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Buying Real Estate in the Dominican Republic:
An Overview  

Introduction

Real estate transactions in the Dominican Republic are presently governed by the Land Registry Law of 1947 and its amendments. A new Land Registry Law was enacted in 2005 but is not yet in force. 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). If the seller is married, the spouse must also sign the Contract of Sale. 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 to request the appraisal of the property, to check that the seller is in compliance with his tax obligations and to pay the appropriate transfer taxes (see Taxes below).

    The Contract of Sale and the Certificate of Title of the seller are deposited, along with the documentation provided by Internal Revenue, at the Title Registry Office for the jurisdiction where the property is located where 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:

  • Copy of the Certificate of Title to the property.
  • Copy of the survey to the property or plat plan.
  • Copy of his or her identification card (“Cédula”) or Passport and that of his spouse, if married.
  • Copy of the receipt showing the last property tax payment (IVSS) or copy of the certificate stating the property is exempted from property tax, and certification from the Internal Revenue Office showing the seller is current with his or her tax obligations.
  • If the seller is a corporation:
  • Copy of the corporate documentation, including bylaws, up-to-date registration at the Mercantile Registry and resolution authorizing the sale.
  • Certification from the Internal Revenue Office showing the corporation is current with its tax obligations.
  • If the property is part of a condominium:
  • Copy of the condominium declaration.
  • Copy of the condominium regulations.

    Copy of the approved construction plans.

    Certification from the condominium administration showing the seller is current with his or her condo dues.

    Copies of the minutes of the last three condominium meetings. If the property is a house:

    Copy of the approved construction plans.

  • Inventory of furniture, etc.
  • 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:

  • Title Search: A certification should be obtained from the Title Registry Office regarding the status of the property, whether any mortgages, 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.
  • 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.
  • 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.

    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 the Ministry of Tourism.

    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.

    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.

  • Utilities: The attorney or buyer should check that the seller does not have any utility bills pending by enquiring at the appropriate power distributor, water, cable and telephone companies.
 
 

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 legal counsel.

Taxes and Expenses on Property Transfers Taxes must be paid before filing the purchase at the Title Registry Office. Taxes and expenses on the conveyance of real property are approximately of 4.4% of the market value of the property, as follows:

3% Transfer Tax (Law # 288-04) 1.3% Document Stamp Tax (Law # 835-45) (Actually, RD$232 pesos for the first RD$20,000 pesos and 13 per thousand for the rest).

Minor expenses such as tax on certified check, sundry stamps and tips at the Registry.

Transfer taxes are paid based on the market value of the property as determined by the tax authorities, not based on the price of purchase stated in the deed of sale. Buyers wishing to lessen the impact of transfer taxes have the option of using a loophole in the law which allows the contribution in kind of property into corporations without paying transfer taxes. 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 verbal agreement is reached by the buyer and seller on the price, 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 are the following:

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 may be limited to suing the seller personally.

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.

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 may not have performed their basic obligations.

Escrow agents are rarely used. The seller, therefore, has control over the funds as they are paid.

Title Insurance

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, it has become possible to obtain insurance from private insurers.

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 have been recently lowered to 3% of the appraised value of the estate. If the beneficiary resides outside the Dominican Republic, inheritance taxes are subject to a 50% surcharge. Inheritance of real estate is governed by Dominican law which provides for “forced heirship”: part of the inheritance 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 estate indirectly through a holding company.

Content from Guzman and Ariza Lawyers company

 

    

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