How to Use Escrow in Costa Rica for Real Estate Transactions
Using Escrow in Costa Rica is a critical step when purchasing property in Costa Rica to make sure that you complete a secure transaction as part of your plan to relocate to Costa Rica.
So, let’s imagine, you’ve found the property. You’ve negotiated a strong Purchase and Sale Agreement. You’re conducting thorough due diligence. Everything is going according to plan. Now the seller wants you to wire $50,000 as a deposit.
Where does that money go?
If your answer is “directly to the seller” or “to the seller’s attorney,” you’re about to make one of the most dangerous mistakes in Costa Rica real estate.
Here’s what should happen: your deposit—and eventually the full purchase price—goes into an escrow account controlled by a neutral third party who releases the funds only when all conditions are met and the deed of transfer is signed.
Here’s what happens without escrow: you wire money to the seller. The seller receives it. Then during due diligence you discover the property has major title problems, illegal construction, or isn’t what was represented. You want your money back.
Good luck with that.
The seller has your money. Getting it back requires either their voluntary cooperation (unlikely if they’re dishonest) or a lawsuit (expensive, slow, uncertain outcome). You’ve gone from negotiating a property purchase to litigating for recovery of your own funds.
Escrow prevents this nightmare. It’s the single most important protection in the entire transaction.
What Escrow Actually Is
Escrow is a financial arrangement where a neutral third party (the escrow agent) holds funds and documents on behalf of the buyer and seller until all conditions specified in the Purchase and Sale Agreement are satisfied.
Think of it as a locked box that requires two keys to open: one from the buyer (proof that conditions are met) and one from the seller (signed deed of transfer). Neither party can access the funds unilaterally.
The escrow agent:
- Holds the buyer’s deposit and purchase funds
- Verifies that all closing conditions are satisfied
- Only releases funds when both parties have performed their obligations
- Returns funds to the buyer if conditions aren’t met
- Operates according to written instructions in the Escrow Agreement
Escrow protects the buyer by:
- Preventing the seller from receiving money before delivering clear title
- Providing a mechanism to recover funds if the deal falls apart
- Creating accountability and transparency in the transaction
Escrow protects the seller by:
- Proving the buyer actually has the funds to close
- Ensuring they’ll receive payment when they deliver good title
- Preventing the buyer from backing out after receiving title
Both parties should want escrow. If the seller resists, ask yourself why.
How Escrow in Costa Rica Works
The escrow process typically follows this timeline:
Step 1: Execute the Purchase and Sale Agreement
The PSA includes an escrow clause requiring that all funds be deposited into escrow and specifying the conditions for release. This clause should identify:
- The escrow agent (name and contact information)
- What funds go into escrow (deposit, balance, all funds)
- Conditions that must be satisfied before release
- What happens if conditions aren’t met
- Escrow agent fees and who pays them
Step 2: Execute the Escrow Agreement
Within 5-7 days of signing the PSA, the buyer, seller, and escrow agent sign a separate Escrow Agreement that details:
- The parties’ identities
- Amount to be held in escrow
- Account information where funds will be held
- Conditions for release
- Instructions for handling the funds
- Escrow agent’s duties and limitations
- Fee structure
- Dispute resolution procedures
This is a separate contract from the PSA. It governs the escrow agent’s responsibilities and the mechanics of handling the funds.
Step 3: Buyer Deposits Funds
The buyer wires the earnest deposit (typically 5-10% of purchase price) to the escrow account within the timeframe specified in the PSA.
Critical: The wire should go to an account controlled by the escrow agent, not to the seller or the seller’s attorney. The Escrow Agent provides all the information in the Escrow Agreement.
Step 4: Due Diligence Period
While due diligence is ongoing, your deposit sits safely in escrow. During this period:
- The seller cannot access the funds
- The buyer conducts all investigations
- If the buyer terminates during DD period, funds are returned
- Neither party can unilaterally withdraw the money
Step 5: Satisfying Closing Conditions
Before closing, all conditions specified in the PSA and Escrow Agreement must be satisfied:
- Due diligence completed satisfactorily (or buyer waives objections)
- Title examination shows clear, marketable title
- All seller representations verified as true
- All required documents prepared and reviewed
- Survey completed (if required)
- Permits verified (if required)
- Taxes verified as current
The escrow agent doesn’t independently verify these conditions—your attorney does. The escrow agent simply confirms that the parties agree conditions are met.
Step 6: Balance of Purchase Price Deposited
Several days before closing, the buyer wires the balance of the purchase price to escrow. Now the full purchase amount sits in the escrow account.
The seller still doesn’t receive any money. Not until the final step.
