I need to lay out some of the ground rules for buying property in Ecuador. Unlike the States, there is no centralized or regulated process. There is no MLS system for listing properties, and there are no exclusive buyer/broker or seller/broker relationships. Brokers are not even required; property can be purchased directly from an owner with only a lawyer to ensure that all of the documentation is filed properly.
But it gets even more interesting from there. First, the Manglaralto White House from my previous post:
This property falls under a shared-ownership obstacle. In this case, the property is owned by seven siblings. One of them is still in Ecuador, but the other six are not here anymore; they live in the US, Norway, South Africa and other locations. To sell the property, all seven must agree on the terms in writing; not an easy thing to do with this house.
Another obstacle can be an inheritance property. When one of the original property owners dies (usually the husband - women live much longer here), the rights to the property are split 50/50: half to the surviving spouse and the other half distributed among any children. To sell a property, all of the owners must agree to the terms. Trying to buy a property in this situation can be tied up in the courts for years.
An aside: I know a woman who bought a property like this, vacant, and built a house on it. One of the property owners showed up after all of the improvements had been made and reclaimed it. She lost her entire six-figure investment. She had been shown a false deed to the property and had accepted it without doing the necessary background work.
To purchase property, good lawyers are absolutely necessary. They will not only ensure that the escritura (title) is free and clear, they will also check the previous six owners for any liens against the property.
Speaking of liens, anyone who purchases a property assumes any financial obligations tied to it. Here are two such instances:
- One owner left Ecuador and moved to the States after the government placed liens on his business. Since he was no longer in the country, the liens fell to his property instead.
- Many residents in Quito and Guayaquil owned property on the coast and used the electric service free of charge. The electric company had failed to install meters on the property; the juice was coming in free from the electric lines that ran along the highway. Once the electric company began cracking down and installing meters, the property owners abandoned the lots rather than pay their bill. Many of these properties are currently for sale, but the back utility costs fall on the new property owners. (Much different from the States where that cost would be incurred by the individual.)
Perhaps the most tangled web of debts comes from purchasing a previous business. This is a property that Emily and I call the "Rio Chico Compound":
This lot is in a great location: Rio Chico is just south of Manglaralto and has great fish and vegetable markets. It also has over 200' of beach front, almost unheard of in the area. The buildings need some rehab, of course, but this place could become a Pacific front oasis for renovation costs under $30,000. (Labor costs in Ecuador run about $15/day per worker and materials are relatively cheap. New facades could be created for very low cost, and even teardown/rebuild prices are low.)
Unfortunately, there is a caveat. (Of course there is!) In the second picture, the brown building on the right is a hostel, and the people who run the hostel also live on the property. (The also operate the little tienda at the front, right side of the property).
If we were to buy this, we would have three options with regards to the employees:
- We could buy the property and fire the workers. We would then be responsible for 25% of all income that they had ever earned on the job as severance pay, but we would then own the property free and and clear. That wouldn't be too popular with the locals and might result in broken windows in the middle of the night.
- We could require that the current owner fire the employees and incur the severance fee cost before we buy. Since the owner is currently under financial hardship, this isn't likely to happen.
- We could buy the property and keep the employess on board to run the hostel. Do we really want to run a business on our property from the get-go? Probably not. They would probably expect continued housing to be included as well.
Another interesting note about this property and how it relates to the realty process. We had two different brokers show us the property, and here's what they presented:
- Hector, a broker we know and trust, told us the asking price. He also mentioned that the workers on the property hadn't been paid in months and the price was very negotiable.
- A second broker, a slick-talking local who runs a real estate business in Montanita offered the property with a $50,000 increase in price and made no mention of the current obligations that the property held. He also said that the price was firm and that it would likely sell for much over the asking price.
- Additionally, we've also recently seen this property for sale on a local website where the asking price is $110,000 over what Hector told us.
I do know people living on the coast here that have successfully purchased property and are very happy with what they have, but many of them have done so without understanding the full legal implications and trust their lawyers to handle all of the paperwork. Emily and I want to know the property purchase process in as much detail as possible (like with our visa application) so that we don't get caught with any surprises.
Spoiler alert for those you that watch House Hunters, International. It is an entertaining show to watch, but it's usually packaged together after a sale has been completed. I've met a couple of the people that have been featured on the show, and they did not have the purchasing experience as it was presented on the show. Again, it makes for good theater, but it's not that easy!
No comments:
Post a Comment