Types Of Property Ownership In Panama

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There can be a lot of confusion when foreigners look to buy real estate in Panama; this is because some sellers have actual ‘title’ and others sell their rights to ‘possess’ a property. Panama recognizes three different types of property ownership which are: Titled, Rights of Possession and Concessions.

The Constitution of the Republic of Panama guarantees the right to own private property.

  1. TITLED PROPERTY (TITULO)

Titled property is the most secure form of real property ownership in Panama. Titled properties measured and properly recorded in Panama’s Public Registry office verify one’s real property ‘title’. These verifiable, guaranteed rights allow banks to issue mortgage loans for titled properties by registering liens against one’s title as collateral.

  1. RIGHTS OF POSSESSION (DERECHOS POSESORIOS)

Rights of Possession is national property which has been ‘occupied’ over a period of time, usually for 2 years or more. Possession rights are formalized and recognized through a simple certification document issued by either municipal mayors (Correguduria) or agencies like Reforma Agraria. Transfer of ownership is recorded at the offices of one of the few notaries (there are two in Chiriqui province.) Possession rights can be titled except on islands or in protected areas such as Indian territories. Islands were prohibited in 1942 from further entitlement.

  1. CONCESSION PROPERTY

    Concession property is similar to a land lease arrangement (common in Mexico or Hawaii) where the government grants a concession for a specific purpose, such as a real estate development, hotel, private residence, or marina. Untitled property eligible for concessions are in special coastal or other governmentally protected areas where entitling of land is prohibited by law. The government through a specific contractual agreement guarantees concession property, leaving very little risk to an investor, and is meant to protect and encourage foreign investment in untitled property. Title insurance companies offer title policies for concession properties. Most concessions in Panama are granted for a maximum of 20-year (renewable) periods, although those on rights of possession island property in a national park can be had cost-free for 90 years.

 

RIGHTS OF POSSESSION

The facts about ROP status property are listed below and should clear up any confusion.

 

GENERAL FACTS:

  1. All of the same legal rights of ownership granted to titled property are also constitutionally guaranteed to ROP properties, regardless of local or foreign ownership.
  1. The primary differences are no taxes or mortgages on ROP lands. ROP properties owe no annual nor capital gains taxes upon sale, nor incur any fees. They are not listed in the national registry and generally banks will not give mortgages on them.
  1. For most purposes ROP property affords practically the same legal standing and security as titled land. It is important for documentation on ROP property to be complete and in good order, as much as it is for titled land. The law extends the same ownership rights to both titled and ROP property.
  1. Equally important, with proper due diligence and a measure of cautionary investigation, 99.99% of land problems are easily avoided, whether ROP or titled. In either case, there are many ways to be cheated if a buyer does not do their homework first. Be wary of the locals, perform your due diligence, examine all documentation carefully, and engage a reputable attorney.
  1. ‘Title’ insurance is reportedly available on possessory rights properties in Panama. On writing to Tula Murdock of First American Title Insurance. Her reply: “Please note that First American can insure any registered interest, be it a possessory, leasehold, fee simple or mortgage.”
  1. The government encourages the settlement of unclaimed land and the law supports such ROP ownership as fully as it does that of titled lands. ROP is unique to Panama. Minimum amount of time to establish the validity of rights of possession in Panama , whether on untitled or titled lands, is 2 years while the property is improved and used without contest from other parties.
  1. ROP are transferable in perpetuity; there is no expiry. ROP are fully transferable by sale, including the cumulative time accrued by all previous owners. Panama has very strict derechos possessorios property ownership protection rights.
  1. In cases of eminent domain, the government must by law fairly compensate for ROP property, just as it would with titled land.
  1. Late 2008, the Panama legislature was working on a new law to further strengthen and enhance the status of ROP property, and to allow titling to ROP island properties.
  1. To encourage and facilitate major developers and investors in untitled island properties, a growing trend in Panama, the government in 2006 passed Island Law #2. This provides for the government to grant a concession on ROP island properties. Concessions for ROP lands on islands in a national park can be obtained cost-free for 90 years and lend further legitimacy to one’s project and activities. The measure was designed to safeguard investors and has resulted in over a billion dollars of development thus far, mostly tourism oriented (which includes residential tourism). A government concession would add another layer of ownership and provide further security and comfort for the ROP owner, although a concession is not required, it is only an option.  Concessions can be sold with the property, or revoked or modified by a new owner.
  1. There have been some problematic incidents with derechos possessorios properties, especially in the Bocas del Toro area, mostly perpetrated by a few notorious persons who have since been jailed. They involved selling the same property more than once or a seller not being the actual owner, usually to a careless, overly trusting foreigner. In all these cases, proper due diligence would have revealed the flaws. It is important to understand that the problems of adverse possession, counter-claims, fraud, etc are found in both titled and untitled lands. There are a number of misconceptions as to (ROP) land and sometimes it has been unfairly given a poor reputation. A better understanding of the actual facts will go far towards dispelling these doubts as to the security of ROP investments.