Step 7: Closing and Release of Funds
On closing day:
- Buyer and seller (or their authorized representatives) meet with the notary
- Notary reviews all documents and closing conditions
- Deed of transfer is signed and notarized
- Notary confirms to escrow agent that deed is signed and all conditions are met
- Escrow agent releases funds to seller
- Notary files deed with National Registry
Critical timing: The escrow agent releases funds only AFTER the deed is signed, not before. This ensures you don’t pay for property you don’t receive.
Step 8: Post-Closing
After closing:
- Escrow agent provides final accounting to both parties (closing statement)
- Escrow agent distributes funds according to the agreement (seller’s proceeds, attorney fees, transfer taxes, etc.)
- National Registry processes the deed (1-3 weeks)
- New title is issued in buyer’s name
Who Should Serve as an Agent when doing Escrow in Costa Rica
Choosing the right escrow agent is critical. The agent needs to be:
- Neutral: No financial interest in whether the transaction closes
- Competent: Understands Costa Rica real estate transactions
- Trustworthy: Will actually hold the funds and follow instructions
- Financially stable: Has insurance or bonding in case of errors
Good escrow agent options:
International Escrow Company: Companies that specialize in international real estate escrow. Advantages: designed for this purpose, experienced. Disadvantages: not always available in Costa Rica, may be unfamiliar with local practices.
In Costa Rica we recommend Secure Title Latin America. They have been doing business in Costa Rica for a long time and never fail.
Established Law Firm: A reputable firm not representing either party. Advantages: understands transactions, responsive. Disadvantages: requires verification of their trustworthiness and separate client trust account.
IMPORTANT: the escrow agent must be registered with SUGEF which is the equivalent of a banking commission and is responsible for overseeing financial institutions.
Avoid as escrow agent:
- The seller’s attorney: Obvious conflict of interest
- The realtor: Works for commission, incentivized to close the deal
- A friend or business associate of the seller: Not neutral
- Anyone without proper permits.
Critical Escrow Agreement Terms
Your Escrow Agreement needs these protective provisions:
- Separate Trust Account
“Escrow Agent shall deposit all funds in a separate, segregated trust account maintained solely for this transaction. Funds shall not be commingled with Escrow Agent’s operating accounts or other client funds.” Escrow agents have separate trust accounts by legal requirement.
Why it matters: If funds are in the agent’s general operating account, they could be seized by the agent’s creditors or lost in bankruptcy. A separate trust account protects your money.
- Conditions for Release
“Escrow Agent shall release funds to Seller only upon receipt of written confirmation that: (a) the deed of transfer has been signed and notarized; (b) Buyer’s attorney has confirmed all closing conditions are satisfied; and (c) Buyer has provided written authorization for release.”
Why it matters: This prevents premature release before you’ve actually received good title.
- Return of Funds if Transaction Fails
“If this transaction fails to close for any reason permitted under the Purchase and Sale Agreement, Escrow Agent shall return all deposited funds to Buyer within five (5) business days of written notice from Buyer, provided Seller does not object in writing within three (3) business days. If Seller objects, Escrow Agent shall continue to hold funds until the parties resolve the dispute or a court issues an order.”
Why it matters: You need a clear path to get your money back if the deal fails legitimately. Three-day objection period prevents seller from delaying indefinitely.
- Escrow Agent’s Limited Duties
“Escrow Agent’s sole duty is to hold and disburse funds according to this Agreement. Escrow Agent has no duty to verify title, inspect property, confirm representations, or determine whether closing conditions are satisfied. Those determinations are the responsibility of the parties and their attorneys.”
Why it matters: This clarifies that the escrow agent isn’t responsible for due diligence—you are. It also limits the agent’s liability and fee.
- Interpleader Rights
“If a dispute arises regarding the disposition of funds, Escrow Agent may file an interpleader action and deposit funds with the court. Upon filing interpleader, Escrow Agent shall be released from all further liability, and the parties shall bear Escrow Agent’s legal fees.”
Why it matters: This gives the escrow agent a way out of a dispute without taking sides. The funds go to court, and a judge decides who gets them.
- Interest on Deposited Funds
“All interest earned on escrowed funds shall accrue to [Buyer/Seller/split equally], after deduction of bank fees.”
Why it matters: Clarifies who gets any interest earned while funds sit in escrow.
- Fees and Costs
“Escrow Agent’s fee shall be $[amount] or [X]% of the purchase price, payable [at closing/split between parties/paid by buyer]. This fee covers standard services. Additional fees for dispute resolution or extended hold periods shall be agreed in writing.”
Why it matters: Know what you’re paying and when.
Generally, the escrow agent provides a quote ahead of time and prior to signing the Escrow Agreement.
What Can Go Wrong Without Escrow
Let me share what we’ve seen:
Scenario 1: The Disappeared Deposit
Client wired $60,000 directly to seller’s attorney as “earnest deposit.” During due diligence, they discovered the property had an unresolvable title defect—seller didn’t actually own the entire property due to an adverse possession claim.
