Latin American Land Grabs from Absentee Owners

Squatter housing in Mexico

When performing market research in Latin America, I heavily consult broker web sites, some of which require me to identify myself and provide contact information.

As a result, I find my e-mail inbox filled each day with “Retire in Paradise” promotions, written with the same tired old marketing vernacular, frequent underlining, bolding and exclamation marks!!!, used to also peddle miracle weight loss or genital enlargement pills.

Included are elated testimonials from retirees living like kings on $800 per month, describing cheap, delicious local food, friendly locals and $10 visits to U.S.-trained doctors. There are no traffic jams, but one still has to drive slowly in order to avoid hitting one of the many unicorns jumping over rainbows. Then there is the exhortation to buy now, before prices go up, because Latin America is running out of land, and the Baby Boomers just started hitting age 65 last year.

So you make up your mind to buy a foreign property now for when you retire in 5 years. You go down there, find some run-down property or vacant land advertised at a bargain price, hire a local attorney to verify clear title, pay the money and then leave. Everything is OK, right?

What sometimes happens is that the absentee owner arrives five years later to find squatters living on the property. When you call the police to have the squatters removed from the property you rightfully own, you find out that squatters often have occupancy rights under various “adverse possession” or "prescriptive easement" laws meant to protect landless campesinos from homelessness and starvation.

Even the United States has adverse possession and prescriptive easement laws, which recently became problematic in several states, such as Colorado, Florida and Texas, where squatters have seized unoccupied homes and transfered title to themselves, including a case in which the owner was absent only because he was being treated for cancer in Houston, 250 miles away. "Adverse possession" is different than "prescriptive easement" in that it extinguishes title for the former owner,
and in most U.S. cases, the title has been transferred illegally, as the minimum period of occupancy required in any state is 7 years. That's somewhat irrelevant, though, in removing squatters, as even American state laws protect squatters' rights until the matter has been adjudicated.

This squatter problem may be a somewhat recent problem in Latin America, which was largely ruled by heartless fascist dictatorships 50 years ago, but has recently been experiencing a democratic renaissance. Democracies give poor people a voice, effecting legislation sympathetic to their interests, including adverse possession laws.

If taken to a court of law, who would be the more sympathetic party in front of a jury or a judge -- the barefoot campesino who just wants a place to raise his chickens? -- or the rich gringo who didn’t even live on the property, letting the space just go wasted?

On the other hand, adverse possession can sometimes be a scam organized by a wealthy land grabber. Consider the case of Sheldon Haseltine, an absentee UK investor with prime land next to Costa Rica’s finest marina. He found squatters on his land in 1998 and tried to have them legally removed. He later found a billboard advertising a Wyndham hotel to be built on his site. He found out that the campesinos had been paid to occupy his site by another wealthy landowner and even found a copy of the cancelled check to the campesinos, in the amount of 100 million colones (about $200,000). His litigation has now lasted 14 years.

How could adverse possession be avoided?

1. Buy in an already-gated community (not accepting the promise that it will be gated some day).
2. Try to get some type of title insurance to protect against adverse possession (not sure if this exists). Title insurers, please comment.
3. Buy only when ready to move in.
4. Do not necessarily believe that prices will be increasing in the near future. In most countries I visit, property prices have been decreasing. There may still be opportunities available at the time when you are ready to occupy or develop your foreign property.

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The effect of mangroves on the valuation of tropical waterfront land

Mangrove-fouled beach near San Pedro de Macoris, Dominican Republic








Many of my appraisal assignments involve tropical waterfront land with plans for tourism-related development. One common impediment to the development of many of these land parcels has been the presence of “mangroves”, also known as "mangle" and "manglar" in Latin America.

Those readers who have driven from Miami to Key West in Florida will have driven past miles of mangroves along Highway 1. These are protected by law. I have also encountered such laws when appraising in Mexico, Costa Rica, Fiji, Brazil and the Dominican Republic.

The word “mangrove” has more than one connotation, however. There is a specific family of plants, Rhizophoraceae, known as mangroves, but many environmental laws apply more generally to coastal marine habitats in which Rhizophoraceae may be present.