 

SPECIFIC FACTS CASE STUDY:

 

  • Isla Parida ROP dated back to the 1950’s and 1960’s. The property was purchased in parts from three owners, all of whom lived and worked on location  for 40 to 55 years; some were born  and their parents came to settle on the island in the early 1950’s. They marked their boundaries in cooperation with neighbors, cleared land, established pastures, fenced and raised cattle, built wells and cottages, planted fruit trees, and maintained their families by agriculture and fishing. Their rights of possession was properly established and documented, and then sold on privately.
  1. The present owners, are fully satisfied with ROP status in and of itself, and were not intending to obtain a concession when they are available. It remains an option for a new owner however.
  1. The current owners have conscientiously collected all the relevant ownership documents to  Isla Parida, and thus the possession rights are very well supported, impenetrable, and verily uncontestable. There are no disputes of ownership or boundaries with neighbors. All parts of the property have been ROP for over forty years without any countervailing issues. All boundaries are plainly marked, pegged, and fenced, and regularly maintained. It is now considered an honest opinion that Isla Parida rights of possession property ownership are as solid as if it were fully titled. There is also an extensive stack of documentation and a long trail of paperwork, available at the appropriate time.
  1. Concessions are not yet available for Isla Parida or Chiriqui province, but it is expected that they will be in 2009 as the government adds further parts of Panama, starting with Chiriqui province, to their list of ‘designated tourism development areas’. However, a concession is not necessary; it is optional, if desired. It is a confidence builder in lieu of title, but more and more realtors and investors are recognizing that ROP properties, with its lower price scales, are a wise and safe investment.
  1. There are no zoning laws or restrictions in Isla Paridas other than:
    1. As in most countries, beaches themselves are legally public, although there have been only a couple visitors via yachts in recent years (including one kayaker from Costa Rica 100 miles away!).

 

  • Being within the boundaries of the Chiriqui Gulf National Marine Park, there are restrictions imposed by ANAM, the park agency, to protect the environment, wildlife, turtles, trees, reefs. This is seen take as a big advantage to have their reinforcing regulations for the protection of the private nature reserve.
  1. ANAM restrictions relate solely to the island ecology and environment. Building houses and other development is evaluated in terms of disturbance to the environment. There is nothing to prohibit residences or commercial projects on Isla Parida. For example, when a permit from ANAM was applied for to build a second and third residential quarters, an inspection took place. Since there were only 3 trees to be cut and a pledge made to take all trash back to the mainland, the permits were easily received. For tourism or commercial projects, an environmental impact study with a specific master plan would be required. Milciades Samaneigo, a civil engineer who specializes in working with ANAM, has quoted us $4500 to obtain an ANAM approved master plan in three months.
  1. In this case study a master plan has not been applied for yet since future plans are still undecided and there are no plans to undertake anything commercial or sufficiently impacting the environment to warrant a master plan. Generally a private residential situation, even with additional guest and worker housing, will not require a master plan. One of the advantages of a master plan is that an owner can in one sweep receive full endorsement and permits for many future plans of development, including commercial, forestry, eco-, or corporate tourism, construction, and many other activities. There is even a provision for approval of limited removal of mangroves to facilitate a project, via a master plan and environmental impact study. Bottom line: A master plan/impact study may or may not be needed, depending on activities, but anything environmentally sensitive can be done. For continued private residential use, this particular property has everything already permitted and turn-key ready.
  1. During World War II the Panama Constitution was amended due to wartime concerns, and untitled islands could no longer be titled after 1942. Since 2006 changes to the law are making it possible to entitle further island properties. Further legislation on this is expected. Panama is a very economically progressive country and very pro-foreign investment, with one of the world’s most favorable foreign retirement programs. In late 2008 the Panama legislature worked on a new law which would allow the titling of coasts and islands that were rights of possession or national lands.
  1. Isla Parida is wholly owned by a Panama corporation and a transfer of the property would entail a simple transfer of shares and change of directors. Thus there would be no sale or transfer of Possession Rights per se, only a transfer of the corporation shares to the new directors: same owner, new directors and shareholders.
  1. ROP covers a huge part of Panama, especially coastal and island properties, and there is a very substantial history of legal cases which protects the ROP status as much as if it were ‘titulo’. There are no significant disadvantages to ROP status other than not having the additional credibility that titled status often conveys in the average person’s mind.
  1. The risks sometimes spoken of in connection with derechos possessorios can be effectively and completely avoided simply by proper due diligence and following the recommended procedures. And those that do so, are not disappointed. Yes, title is obviously better, but with due diligence, documentation, procedures, ROP is just about as good, and in the islands, finding title is rare and will usually greatly inflate the asking price. Since Panama is undergoing a real estate boom, many attorneys are too busy to spend the time required verifying ROP ownership and will sometimes give the ‘easy’ advice to avoid ROP properties.

 

RECOMMENDED PROCEDURE:

 

  • Verify the documentation of the history of ROP ownership
  • Verify with the history, boundaries, and absence of disputes with neghbors.
  • Examine the surveys and compare them to the physical boundaries, including fences, streams, pins, paths, etc. Check credentials of surveyor.
  • Examine omunicipal building and ANAM permits
  • Verify the good standing and history of the owning corporation
  • Transfer of shares & change of directors
  • Afterwards, consider getting a government concession or full title when new laws provide for this.

 

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