

• Copy of the approved construction plans.

• Inventory of furniture, etc.

• Copies of the utilities contracts and receipts showing the seller is current with his payments.

Once the documentation listed above is obtained, the attorney should address every item on the following checklist before the closing:
 

• Title Search : A certification should be obtained from the Title Registry Office regarding the status of the property, whether any mortgages, liens or encumbrances affect it. The buyer should insist that his attorney confirm the results of the Registrar?s search personally by investigating himself the appropriate files at the Title Registry Office (see Buying Property in the Dominican Republic: Title Searches ).

• Survey : An independent surveyor should verify that the property to be sold coincides with the one shown on the survey presented by the seller except when the property is located in a previously inspected subdivision. Cases have occurred in which a buyer acquires title over a property some distance away from the one he believes to be buying due to careless work by a previous surveyor or to fraud by the seller. The survey should be checked even when the seller provides a government-approved plat.

• Inspection of Improvements : A qualified builder or architect should examine any improvements to be sold (house, condo) to confirm that the plans presented are correct and that the improvements are in good condition.

• Permits : The attorney should confirm that the property to be purchased may be used for the purposes sought by the buyer. There are many legal restrictions which should be taken into account before purchasing. For example, Law 305 of 1968 establishes a 60-meter "maritime zone" along the entire Dominican coastline, measured from the high tide mark inland, which in effect converts all beaches into public property. No building is allowed within the maritime zone without a special permit from the Executive Branch. Also, in tourist zones, there are building restrictions administered by the Ministry of Tourism.

• Possession : The attorney should check that the seller is in possession of the property. It should be ensured that no squatters? rights of any kind exist. Special precautions should be taken with unfenced properties outside known subdivisions. Fencing them before closing is advisable. If there are tenants on the property, the buyer should be informed that Dominican law is protective of a tenant?s rights and that evicting a recalcitrant tenant is time-consuming and expensive.

• Employees : The seller should pay any employees working on the property their legal severance up to the time of the closing, otherwise the buyer may find himself liable for the payment later.

• Utilities : The attorney or buyer should check that the seller does not have any utility bills pending by enquiring at the appropriate power distributor, water, cable and telephone companies.

• Many attorneys in the Dominican Republic do not perform the required due diligence on real estate transactions, limiting themselves in most cases to obtaining a certification from the Title Registry Office. Sometimes, the real estate agent and the seller pressure the buyer into a hurried closing despite the advice of legal counsel.

Taxes and Expenses on Property Transfers

Taxes must be paid before filing the purchase at the Title Registry Office. Taxes and expenses on the conveyance of real property are approximately of 4% of the sale price, as follows:

    * 3% Transfer Tax (Law # 288-04)

    * 1% Document Stamp Tax (Law # 835-45) (Actually, RD$180 pesos for the first RD$20,000 pesos and 10 per thousand for the rest of the price of sale).

    * Minor expenses such as tax on certified check, sundry stamps and tips at the Registry.

    * Transfer taxes are paid based on the price of purchase stated in the Contract of Sale or on a minimum of 70% of the market value of the property as determined by the tax authorities, whichever is higher.

    * Buyers wishing to lessen the impact of transfer taxes have the option of using a loophole in the law which allows the contribution in kind of property into corporations without paying transfer taxes. For this, cooperation from the seller is essential.
 

Promise of Sale

Real estate purchases in the Dominican Republic do not usually follow the North American pattern of a written offer tendered by the buyer to the seller, followed by the seller?s written acceptance. Instead, after verbal agreement is reached by the buyer and seller on the price, a binding Promise of Sale or Option to Purchase is prepared by an attorney or notary which is signed by both parties. A deposit or advance payment is normally paid at the signing of the Promise.

Many attorneys and notaries in the Dominican Republic do not protect the buyer adequately in the Promise of Sale. Among the most common deficiencies are the following:
 

• The buyer is allowed to pay a large percentage of the price of sale without any security or direct interest over the property. In case of misuse of these funds, the buyer?s remedies may be limited to suing the seller personally.

• Many condo buyers in Santo Domingo have suffered through this experience in the last few years. Generally, the developer uses the buyers? funds, along with a bank loan, to finance the construction. The bank collaterizes the loan with a mortgage over the property. When the developer misappropriates the funds or runs into financial difficulties, the bank forecloses and the buyers lose both their money and "their" property.

• Payments are not conditioned on the availability of clear title or the adequate progress of construction. Sellers, therefore, can demand payment or place the buyer into default despite the fact they may not have performed their basic obligations.

• Escrow agents are rarely used. The seller, therefore, has control over the funds as they are paid.

Title Insurance

In the Dominican Republic, as in many Latin American and European countries, the government provides title insurance. The Land Registry Law establishes an indemnity fund with which to pay claimants who due, for example, to an error of the Registrar, are deprived of their property. Unfortunately, the indemnity fund never collected sufficient funds to become operative and property owners remain unprotected. Recently, however, it has become possible to obtain insurance from private insurers ( see Buying Property in the Dominican Republic: Title Insurance ).
 

Purchase of Real Estate by Foreigners

There are no restrictions on foreigners purchasing real property in the Dominican Republic. Formerly, Decree 2543 of March 22, 1945 and its amendments required that foreigners obtain prior Presidential approval except in certain cases. Decree 21-98 of January 8, 1998 abolished this regulation and established as the only requirement that the Title Registry Offices keep a record, for statistical purposes, of all purchases made by foreigners.
 

Inheritance of Real Estate by Foreigners

There are no restrictions on foreigners inheriting title to real property in the Dominican Republic. Inheritance taxes have been recently lowered to 3% of the appraised value of the estate. If the beneficiary resides outside the Dominican Republic, inheritance taxes are subject to a 50% surcharge.

Inheritance of real estate is governed by Dominican law which provides for "forced heirship": part of the inheritance must go to certain heirs by law. For example, a foreigner with a child must reserve 50% of the estate to that child despite the existence of a will or of the law of his country of residence. To avoid the application of Dominican rules of inheritance to the estate, it is advisable for foreigners to hold real estate indirectly through a holding company.