Rights of Possession in Panama: A Tradition And An Opportunity

Rights of possession (ROP) is a poorly-understood legal vehicle for investing in Panamanian land that, with proper planning and effort, can be just as effective an investment tool as fully titled land.

Article Highlights

  • ROP is a land-backed asset.
  • 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.
  • The risks can be mitigated but additional expertise and effort is required beyond titled property investment.

Panama, like many Latin American countries, is steeped in tradition. Panamanian villagers still observe traditional forms of etiquette, dance and music that go back to the 16th century.

One of the many Old World traditions still alive in Panama is the Napoleonic Civil Code, which includes the concept of Rights of Possession, or Derechos Posesorios.

Briefly, this legal tradition holds that whoever occupies property and uses it for its social function has the right to possess it.

Because this tradition is poorly understood,many North American real estate investors and analysts have taken a negative view of purchasing Rights of Possession (ROP), especially in regard to Panamanian coastal property. While it is true that ROP can pose significant risk to investors, our analysis – based on in-depth interviews with more than 30 Panamanian law firms – is that it the risk can be mitigated. More to the point, investment in ROP land in Panama is a risk worth taking.

Different Approaches for Different Properties

One of the reasons ROP is poorly understood is that there is no one-size-fits-all way to approach the tradition. Every property that involves ROP must be evaluated on its unique merits. In some cases, a parcel of land may have several claimants who have occupied or used the land at some point. In fact, a family may claim use of the land going back several generations.

Adding to the confusion is the fact that the Rights of Possession may be registered with a regional Office of Agrarian Reform, or the local mayor’s office, or even with a local justice of the peace.

Risks Factors to Consider

The primary risks for investors, then, are 1) The person that you are purchasing the ROP from is not the actual or sole holder of ROP, or that fact is disputed post acquisition; and 2) If the possessor does not maintain a presence on the property, he will lose rights of possession.

Even with all of these sources of confusion and risk, ROP remains a land-backed asset with a market. Value is determined by your own personal use of the property and the market. Much of the best property can only be purchased as ROP and ROP can be used for anything from a winter home to a full-blown resort.

Indeed, investors who have not spent the necessary time on research and due diligence can find themselves in a difficult legal situation. This happened to early investors and was well publicized in Bocas del Toro. According to the ROP tradition, ownership – if contested — must be proven by the possessor.

There are additional risks involved. ROP property is not registered with Catastro, the public registry in Panama. Therefore, since ownership rights are not recorded in the public registry, as with titled property, the true owner of the property can be more challenging to demonstrate.

In addition, bank financing is not typically available for the property or improvements. Most importantly, property must be maintained and exploited throughout the duration of ownership.

Mitigating Risks

Because of these concerns, wise investors put a legal team or corporate private investigators on the ground in Panama. The primary way to reduce the risk is to make sure that your team of investigators has hired an attorney that fully understands the intricacies of ROP and is experienced with ROP transactions.

Additionally, it is helpful if the seller from whom you are purchasing has substantial documentation of ownership in advance. It is important to gather as much information and documents as possible that prove the occupancy and the right of possession of the seller.

It is also important to understand where most of the challenges of the possessors rights come from and make sure those areas are addressed exhaustively. Historically, the challengers of rights of possession come from either a family member of the seller or from a neighbor of the seller.

An effective approach has been to obtain a pre-purchase contract from the seller that includes a due diligence period, during which none of the purchaser’s capital is at risk. During this period, the ownership claims should be investigated.

Some helpful documentation that can be obtained are:

  • Sworn statements from all family members stating that the seller(s) have the sole right to sell the property
  • The same declaration from each neighbor of the property
  • A survey of the property attached to these declarations
  • Documents from the Magistrate office, Reforma Agragria, and ANAM that certify that the seller is the sole holder of the possessory rights

If that sounds like a lot of work, it is. Emerging Terrains’ team of investigators and legal experts does this very exhaustive background on every property we buy.

Because of our extensive background with ROP acquisitions, we see opportunity in Panama. We are confident that the place of ROP in Panamanian legal and judicial history is secure, and we are confident that in years to come it may even become simpler to gain clear title to land.

NEXT: Navigating the Risks of ROP

About Park

Park Wilson, co-founder of Emerging Terrains, has been living and actively investing in the Latin American real estate markets since 2007. His boots-on-the-ground approach to scouting and choosing properties has led to the purchase of more than 6 miles of Latin American coastline. To reach Park, please e-mail him at info@emergingterrains.com Read More

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