Mangroves are legally protected not because they are endangered, but because they serve as important marine wildlife habitats. They are found in 118 countries, mostly between the latitudes of 25 degrees north and 25 degrees south, and are estimated to dominate 75% of the coastlines in the tropical latitudes, as is demonstrated in the Wikipedia map below:

Source: Wikipedia

Mangroves impair the value of beachfront parcels in two ways:

1. In most countries they are protected by law and cannot be removed.

2. Mangroves create dark, organic sediment that fouls beaches.

The issue of mangrove removal is also problematic. First of all, it is illegal in many countries, and can be easily caught by satellite photography. Secondly, mangrove sediments are known to concentrate toxic metals, and the disturbance of these sediments pollutes the surrounding environment.

The issue of mangroves has come up in an APR (American Property Research)appraisal assignment in the Dominican Republic. The top photo demonstrates what I saw. Most of the subject property’s waterfront is dominated by dense vegetation that grows straight up to the waterline. The beachfront in the foreground appears to be fouled by dark sediments typically released by mangroves. This is not the pretty beach scene that typically serves as the foreground of a Four Seasons Resort.

Some clients have a policy of hiring a “national firm” for their appraisals, most often the appraisal subsidiary of a global real estate brokerage, in order to lessen the amount of thought going into the appraiser selection process. There is often a division of labor and responsibility, with one appraiser inspecting the property and another writing the report, which only exacerbates miscommunication and abdication of personal responsibility. The least experienced appraiser often does the lion's share of the work. (I began my career as an appraiser in one such global firm, Jones Lang Wootton.)

In this particular case in the Dominican Republic, there were two other appraisals of the same property done by national firms.

In one appraisal report, all the photos were of the wrong property, and all were taken by air. The property was described as hilly and having utilities, unlike the property I visited. I surmise that the property developer rented a helicopter and took the appraiser to the wrong property on purpose.

The other appraisal report was originally done for the developer and disclosed a long established relationship with the developer, a possible conflict of interest with the lender who re-hired them as appraisers.

Neither report disclosed the presence of mangroves, which leaves me wondering if most appraisers, particularly American appraisers, even know to look for it or consider its significance in the valuation of waterfront land.

Mangrove-fouled beach in Fiji

Mangrove-fouled beach in Costa Rica

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Title Problems and “Lack of Transparency” in Latin American real estate

Ejido de Llano Largo, Acapulco

One reader commented to me about the lack of real estate market transparency in the Dominican Republic and particularly warned me about title problems. He referred me to his web site www.DominicanWatchdog.org which contains the following warnings about title issues:

"1. Before signing any contracts or paying any money you must use a trusted lawyer to make a "deep" local title search. It's not enough to check if the title is "Clean", the ownership history must also be investigated as there has been and still is a lot of fraud with titles in the Dominican Republic.


2. If you are buying land you must use an independent surveyor to re-measure the land and confirm the position (the lawyers know which one to use in the area). Do NOT buy any land with squatters on it and make sure that no squatters are moving into your land as it's impossible to remove them later on."

The US Department of State has issued its own warning about the DR:

"Real estate investments in the Dominican Republic require a high level of caution, as property rights are irregularly enforced and investors often encounter problems in receiving clear title to land. Consultation with an attorney is recommended before signing documents or closing on any real estate transactions. Real estate investments by U.S. citizens have been the subject of both legal and physical takeover attempts. Absentee landlords and absentee owners of undeveloped land are particularly vulnerable. Investors should seek solid property title and not just a “carta de constancia,” which is often confused by foreigners with a title. An official land registry measurement (also known as 'deslinde' or 'mensura catastral') is also desirable for the cautious overseas investor. Investors should also consider purchasing title insurance. Squatters, sometimes supported by governmental or non-governmental organizations, have invaded properties belonging to U.S. citizens, threatening violence and blocking the owners from entering their property."

