Due Dilligence Advisory

Due Diligence

U.S. citizens should be aware of the risks of purchasing real estate in Nicaragua and should exercise extreme caution before committing to invest in property. Please bear in mind that property cases in Nicaragua are under the jurisdiction of Nicaraguan authorities. The U.S. Embassy cannot provide legal counsel or interfere in Nicaraguan judicial or administrative processes, including cases where the Government of Nicaragua is a party. Potential investors should review the annual Investment Climate Statement, engage competent local legal representation, and investigate their purchases thoroughly (due diligence) in order to reduce the possibility of property disputes.

General Recommendations

Be sure that you and your attorney carefully review the chain of title to the land you wish to buy. The chain of title to be reviewed must trace back to at least 1979. If the property that you wish to purchase is located along the coast, we recommend a review of the full chain of title dating back to before 1917. The review will involve a records request to the appropriate Public Registry office (Registro Publico). Note that it can be difficult for inexperienced persons to navigate the system and obtain copies of all Registry entries relevant to the property of interest. In some cases property numbers have been modified and reassigned over the years due to divisions and re-combinations of multiple properties with multiple owners. You should take note of whether the Government of Nicaragua has ever held title or been involved in transfer of title and discuss the implications with your attorney, including the possible need for a Certificate of No Objection (see below).

Real estate transactions are made legally binding through a Public Deed (Escritura Publica). You should also physically inspect the property to ensure that it is in accordance with the topographers’ map and the property description on the Public Deed, and that it is in the seller’s possession. Review with your attorney all permits, rights of access to and rights of use within the property. Note that Public Deeds, contracts, and other documents must be in Spanish in order to be legally binding.

We recommend that you register all real estate transactions in the Public Registry. These include sales, leases, mortgages, possession rights, and any other transactions. Nicaraguan law is not clear as to whether the Public Registry serves as a means to establish property rights or serves merely as a means of publishing an existing right. However, as common practice, the Nicaraguan legal system recognizes registration of a title as the means to establishing property rights. The different government agencies involved in the registration process constantly change or add new requirements, which make registration of your title a cumbersome and unpredictable process.

Consider consulting with your attorney and/or other U.S. investors about the possibility of title insurance, and review any exceptions or exclusions specified within the policies. In the past some companies outside Nicaragua have offered title insurance within Nicaragua with policies written in English.

Special care is needed when authorizing representatives to conduct transactions on your behalf when, for instance, you are not in the country. You should avoid leaving a General Power of Attorney (Poder General or Poder Generalísimo), which grant a wide range of unnecessary faculties. For real estate transactions, there exists a Special Power of Attorney (Poder Especial), which allows you to grant only specific faculties to a person of your trust.

Special Laws and Regulations

Depending on the type or origin of property that you are purchasing or leasing, other laws or regulations may also apply. Below are examples of regulations that you and your attorney may need to review; please note that this list is not all-inclusive.

  • Coastal Law: The 2009 Coastal Law applies to property bordering beaches, rivers, lagoons or lakes, or other bodies of water. The Coastal Law regulates private and public domain, coastal access, and use and development of properties located in these areas. According to the law, the open area between low and high tide, plus 50 meters from the high tide mark is open to public use. However, regulations established in this act may also affect ownership, use, construction, lease, and possession rights beyond the 50-meter mark on these properties. Real estate transactions on these properties should be preceded by a more thorough due diligence that traces back the title to before 1917 or to at least where the title originated. Note that many property disputes have arisen in coastal areas impacted by this law.
  • No Objection Certificate (Certificación de No Objeción): The Attorney General’s Office requires a No Objection Certificate to register real estate that historically belonged to the Nicaraguan State. Other properties that require a No Objection Certificate include: coastal properties, properties previously owned by cooperatives, titles that are based on a Supplementary Title, and properties whose titles were obtained through Laws 85, 86 and 88 (1990). Registration of titles of properties that fall under one of these categories may not be possible without a No Objection Certificate. The process to obtain it may vary, and some U.S. citizens have reported lengthy delays. You can visit the Attorney General’s webpage (pgr.gob.ni) for the latest requirements, and we recommend you request the advice and assistance of an attorney. If the property falls under a category that may require a No Objection Certificate, it is advisable that the buyer ask the seller to provide one before agreeing to the sale.
  • Border Law: The 2010 Border Law established special requirements for properties located along the borders of Nicaragua. There are aspects of this law that directly affect prospective foreign owners; in some cases, foreign ownership is prohibited.
  • Indigenous Community Properties: Properties that belong to indigenous communities fall under special regulations. They may or may not be registered and usually ownership is not transferable. One may acquire concessions or lease rights, but these are regulated by each indigenous community council. Disputes over rights that are acquired from an indigenous community are difficult to settle. It is unclear whether Nicaraguan civil law is applicable for transactions involving indigenous communities. Environmental use and development laws also apply to a vast majority of properties owned by indigenous communities. Many of these properties cannot be used to build residential housing of commercial space.

Other Considerations

If you are purchasing an empty lot where you or a developer are planning to build, you should review availability of services such as utilities, internet, and phone, or the plans and permits to make such services available, as this cannot be taken for granted. If you are purchasing an existing building and are not planning any further construction you may wish to investigate which services are connected and verify their reliability.

In many communities property owners hire caretakers or guards to protect their investment if this service is not already provided (for example, within a real estate development.) Please note that the presence of hired personnel does not always deter trespassers and squatters. Employees have been known to collude with occupants or to assert rights over the property themselves.

You may owe annual property taxes. Be aware of your tax obligations and the procedures for paying.

There are many other points to consider when contemplating purchase of property in Nicaragua not mentioned here, particularly when purchasing within a development. Aside from your attorney, you may wish to seek advice from experienced U.S. property owners. Organizations that have expressed an interest in encouraging successful U.S. investment in Nicaragua include ANID, the Nicaraguan Association of Investors and Developers (http://www.anidnicaragua.org/) and AmCham, the American Chamber of Commerce in Nicaragua (http://www.amcham.org.ni/).

If You Have Problems

Property cases in Nicaragua are under the jurisdiction of Nicaraguan authorities. The U.S. Embassy cannot provide legal counsel or interfere in Nicaraguan judicial or administrative processes, including cases where the Government of Nicaragua is a party. If you are a U.S. citizen involved in a property dispute, the American Citizen Services unit can provide a list of attorneys registered at the Embassy.

As part of our efforts to maintain and publicize assessments of Nicaragua’s investment climate, the Economic Section monitors ongoing U.S. citizen property claims and investment disputes against the Government of Nicaragua. We regularly inform Nicaraguan government officials and the general public of the current investment climate here in Nicaragua. In particular, we have highlighted the poor rule of law due to weak institutions and limited protection of property rights that have affected or deterred U.S. citizens from investing here.