Titling rights of possession (ROP) land can be relatively straightforward or may require a patient wait-and-see approach depending on the type of land.

Rights of possession are a foreign concept that leave many international investors ill at ease. For many, it is just not worth the effort to learn and do what is required to acquire and maintain a healthy ROP claim. It’s quite possible to possess and sell ROP land just like titled land, but someone who is uncomfortable with ROP should make the effort to title the land for the added security and comfort.

Currently the titling situation depends on the location of the property. For agricultural land, obtaining title is relatively straightforward. For oceanfront land, because of the new law, patience is probably the prudent approach.

Agricultural Land

Titling agricultural land is straight-forward. Agricultural land is all land except islands, national parks, indigenous territories, shores of rivers and a strip of land along the ocean shore between the high tide line and 200 meters inland.

Title is obtained from the office of Agrarian Reform. A surveyor from Agrarian Reform needs to inspect the land and issues title if there are no other occupants or possessors. There are a number of different options when titling the land, but typically an application requires the following:

• Power of attorney.
• A copy of your passport and resident ID, if applying personally
• A copy of the survey of the parcel.
• A detailed description of the parcel.
• Authenticated affidavits from the neighbors stating that they have no complaint with the borders.
• Corporations also need to submit a Public Registry Certificate.

The process usually takes about 7-9 months and costs about $3500 in legal fees plus a per hectare charge for the land that varies depending on the type of application. It’s best to start by contacting a lawyer experienced in titling agricultural land.

Catastro, under the Ministry of the Economy and Finance, also titles agricultural land. However, it seems like Catastro is being superseded by other bodies and it may be a good idea to try other options.

Oceanfront Property

Titling oceanfront property is more of a challenge. There is a mechanism to title oceanfront property under Law 2, 2006, otherwise known as the Island Law, that allows people to title ROP holdings from before 2006.

Unfortunately, the Island Law has been applied unevenly and, in practice, it is virtually impossible for to get title through the Island Law. Applicants have made significant investments into the process without return.

Automatic Titling

PRONAT titles whole districts at a time under 2 separate programs. In both cases, the process is automatic and there are no associated costs.
The original program started in 2001 and is active in many of Panama’s prime locations.

The more recent program, established under Law 23, 2009, is so new that there hasn’t been enough time to witness its practical implementation. The plan is to transfer titles registered with Catastro to PRONAT and making PRONAT the main regulator of the titling process.

It’s prudent to have an attorney contact PRONAT when they start titling an area just to make sure everything goes as smoothly and quickly as possible.

Alternatives to Titling

With the deficiencies to the process of titling oceanfront property there are alternatives worth exploring until the titling process improves.

It’s possible to build and obtain title to a structure on the land under Panamanian law.

This will secure part of your investment and will further strengthen an ROP claim. It’s best to contact a Panamanian lawyer familiar with titling structures to get the process started.

Another option, although a bad one, is to attempt to obtain a concession under the Island Law.

Concessions are only available to developers within tourism zones, as designated by the Ministry of Tourism, and are granted only for a limited period of time. Getting a concession requires a significant investment in planning, time and money. However, just like the titling process under the Island Law, there is virtually no chance of success.

To Title or Not To Title

Obviously the decision to title agricultural land is a lot easier than the decision to title coastal land. Agricultural land only requires the desire and a little bit of time and money. If PRONAT is already titling the area, waiting for them to do it is also worth considering.

Coastal land requires desire and lots of money and even then the chances of immediate success are low. The consensus has already emerged amongst Panamanian professional classes that ROP land needs to be fully titled and successive governments have attempted to improve the titling process. It might be a better idea to hold on to ROP in coastal areas and wait for the titling process to improve or to wait until the property gets titled by PRONAT.

Most signs point to the eventual titling of all rights of possession (ROP) as each attempt at legislation governing ROP gets progressively more balanced and fair.

President Ricardo Martinelli rode into power by combining populist politics with a solid business background. It sounds like a strange combination, but a President who’s already earned a fortune isn’t as likely to succumb to the pull of corruption that’s plagued many Panamanian politicians. And, as someone who understands the needs of business, there is a lot of hope that he can help both rich and poor by accelerating the expansion of the economy.