Market transparency

A transparent market is a market where relevant information is fully and freely available to the public. Jones Lang LaSalle, a major international brokerage (and former employer), published a Global Real Estate Transparency Index 2010 ranking countries according to the transparency of their real estate markets. Canada (no. 2) and the United States (no. 6, impaired by numerous “nondisclosure states”) ranked high in transparency and led the western hemisphere, while the Dominican Republic ranked 77th out of 81 countries and ranked last in the western hemisphere. (This list is not necessarily comprehensive; I once had to turn down a valuation assignment in Liberia, Africa, which is not ranked and seems to suffer from title anarchy.)

Squatters and "land reform"

In countries like Peru and Brazil there are vast shantytowns (AKA “pueblos jovenes” in Peru and “favelas” in Brazil) that are illegally erected on private land and extraction of squatters can also be legally difficult, as it is in the Dominican Republic and Mexico. The DR has also recently had a problem with an influx of Haitian refugee squatters after the earthquake in 2010. As Latin America has finally shaken off fascist governments, the new reality is that democratically elected governments are often more sympathetic to squatters and their alleged rights.

The government of Mexico, in carrying out land reform after the Mexican Revolution, re-instituted an Aztec agrarian communal system of ownership called the “ejido” in which campesinos share ownership of a large tract of land, land which is usually expropriated from the previous owner. A resident of an ejido is known as an ejidatario. Ejido parcels in Mexico cannot be sold, mortgaged or rented. The Mexican Constitution of 1917 promised to restore ejidos, and the expropriation of land for ejidos began in 1934 and continued until 1991, when President Carlos Salinas abolished the practice in order to ratify NAFTA, as American companies did not want to build plants on land that could conceivably be expropriated.

Llano Largo, Acapulco

As an example of the title issues inherent in the ejido system, I once appraised a parcel of land within the city of Acapulco, a few hundred meters north of the Boulevard de las Naciones which bounds the prestigious Zona Diamante section of town. The evening before I was to meet the landowner, I hired three Mexican real estate agents, including one appraiser, to accompany me to the property and share their opinions. While present on site, we were soon approached by several peasants from a neighboring shantytown. They politely asked what our interest in the land was and then claimed that the land belonged to them as part of an “ejido” granted to them. That introduced the possibility of a title problem. What was further perplexing was that the government had placed a sign on the property declaring it to be a “Reserva Ecologica” (ecological preserve).

The next morning the landowner/loan applicant drove me to a parking lot on the Boulevard de las Naciones and then pointed to his property across a grassy field. “Why can’t we go to it?” I asked. He reluctantly drove me to the western edge of the property, the only accessible edge, and when we disembarked, we were immediately approached by ejidatarios. Instead of talking to them, the landowner immediately summoned me back into his truck and we drove off. He called the ejidatarios “squatters who will be removed soon.”

The landowner further damaged his credibility when he presented me with an “Uso de Suelo” (a document certifying the permitted land use) for another parcel instead, a parcel described as being right on the Boulevard de las Naciones.

The need to use attorneys and title insurers

It is essential to use an honest, local attorney that has been carefully vetted. Several years ago, for instance, a Venezuelan friend of mine sold his business in Houston in order to retire in Costa Rica. He selected a house/restaurant on a cliff and was guided through his purchase by a local Costa Rican attorney. Unfortunately, he did not buy title insurance and the attorney he hired was in league with the swindler who claimed to own the property. My friend lost his life savings and ended up having to sleep on other people’s couches.

Two American title companies, Stewart Title and First American, now offer title insurance in Latin America. Be sure to specifically ask for coverage against squatters, too, or you may face years of litigation in a foreign land.

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Appraisal in the Dominican Republic

 Beachfront with view of San Pedro de Macoris


The subject property was a 59-acre parcel of raw, waterfront land situated about 45 minutes east of the rapidly growing capital city of Santo Domingo, ten kilometers east of the upscale beach town of Juan Dolio and a couple of miles west of the grimier city of San Pedro de Macoris, an industrial port city remnant of the days when sugar refinement ruled the economy.

