Purchasing Property on Roatan
The actual purchase process is an easy, uncomplicated process. Foreigners, as individuals, can own up to 3000 square meters, which is approximately .74 of an acre, of land per investor. In order to purchase more than .74 acres of land, a Honduran Corporation must be formed. A Honduran corporation is easily formed with the help of a qualified lawyer at a cost of about $2,000.00. When purchasing land in Honduras, it is imperative to have a good understanding of the documents associated with clear title. To protect this investment, a qualified Real Estate Broker, Honduran Notary and Lawyer should assist with reviewing the documents. Title insurance is also available.
The Purchase Process
Here is a typical scenario. Once the property has been chosen, the Broker will write up an offer to purchase. The offer will contain a paragraph calling for an “earnest money deposit”, which is 10% of the purchase price. The earnest money is typically wired to the Broker’s or Notary’s escrow account within 72 hours of acceptance of the offer, or in certain circumstances with agreement of the parties within 72 hours of the purchaser’s return home. The balance of the purchase price is due at closing which is usually within 60 days.
The seller can accept the offer, submit a counter offer or reject the offer.
Once there is a agreement between the Purchaser and the Seller and earnest money is received, closing can be handled in several ways.
The simplest is to have the Purchaser return to the island for closing and sign the papers in person.
A very common alternative is to have a limited Power of Attorney created (POA) by the Purchaser, appointing someone else (often your Honduran Notary or Lawyer) to close on your behalf and accept title in your name.
If a Honduran Corporation is being formed for the purchase, it is common to appoint someone to close on behalf of the Purchaser, (similar to a limited POA) in the articles of the constitution of the Honduran corporation.
The lawyer draws up a Honduran Protocol which transfers ownership of the property from the Seller to the Purchaser. The Seller signs the document and the funds (purchase price) are transferred to the Seller. The Purchaser, or his assignee, signs the same document agreeing to the terms of the sale and accepts title to the property in the name of the Purchaser. The lawyer takes this document to the public land titles registry and submits it. The registry then records the sale and issues the new title in the name of the Purchaser which takes several weeks. The lawyer delivers the new title to the Purchaser or it can be forwarded it to the Purchaser via international courier.
Purchaser’s Closing Costs
A budget of 5-6% of the purchase price should cover the Purchaser’s share of the closing costs. This will cover the land transfer taxes charged by the Honduran Government plus the miscellaneous stamp, bar and registry taxes including the legal fees associated with the transfer of the title. If a Honduran Corporation is formed, a mortgage is required or title insurance is purchased, there would be additional costs.
Seller’s Closing Costs
The Seller is obligated to pay Capital Gains Tax (currently 4%) on the increase of value of the property to the Honduran Government and the real estate sales commission.
Financing may be provided by the Seller, guaranteed by the Purchaser through a mortgage registered against Purchaser’s title at closing. The terms of the mortgage are part of the offer to purchase and therefore open to negotiation by Seller and Purchaser prior to agreement. The interest rates are usually higher than in the US and of the Sellers who will provide financing most will only finance half the purchase price or less. The duration of the mortgage is usually in the area of 1-3 years, but may be longer. It can be structured in a way that gives the Purchaser lower monthly or quarterly payments with a balloon payment at the end of the term, or a short amortization that pays off the mortgage completely over the length of the term. Seller financing is generally intended to help the Purchaser secure the property today, allowing the Purchaser to fund the purchase on their own timetable and terms.
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