In his inaugural address, Martinelli specifically mentioned ROP as one of the government priorities.

We will begin a massive land titling program, so that I can tell everyone who’s listening who has possessory rights, prepare these rights because you’re going to have your piece of land titled.

Martinelli’s comments aren’t all that new. Previous governments have made similar pronouncements and little has come of it. It’s not believing that Martinelli will succeed where others have failed that makes now the time to be buying ROP land, but rather seeing Martinelli as part of a trend that is rapidly leading towards fully titling Panama.

Current Legislation

Previous governments have also identified ROP as a hindrance to foreign investment and have taken steps to reform the system with varying degrees of success.

The Agrarian Code, implemented by the department of Agricultural Reform has a very consistent and effective titling program. All through the countryside there are signs declaring “La tierra es tu futuro. ¡Titúlela!”, or “The land is your future. Title it!” in English. The only big problem with the Agrarian Code is that a lawyer is needed to get the paperwork done. This necessity excludes many poorer Panamanians.

Unfortunately, the Agrarian Code only applies to agricultural land which is defined as land more than 200 meters from the high-tide mark.

Oceanfront property isn’t easily titled. Holders of ROP from before 2006 can apply for title under Law 2, 2006, the “Island Law,” but the laws governing oceanfront title are confusing and applied unevenly. Foreign investors who have attempted to title oceanfront property under the “Island Law” mostly only got legal bills to show for their efforts.

The most recent legislation is also the most practical attempt at titling coastal land.

There is a capital gains tax of 25% on the first sale which essentially shifts the cost of titling the land to the sale where even the poor can afford it and gives the government their share for government-owned land.

And it satisfies investors worried about the security of their property by giving a clear way of titling the land.

The Future of ROP

While rights of possession may eventually fall entirely into disuse, there is every reason to believe that ROP holders will be able to turn their ROP claims into full title at little or no cost. The ROP system is too entrenched to disenfranchise ROP holders many of whom are too poor to pay more than token fees to transform their ROP into fully titled holdings.

There is virtual unanimity amongst the Panamanian professional class that ROP hinders the progressive image that Panama attempts to portray.

The current government has made titling land a priority. Those with experience doing business in Panama know that previous governments have made titling land a priority only to have progress hindered and stopped by competing interest groups.

So what’s changed?

In a word, nothing. The current government has the most practical plan yet to be put in place. But it’s not any single plan or piece of legislation that’s important, but rather the evolution of plans and legislation.

Momentum to title ROP continues to build. Legislative attempts to title ROP continue to mature. Even if the current attempts fail, it is a matter of when, not if, titling of ROP holdings happen.

NEXT: Titling ROP

Preserving a rights of possession (ROP) claim requires a deliberate plan to demonstrate continued possession of the property.

Kurt Vonnegut once wrote that “everyone wants to build, but nobody wants to do maintenance.” Luckily for investors buying ROP, building is a large part of maintaining an ROP claim.

If an ROP claim is contested, possession is awarded to whoever can best demonstrate possession. There is no single criterion that guarantees continued possession. But there is a large array of criteria, like documentation, use, extrajudicial declarations from family and community, exploiting the land, and certifications from certain authorities, that make it virtually impossible to lose possession when combined.

Fence the Property

It’s easy. It’s cheap. It prevents neighbors from accidentally using the land. Fencing the land is a small one-off expense that goes a long way towards preventing problems.

The good fences make good neighbors proverb has never been so true. No farmer wants to till land only to discover that they’re not allowed to use it. And no investor wants to evict a neighbor as their first foray into the community. So build a fence and no one will be disappointed.

The best time to plan a fence is during the pre-purchase phase. Get together with the seller and the neighbors and walk the property line so problems aren’t inherited from the previous owner. Then get the fence up as soon as possible. You would rather learn of a disputed line before the acquisition than the day after.

Use the Land

Someone who’s not planning on building or not planning on building right away should plan to make some minimal improvements to the land. Something as simple as planting fruit trees is a good start.