The Dominican economy is booming. Tourism has almost reached pre-recession levels and is increasing at a rate of about 5% per year. Demand is also strong for exports of sugar, tobacco, and gold.

The town of Juan Dolio has prospered as the result of a new highway linking it to Santo Domingo, allowing affluent professionals to actually live above a white sand beach while efficiently commuting half an hour to their jobs and enterprises in Santo Domingo, a city of four million residents. New residents in Juan Dolio are more likely to be locals than foreigners, who nevertheless also have a presence there.

This land was part of an overall 252-acre project that was entitled for two 30-story residential towers, a Greg Norman golf course and a marina, among other residential uses. The first phase of the project, consisting of 52 private villas (priced at about $1.75 million each) and the golf course, was under construction on the date of my visit. A marina, sewage treatment plant, and electrical generation plant have not started yet.

The land is owned by a partnership managed by the most successful developer of upscale residential communities in Juan Dolio, including several sold-out condo towers. They pioneered the concept of developing condo towers at the beaches of the DR (Dominican Republic), and have a track record of successful condo development.

When tasked with conducting a market value appraisal, of course, the present owner is not considered in the analysis. Most appraisers are directed by their professional associations or their governments (particularly the U.S. government) to estimate the market value of a property as if it was placed on the open market and someone else is buying it. For lending purposes, that makes sense, as the only scenario a lender needs to consider is the “what if we have to foreclose” scenario, in which the property would indeed be sold to someone other than the current owner. The lender can make exceptions for particularly strong borrowers, but the appraiser cannot.

As is often the case, the property owner ordered his own appraisal from a well-known international appraisal firm,  who estimated a value of $25,625,000, or about $434,000 per acre, which seemed like quite a steep value for so much raw land outside of town, even if it did front the sea. The entitlements are formidable, but is the demand there? The town of Juan Dolio, 10 kilometers west, seems to be undergoing excessive high-rise condo construction, and at least two projects have already failed. Would likely buyers, who are more likely to be affluent professionals from Santo Domingo than foreigners, be willing to commute even further to live in a high-rise?

The actual setting was also slightly less than ideal. Most of the waterfront consisted of protected mangroves, and what little beach there is has been fouled by the mangroves, as can be seen in the above photo. Then there is the view of the decaying electrical plant in the city of San Pedro de Macoris, responsible for frequent electrical blackouts in the area. Of course, when Phase 1 of the project is complete with the golf course and the marina, the views will be much better, but I was hired to do an “as is” valuation.

The only comparable sale I could find subsequent to 2007 was an entitled waterfront parcel on the north shore (near the Playa Grande golf course) which sold this year for $40,000 per acre. The north shore is more dependent upon tourism, however, and not quite as accessible by highway. Nevertheless, I did find listings of other waterfront parcels, entitled and unentitled, at prices not much higher than that, including a 97-acre beachfront parcel ten minutes east of San Pedro with 250 meters of white sand beach, a coral reef, and a private river, situated next to the Bahia Principe La Romana resort, listed for sale at about $51,000 per acre. La Romana is the next major tourist city east of San Pedro.

In the end, I estimated a value substantially less than that of the international firm, whose analysis did not present any land sales subsequent to 2007 and reconciled higher priced listings without any discussion of utility availability or the likelihood that the sales price would be lower than the listing price.  Then again, I was hired by the lender and not the property owner.

An amusing incident happened at the Santo Domingo airport on the way home.  All flights bound for the U.S. are subject to secondary hand screening at the gate.  Card tables are set up and security guards comb through all carry-on luggage.  A young lady went through my luggage and then said "Shake your body".

That's just what I did, but I apparently misunderstood her accent.  She then said, "No. I check your body" and then proceeded to pat me down. 

It brought back a memory from another Latin American airport in which a woman chased after me shouting "Cher!  Cher!"  I didn't turn around because I have no interest in Cher and wish she would just retire like she keeps on promising to.  Apparently the woman chasing me was a security guard needing to see the claim check for my luggage. "Sir, Sir" was what she meant to say.