Real estate purchases in the DR works a little differently than in the U.S. and other countries. Instead of tendering a written offer, you first negotiate and reach a verbal agreement on the price with the seller. Then, a binding "Promise of Sale" or "Option to Purchase" is prepared by an attorney and signed by both parties. At this time, the deposit or advance payment is normally made.
Many attorneys and notaries in the DR do not protect the buyer adequately in the "Promise of Sale." For instance, sometimes buyers are asked to pay a large percentage of the sale price without any security or direct interest over the property. (Escrow agents are rarely used.) If these funds are misused, the buyer’s only recourse is to sue the seller personally—and he may have become insolvent by then. This can be particularly disconcerting if a bank forecloses on a development property. Even if the developer has not performed his basic obligations, you could still be responsible for making your payments as contracted.
Your best protection is to get a trustworthy, reliable attorney, and title insurance. In the Dominican Republic, as in many Latin American and European countries, the government provides title insurance. Unfortunately, this governmental arm is not known for its solvency, so seek out a private insurer like First American Title Insurance.
Four simple steps to ownership
1. Buyer and seller sign a "Contract of Sale" before a notario who authenticates it. (Notaries in the Dominican Republic are required to have a law degree.) The Contract of Sale contains the legal description of the property, the price, and conditions of sale.
2. The authenticated Contract is then taken to the nearest Internal Revenue Office for payment of the appropriate taxes.
The authenticated Contract is then taken to the nearest Internal Revenue Office for payment of the appropriate taxes.
3. 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 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.
4. 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 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 span from the filing of the Contract of Sale to the issuing 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.
Taxes and closing costs - Expect to pay approximately 5% of the sale price for taxes and closing costs. 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 is common practice in the DR and it has become so blatant and widespread that the tax authorities have now set a minimum value for properties in some locations. But, considering that property taxes here are extraordinarily low (1% per year of the declared value), unless you are buying a high-priced property, your annual taxes will be negligible. So, committing fraud to lower your annual rate may not be worth doing…especially if, when you go to resell, and 25% capital gains taxes are due, your property is assessed at its true worth. For these reasons, you should probably do the right thing from the beginning and claim the true price of purchase in your purchase documents. Ask your attorney for advice…if you use a loophole in the law that allows you to buy property through a DR corporation you have formed, you can lessen your tax burden considerably.
Inheritance of real estate - There are no restrictions on foreigners inheriting title to 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 your beneficiary resides outside the DR, inheritance taxes are subject to a 50% surcharge. As in many Latin countries, inheritance of real property is governed by a law which provides for "forced heirship," meaning that part of the estate must go to certain heirs. 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 this application, you can own your property indirectly through a holding company. Again, ask your attorney to advise you of your options.
Perform due diligence - Before purchasing a property, hire a real estate attorney to do the due diligence. To start this process, the seller should provide you and/or your attorney with:
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.
If the seller is a corporation, it should provide:
1. Copy of the corporate documentation, including by-laws and resolution authorizing the sale.
2. Certification from the Internal Revenue Office showing the corporation is current with its income tax filings.
If the property is part of a condominium, you need:
1. Copy of the condominium declaration.
2. Copy of the condominium regulations.
3. Copy of the approved construction plans.
4. Certification from the condominium showing the seller is current with his condo dues.
5. Copies of the minutes of the last three condominium meetings.
If the property is a house, you need:
1. Copy of the approved construction plans.
2. Inventory of furniture, etc. (Many properties in Latin America are sold furnished and you want to be sure that, come closing time, you get the furnishings you originally agreed to purchase and not lower-cost substitutions. This should include bathroom and lighting fixtures, etc., right down to the kitchen sink. (Tip: take photos.)
3. Copies of the utilities contracts and receipts showing the seller is current with his payments.
Once all the above documentation is obtained, your attorney should go through this checklist:
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, and you should insist that he/she confirms the results of the Registrar’s search by personally investigating the appropriate files at the Title Registry Office.
Survey: An independent surveyor should verify that the property being sold coincides with the one shown on the survey provided by the seller. (An exception can be made if the property is located in a previously inspected subdivision.) The survey should be checked even when the seller provides a government-approved plat.
Inspection of improvements: A qualified builder or architect should examine any improvements to be made to any structures to confirm that the plans presented are correct and that the improvements are in good condition.
Permits: Have your attorney confirm that the property may be used for the purposes you desire. Why? Because restrictions may exist that you are unaware of. For example, a 60-meter "maritime zone" exists along the entire Dominican coastline—from the high tide mark inland—designating all beaches as public property. No building is allowed within the maritime zone without a special permit. And in tourist zones, there are specific building restrictions.
Possession: Your attorney should ensure that the seller is in possession of the property and that no squatters rights exist. Dominican law is protective of the rights of any tenants on the property, and evicting someone who doesn’t want to leave willingly is time consuming and expensive. Be especially careful with unfenced properties outside known subdivisions. Fencing them before closing is advisable.
Employees: The seller should pay any employees working on the property their legal severance up to the time of the closing; otherwise you may find yourself liable for these costs later.
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