Across North America, it’s not unusual to see an empty lot sitting in an otherwise rich and vibrant downtown core. Usually these lots are owned by some investor who has nothing to do with the city except for this passive investment. If these lots were ROP, the absent owners could at worst lose or, more likely, have to go to court to protect the land.

Using the land helps demonstrate possession and makes it less likely that a neighbor will think it’s okay to use the land.

Hire a caretaker

Hiring a caretaker who keeps everything neat and in good repair also helps maintain a ROP claim. The caretaker basically keeps the land in use and the jungle from taking over.

For large properties, this only costs about $300 per month and smaller properties can often share caretakers with their neighbors.

It is important to make sure that the caretaker has signed a proper labor contract so that the caretaker himself isn’t making claims on the land.

The caretaker will also greatly reduce the risks of trespassing or theft. Violent crime in Panama is rare, but it is not unusual to return from a short holiday and discover the house broken into. A caretaker, even shared with the neighbors, will go a long way toward keeping people off the property.

Building on the Land

Building on the land is another way to demonstrate possession and strengthen an ROP claim. Keeping a herd of cattle isn’t necessary to enjoy your land while knowing it’s secure. Building helps too.

Virtually any type of infrastructure will strengthen an ROP claim: buildings, roads, wells and pretty much anything else will help. It is also possible to title many improvements to the land which will further help demonstrate possession.

ROP Over the Long Term

Preserving an ROP claim is important because it’s a lot cheaper to plan ahead and take steps to guarantee the claim than it is to have to prove a claim in court. With a little bit of planning, there is no reason why someone can’t own ROP property for as long as titled property.

NEXT: ROP Now & the Future

Rights of possession (ROP) have some important advantages and one big disadvantage compared to fully titled property.

Purchasing ROP can be frustrating. The idea of possessing land instead of owning it is so foreign to most North Americans that many just give up and look elsewhere. But, once they understand the risks of ROP, there are just a few basic advantages and disadvantages that differentiate ROP from titled property.

Financing and ROP Land

The biggest disadvantage ROP land has versus titled property is that, since it isn’t titled, it can’t be used to secure financing.

It’s very important to be aware of this before you purchase because you need to use the property to maintain the ROP claim and one of the most common ways to use ROP property is to build on it. Obviously the property can’t be used to finance the infrastructure, so funds need to be in place to buy and build beforehand if you plan on building.

Outside the Maritime Zone (typically 200 meters from high tide), it is possible to title ROP land. This usually takes around 7-9 months. Once titled, the land can then be used for financing normally, so a good rule of thumb is a year’s worth of maintenance expenses need to be budgeted in eligible areas before financing options become available.

Tax Exemption

It may not be possible to use an ROP claim for financing because ROP is not technically owned, but, since it isn’t owned, it’s also not subject to property tax.

Property tax of about 2% is paid on titled land. The savings can be significant particularly on larger properties where other expenses scale better.

Building Codes and By-Laws

Some people choose to keep their property as ROP even when they could easily title the land because ROP is not governed by local building codes.

Local building codes cover everything from the minimum lot size to the width of any road on the property to the type of drainage.

If you plan on titling the property, it is best to build to code. If you don’t build to code, local authorities may slow down the titling process or force you to get everything to code anyway. Small transgressions are often allowed to pass, but exactly what depends entirely on the local authorities.

Even where title isn’t desired, it’s best to build as close to code as possible. Milton Friedman once said, “hell hath no fury like a bureaucrat scorned.” Flaunting local regulations reduces your options and invites petty retribution from officials you might need to deal with in the future.

Obvious contempt for building codes is asking for trouble. Small transgressions or following the spirit, if not the letter, of the code may be alright, but it depends entirely on local officials. Following building codes is definitely the safest and keeps the titling option open.

Availability

The biggest advantage of ROP over titled land is availability. Simply put, most of the best land, including 90% of all beachfront property, is ROP.

There’s no reason for an investor to compromise a business plan because they’re scared of ROP. If the right piece of land happens to be ROP, then take the time to learn about ROP and take the necessary steps to purchase the property safely. Then let the business proceed according to plan.

