Rule Four Of Six: Always Have Your Own Legal Representation In The Target Country
Rule Four Of Six: Always Have Your Own Legal Representation In The Target Country

By Don R. Campbell

Welcome to Part 4 of this series on buying property outside of your home country. If you happen to miss the previous posts, please take the time to review them as well. Here are the links:

IntroRule #1Rule #2Rule #3Bonus Rule

Rule #4: Look Out For Your Self. Who’s Advise Are You Taking?

Never, ever, ever use a legal representative that also represents the other side of a deal. EVER!  This is true when you buy in Canada and is doubly important when buying outside of the country.

The best way to deal with Rule 3 (know the local laws) is by following Rule 4.  Every contract you sign must be reviewed by an unattached, outside expert familiar with local laws.  The best case scenario is that you have met them on one of your two due diligence trips down there and have at least introduced yourself and stated your expectations.  The 2nd best choice is to get a reputable referral, it may be from someone else who has bought down there or from your local lawyer in Canada. It is always best to meet them in advance of needing them and is much easier face-to-face than over phone or email.

Arm’s Length Is Critical

The key is, this legal expert must not have anything to do with the current property owners, developers, or promoters, and must be very proficient in property transactions with foreigners.

What you quickly discover is that property contracts are quite different than your typical MLS offer and the strategies and clauses you use up here can be unusable or even unenforceable elsewhere.   Although the contracts may have been made to look the same so you are made to feel comfortable with the process, be diligent.

Find out, from this independent legal adviser, what rights you have if the developer or promoter does not perform.  For instance, what is the dispute resolution process in the country? What would the costs be and would you have to be present in the local court to bring an action? How do I get my deposit back and how long does it take? What are the “Trust” laws and how do they protect me, the buyer?

Land Title Considerations

The land titles registry, in many of these countries (including some states in the US), is not as sophisticated, or as accurate as we have come to expect here in Canada.  You want to ask key questions to ensure that you are well protected in the transaction such as:

·  How is Title usually held in that country? 

·  What is the historic accuracy of their process?

·  Do you get the equivalent of a site survey or Real Property Report?  Is the info on this document confirmed by a government agency? 

·  What is the title dispute resolution process?

·  What are the restrictions for use on the property’s title?

·  What are the zoning rules?

·  Are there Historic or Indigenous Rights Issues? (This is becoming an increasingly more common issue that you do NOT want to be the target of.)

·  Can you hold the title as a Canadian or does a local have to ‘hold’ the title in trust?

·  If in ‘trust,’ who do you know that you TRULY trust with your money and investment in the country?

·  Who holds the deposits and in which country are they held during the purchase process?

·  How do you get your deposits back if you need to?

Knowledgeable and independent legal advice is going to be important in all of your transactions, whether in Canada or in a tropical country.  DO NOT take this transaction lightly, make sure you have a strong team around you who has nothing to do with the promoter or vendor and has extensive knowledge of the local laws and how they can affect you.  The extra few hundred dollars you spend to do this right is peanuts compared to the money you could have to spend (or lose) in the future if you are caught by a legal surprise.

For instance, many people do not know that in some countries there are squatter rights laws that allow a squatter to move into or onto your property, and if they stay there for a set period of time (often only a few months), you lose the right to move them off.  They can even erect make-shift buildings on your property.

In other countries, there are laws where the government has limited the size (diameter) of trees you can cut down on your property.  Therefore, if you are not careful, and you buy a building lot with these certain sized trees scattered on it, you may have just bought yourself a nice camping plot that you will never be able to build on due to the location of the trees.

In the US, you may be subjected to higher tax rates, the title may not be as accurate as you would expect, or immigration laws may come in to play.  Get an independent expert on your side early on during your due diligence phase.

Sophisticated Investor Insight – Financing Options

Real estate is such a great investment due to the leverage that banks provide you.  When buying outside of Canada, you must find out what your financing options are and what types of interest rates you can expect to be paying.

Often times it is not as simple as it seems, and you will see many a promoter telling you to go get a Canadian line of credit to buy the property.  What they forget is that you must service this debt (so there had better be cash flow) and you are now really putting yourself at increased risk because you are borrowing Canadian dollars to buy a property based on another currency.

Find out what financing is available in the country the property is located and find out what their underlying interest rate is. You will soon find out what their central bank thinks of their economy and currency.

In any and all cases, mitigate and control the risks you can. Why leave wild cards, you can control, floating around when there are enough uncontrollable risks that can come your way.  You’ll never get rid of all the risks, no matter where you buy home or abroad, however it is foolish to ADD risk due to laziness or ‘difficulty.’
Next up, Rule # 5: Break this one and all I can say is “OUCH!”  Make sure you have reviewed all of the previous rules posted earlier in this series. Here are the links: IntroRule #1Rule #2Rule #3Bonus Rule
Rule Four Of Six: Always Have Your Own Legal Representation In The Target Country was last modified: January 6th, 2014 by maddy

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