Dateline: Belgrade, Serbia
If you have been reading our blog, you know that Colombia has been on my radar for a while now.
It is my favorite Latin America spot for its startup scene, economic potential, quality of service and investment opportunities. If you add to it a mixture of incredibly friendly and fun vibe, optimistic and beautiful people, there is no wonder this country has been under the spotlight for nomads and expats.
I have written in details about living in Colombia in our Expat Guide and how to invest in Medellin and Bogota, but today I want to share with you a cautionary tale, which inspired my research and this article.
A real estate deal gone south
It all started a few months ago when my friend Greg called with a very exciting news: He is purchasing land in Cali, Colombia.
It was the perfect piece of land for an apartment complex as I could see from the pictures he has shown me. Located in the upscale neighborhood of Cristales, slightly elevated and with an amazing view of the city, the lot was begging to be developed.
A long story made short, Greg bought the lot only to find out that he had been the victim of a scam. The day he started drilling for soil samples, one month after paying and completing the legal paperwork, a guy appears at the lot asking him what he was doing.
Greg explained that he was preparing to construct a six story apartment complex.
The first comment of the guy was that it would be impossible; the land belonged to his family and they had just obtained approval for a building permit a few months earlier. Because of financial issues they had been unable to start construction.
This naturally started a massive investigation, involving lawyers, builder and the public authorities.
After two days of no sleep and excessive due diligence my friend realized that he had not bought the lot – but the building next to the lot. On the papers, it still appeared as an open lot, because the owner of the building never applied for the building permit and never registered his apartment complex.
Those applications are expensive, but the fines that the original owner is now facing are much more expensive.
The entire block has only one empty lot, which was why Greg did not take note of this fact when studying the paperwork.
On paper, he is (still) the legal owner of the next-door building. But, once the real owner discovers that Greg has taken possession of his property he will of course complain and demand a cancellation of the new title.
And he will get it.
By studying the signatures and fingerprints of Greg’s fake salesman afterward it is visible that they are not exactly the same as those of the real owner on the title. The notary definitely should have noticed this and I suppose my friend should have, too.
So, Greg has been the victim of an organized group of scam artists. He has bought the “land” from a person who was not the real owner, but an impersonator with a really good fake ID and photoshopping skills – possibly so good that the notary and bank accepted them as valid. Either that or they were working with people on the inside, which is far more likely.
The seller insisted (in a very nice way) on using a certain woman at a certain notary, which we now know was an accomplice of the impersonators.
As it turns out, the notary was one of the last few notaries in town without a digital fingerprint scanner.
In addition, the bank cashier who cashed the check that we issued could well be part of this fraud as well. Greg is now working hard to resolve the situation and sue the notary and people involved. So there is some hope.
In effect Greg lost over US$100,000 plus time and money spent on lawyers, architects, land studies, et cetera. On top of that he also has a likely two-year legal battle in front him to correct the situation and find/sue the people who scammed him and seek compensation, however unlikely this might be.
How to avoid the common traps
I won’t bore you with the details, as there are too many to share. But I think you get the fact: In Colombia or anywhere else in South America you have to be very, very careful before signing and paying for land or buildings.
It is easy to be wise in hindsight, but to help other fellow investors and homebuyers from ending up in the same situation, I want to give you a step-by-step guide that you can use to avoid the traps to which my friend has fell victim.
1. Most properties in Colombia are found via ‘For Sale’ (Se vende) signs posted on that actual property, through online and in newspaper classified ads, onncaraiz.com.co or through local real estate agents.
There are a number of documents you’ll need to do your due diligence, as well as some key procedures you should follow when buying real estate in Colombia.
2. Be on the lookout for sellers calling from different phone numbers, especially as the transaction moves along. This could be a sign of a scammer using a disposable cell phone.
Ask the seller or real estate agent for the right documents and have a competent lawyer review them. It should cost around $1,000 between bank and legal fees.
3. Make sure to meet the actual owner, ask to see his ID. Make him introduce you to the neighbors of the property to verify his identity. If he does not know the neighbours this should be another warning. You can also go directly to the neighbours and ask them questions about the neighbourhood, security issues, the seller, et cetera.
4. Stay away from deals in which one of the signatories on the “Escrituras” has died and the property undergoing succession. It will take forever to finish the deal, one to two years is not uncommon and there will be a lot of interest at stake. Buy while people are still alive – it’s a lot easier.