And there’s no reason for someone to automatically rule out a location for their dream home simply because it’s on ROP land. They need to consider whether they are willing to learn about ROP and then whether they are willing to take the necessary steps to maintain an ROP claim before making the decision.

Why Buy ROP?

If the land is needed for financing, then ROP is obviously not an option. Tax advantages are nice, but only get significant on larger properties. Fewer building regulations are also nice, but ignoring regulations reduces options and invites conflict.

The main reason to buy ROP land is that it is the piece of land that best fits the business plan.

NEXT: Preserving ROP Claims

Poor understanding of rights of possession (ROP) on the part of foreign investors is the biggest obstacle to investing profitably in ROP as the main risks are well understood and easily resolved.

Warren Buffett famously described the junk bond market as weeds priced as flowers. He warned anyone who would listen to stay away. In spite of the risks, Buffett found junk bonds that he actually liked. He never wavered from his opposition to junk bonds. But in a perilous market, he was able to find opportunity that justified the risks.

Purchasing rights of possession (ROP or derechos de posesorios) is as risky as any random junk bond. Unprepared and uneducated investors can get seriously burned. But an informed investigator can consistently purchase properties in prime locations safely and profitably.

Who Owns the Land

Uncertainty over who really possesses the land is the primary source of risk when investing in rights of possession. Rights of possession can be registered with a number of different authorities, but there is no centralized database listing all ROPs and most ROP land isn’t registered at all.

As a result of this confusing situation, the person selling the ROP might not even have the right to sell the claim.

ROP is designed to protect the rights of communities that have been using the land for generations without going through the expensive and contentious process of formally titling land.

Imagine a family that’s lived and worked the land for generations. As their needs grew, they expanded their farming to include unused adjacent land. They didn’t buy the new land because nobody had the authority to sell it. The choice between feeding your family and starving in bureaucracy is an easy one to make.

The community grew with the needs of the people and the people knew that the laws governing ROP protected their community and the equity that they built in to it.

Now you have several generations, including cousins, aunts and uncles, all working the land. They all live close by. They help each other and share when necessary. Who then owns the pasture where everyone’s cattle grazes? And who gets to sell it?

This simple, practical arrangement is at the root of how investors get into unwanted trouble.

Historically, challenges to ROP claims come from either a family member of the seller or from a neighbor of the seller. Maybe one brother is in financial difficulties and needs money now, but his siblings still need the land. Maybe the family is moving to the city, but the neighbor still needs the pasture they share.

Sometimes the problems are a result of innocent mistakes or sometimes they are the result of deliberate attempts at fraud. Either way, proper investigation will unearth most problems before any purchase and protect the investment from the problems it can’t find beforehand.

Mitigating the Risks

The way to resolve this problem is to go into the community and get signed affidavits from neighbors and family stating that the land in question is solely possessed by the seller. Doing this will uncover legitimate competing claims and attempts at fraud on the part of the seller and it will protect the investment in court.

With a good pre-purchase contract that includes a due diligence period where the purchaser’s capital is not at risk, the seller should be an important ally in getting signed affidavits.

If the seller isn’t trying to commit fraud, then most sellers are happy to connect purchasers with the community to facilitate the sale.

If the seller is resistant, then that’s the first sign that something may be amiss. Even without help from the seller, attempts at fraud in these tight communities are quickly revealed through this sort of investigation.

The affidavits also provide protection after the purchase. If some long lost uncle returns and thinks he can make a quick buck, he will have a difficult time making that claim because his whole family has sworn that the original seller had sole rights to the land.

Then, after consulting with the community, it’s time to check for registered claims with various authorities and finally purchase the land if nothing is amiss.

Investing Safely

The biggest obstacle to consistently purchasing and profiting from ROP land isn’t the unusual system, it’s the poor grasp of the system by foreign investors.

Investing in ROP is no different than any other sort of investment. Once the understanding is there and it can be done safely and profitably.

NEXT: Advantages & Disadvantages of ROP