The Property Banks Buyers Guide to Dominican Rep
The Land Registry Law of 1947 and its
amendments govern Real estate transactions in the Dominican
Republic. 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 payment of the appropriate taxes.
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:
1. Copy of the Certificate of Title to the property.
2. Copy of the survey to the property or plat plan.
3. Copy of his/her identification card ("Cédula") or Passport.
4. Copy of the receipt showing the last property tax payment (IVSS)
or copy of the certificate stating the property is exempted from the
IVSS tax.
5. If the seller is a corporation:
a) Copy of the corporate documentation, including bylaws and
resolution authorizing the sale
b) Certification from the Internal Revenue Office showing the
corporation is current with its income tax filings.
6. If the property is part of a condominium:
a) Copy of the condominium declaration.
b) Copy of the condominium regulations.
c) Copy of the approved construction plans.
d) Certification from the condominium showing the seller is current
with his condo dues.
e) Copies of the minutes of the last three condominium meetings.
7. If the property is a house:
a) Copy of the approved construction plans.
b) Inventory of furniture, etc.
c) 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:
1. Title Search: A certification should be obtained from the Title
Registry Office regarding the status of the property, whether any
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).
2. 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.
3. 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.
4. 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 DEFINPRO, a department of the Central Bank.
5. 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.
6. 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.
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 his legal
counsel.
Taxes and Expenses on Property Transfers
Taxes and expenses on the conveyance of real property are
approximately 5% of the sale price. This amount includes a transfer
tax of 4.48%, document taxes, special stamps for registration and
tips. Taxes must be paid before filing the purchase at the Title
Registry Office.
Many buyers, with the complicity of their attorneys or notaries,
have been known to evade paying part of the transfer tax by lowering
the true purchase price in the Contract of Sale. This practice has
become so blatant and widespread that the tax authorities have now
set minimum value for properties in most localities. Buyers should
be firm in demanding that the true price of purchase appears in the
purchase documents, not only to abstain from committing tax fraud
but also to avoid a heftier tax liability in the future when they
sell the property, since capital gains are subject to a 25% tax.
Buyers wishing to lessen the impact of the transfer tax, have the
option of using a loophole in the law of incorporations. 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 the buyer and seller on the price reach verbal
agreement, 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:
1. 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 are Ltd to suing
the seller personally, who may have become insolvent by then.
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.
2. 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
have not performed their basic obligations.
3. Escrow agents are rarely used. The seller, therefore, has control
over the funds as they are paid.
Title Insurance
Title insurance is part of every major real estate transaction in
the United States and Canada.
For a one-time premium, an insurance company assumes the obligation
to indemnify the real estate buyer in case title to the property is
defective. In effect, the buyer relies on a policy of title
insurance to guarantee that he or she will actually own the property
to be purchased. In the event of a lawsuit disputing the title, the
title insurance company will defend the buyer in court and if the
lawsuit is lost will pay or cure all valid claims or losses up to
the amount of the policy.
Title insurance may be obtained during or after the purchase of real
estate.
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, two American title insurance
companies have begun to offer their services to buyers of Dominican
real estate: First American Title Insurance Company and Stewart
Title. Among the risks covered are: title vested on another person;
title defect, lien, charge, privilege, mortgage or encumbrance;
forgery, fraud, undue influence, duress, in competency, incapacity
or impersonation in the conveyance; lack of right of access to and
from the property; easement or right of way on the title; invalidity
of any document upon which the title is based because it was not
properly executed, sealed, acknowledged, notarised, delivered or
recorded; invalidity of any document upon which the title is based
because it was executed under a falsified, expired or otherwise
invalid power of attorney; erroneous or inadequate legal description
of the land.
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 range from 17%
to 32% of the appraised value of the estate depending on the
relationship between the beneficiary and the deceased. If the
beneficiary resides outside the Dominican Republic, inheritance
taxes are subject to a 50% surcharge.
Dominican law, which provides for “forced heir ship”, governs
inheritance of real property: part of the estate 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 property indirectly through a holding
company.