5. Never take the salesman’s word for how much you can build on the land. Visit the nearest government office and check it out. If you are buying a property in an apartment complex, house or lot in a gated community it is worth investigating if there is a substantial debt for non-paid HOA fees – it’s called “Administración” in Spanish.
6. If you decide to make an offer, go ahead – nothing is binding at this stage. I always make a low offer 25-50% below the asking price to get a feeling about the position the seller is in: desperate, patient, hungry.
You have your lawyer or the bank’s lawyer draw the binding contract between the seller and buyer, where you state your intention to buy or sell. If they refuse, the deal is over.
7. YOU choose the notary, one with digital fingerprint systems. If they refuse, the deal is over. This also prevents the seller from working with a corrupt employee on the inside, which is what happened in our case.
At the notary, make sure to see his or her cédula (local ID) and ask for an additional ID, like a drivers license or passport to confirm it. Look carefully at his/her signature when signing – Do they feel confident when doing it? Does it look the same? Confirm the telephone numbers that he puts on the contract, by calling each one. Inspect the fingerprints. Allow no mistakes or no misspelling.
8. The are some legal transaction costs and taxes that you will need to pay at the notary, which include about 0.5% in notary fees, a 1% sales tax on the purchase price paid by the seller, roughly 3% of the purchase price payable by the buyer to register the property, and simmer minor paperwork costs.
9. When paying always make sure to have a receipt for the payments prepared in advance so that the seller will sign upon receiving the money. You should also make sure to sign and authenticate and notarize all papers. Again watch closely when signing and doing fingerprints. Never pay anything in cash.
10. Take pictures with the seller to celebrate the sale; it will be useful in a lawsuit if it turns out later that he was an impersonator.
But, I did not stop there.
I decided to reach out to a couple of real estate agents with some ”on the ground tips” for potential investors.
1. Get your banking set up. It’s a very important and logical first step, as not all banks in Colombia will work with foreigners without a cedula de extranjeria (colombian ID). Large commercial banks will only deal with foreigners that have a direct link with the country, vis-a-vis owning a Colombian LLC or working for a Colombian company. If they don’t fit these requirements, they’ll work with an FX broker/bank that acts as an intermediary in the FX market.2. Set your goals/expectations: if your main goal is ROI, follow the right properties. Most times, properties that are good to live in usually don’t rent well, and vice versa. Properties that rent well usually aren’t good homes.3. Make sure the lawyer/company that you’re working with knows Colombian law and regulations in regards to foreign investment. Registering your funds under the correct exchange forms can save you a lot of trouble, headache, and money, especially after the 2017 tax reform.4. Titles are important; study them. Make sure that the lawyer that you’re working with does a thorough and complete title study to make sure that the transfer of ownership/title is clean and free of mortgages, leans, embargoes, etc.5. Valor de escritura is key. This applies to foreigners. When in a transaction, the capital gains (or renta ordinaria when applicable) is calculated by deducting the fiscal cost of the asset from the sales price. Foreigners will have to increase the fiscal cost (in this case known as valor catastral) in order to qualify for a VISA, but also to comply with Colombian law when it comes to fund registration. Casacol handles all this process for its clients.
After you have chosen the property you like and suits your needs and budget, make sure you conduct a title study , which is not a complicated process. There is national centralized data base at the Oficina de Regsitro de Instrumentos Públicos (Office of Public Records) from where you can order an instant title certificate of the property provided you have the Numero de Matrícula Inmobiliria (Real Estate Resgistry Number).That certificate shows a complete history of the property and will point out any difficulties.
If the title is clean and ready for trade, then you can commit to the purchase.
All property taxes must be paid in full before title is transferred.
It is very difficult for a newcomer to open an account in Colombia, thus the money transfer has to be done by wiring the money directly into the seller´s account.
Needless to say, all the tasks above could be done by a professional real estate agent or company at no extra cost to the buyer.
All of the above being said, most sellers are honest, decent, hard-working, good people looking to do business. Don’t let my tale scare you away.
As in any business venture, anywhere in the world- always do your homework.
Colombia is a great country to live in – and has a tremendous amount of untapped business opportunities for the right people who are willing to navigate the bureaucratic maze and perform their due diligence well.
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