Client terminated the PSA per the due diligence contingency and requested return of the deposit.
Seller’s attorney claimed: “The seller already spent the money on paying off their mortgage. They can’t return it right now. Maybe in six months.”
Client hired us. We sent demand letters. Seller’s attorney stopped responding. Client sued. Two years and $25,000 in legal fees later, client recovered $48,000 of their $60,000 deposit.
If that money had been in escrow, client gets it back within one week, zero legal fees.
Scenario 2: The Last-Minute Problem
Client was one day from closing. The balance of the purchase price ($380,000) was scheduled to wire directly to seller the morning of closing.
Night before closing, our title examination revealed a new lien that had been filed against the property three days earlier—seller had a judgment against them for unpaid debts. This lien would attach to the property and become the buyer’s problem.
Because funds weren’t yet wired, client simply didn’t send the money. We renegotiated. Seller had to clear the lien before closing. Took three extra weeks, but client didn’t buy a liened property.
If client had already wired money directly to seller, the seller would have the funds and no incentive to clear the lien. Client would be stuck negotiating from a position of weakness.
Scenario 3: The Wire Fraud
Client received wiring instructions via email from seller’s attorney. Instructions looked legitimate—attorney’s email signature, letterhead, account information.
Client wired $45,000 deposit.
Three days later, seller’s attorney called asking why the deposit hadn’t been received.
The email was fraudulent. A scammer had spoofed the attorney’s email and sent fake wiring instructions to an account the scammer controlled. The money was already gone, routed through three countries.
Client lost $45,000.
If there had been an escrow agent, client would have verified account details directly with the agent by phone before wiring. Escrow agents use consistent, verified accounts. The fraud wouldn’t have succeeded.
Scenario 4: The Incomplete Sale
Client wired full purchase price ($290,000) to seller’s attorney two days before scheduled closing, despite our strong advice to use escrow.
Closing day arrived. Deed was prepared. But the seller decided they wanted an extra $20,000, claiming there were “unexpected closing costs.”
This was fiction—the seller was just trying to extract more money. But they knew client couldn’t back out now. The client had already given them $290,000.
Client ultimately paid the additional $20,000 under duress just to complete the purchase.
With escrow, seller doesn’t get a penny until signing the deed. They have zero leverage for last-minute extortion.
Common Escrow Objections from Sellers
When you insist on escrow, some sellers push back. Here’s what they say and what it really means:
“Escrow isn’t necessary in Costa Rica. It’s not how we do things here.”
Translation: “I want access to your money before I have to perform my obligations.”
Response: Escrow may not be mandatory, but neither is buying this property. If the seller won’t agree to escrow, walk away.
“Escrow costs extra money. Why should we pay for that?”
Translation: “I want to avoid the accountability that escrow creates.”
Response: Escrow fees are minimal (typically $500-1,500) compared to the risks. Besides, who pays is negotiable—but the protection isn’t.
“My attorney can hold the funds. They’re a notary.”
Translation: “Let me choose who controls your money.”
Response: The seller’s attorney/notary has a conflict of interest. They want their client to be happy. They get paid if the deal closes. They’re not neutral. Choose a separate escrow agent.
“We need the deposit to pay off our existing mortgage so we can deliver clear title.”
Translation: “I’m asking you to finance my closing costs before you actually own the property.”
Response: Not your problem. The seller should either: (a) pay off their mortgage before closing with their own funds, or (b) agree to escrow with specific authorization to pay the mortgage directly at closing (funds still flow through escrow, not to seller personally).
“Just trust me. I’m honest.”
Translation: “I don’t want the accountability that comes with a neutral third party controlling the funds.”
Response: “If you’re honest, you’ll have no problem with escrow, which protects both of us.”
If seller refuses escrow despite reasonable negotiation, it’s a massive red flag. Walk away.
Escrow Fees: What to Expect
Escrow service fees in Costa Rica typically run:
- Flat fee: $500-2,000 depending on transaction complexity
- Percentage: 0.5%-1% of purchase price
- Bank escrow: Often higher fees but greater institutional stability
Additional costs might include:
- Wire transfer fees (both sending and receiving)
- Bank account maintenance fees
- Currency conversion fees if holding in dollars but paying in colones
Who pays: This is negotiable. Common arrangements:
- Buyer pays (most common)
- Seller pays (less common)
- Split 50/50
- Paid from escrowed funds at closing
Whatever the fee structure, build it into your closing cost budget. It’s cheap insurance.
When Disputes Arise
Even with escrow, disputes can happen. The escrow agreement should address:
Scenario: Buyer terminates during DD, seller disagrees
Buyer exercised termination right during DD period per the PSA. Buyer requests return of deposit. Seller claims buyer didn’t properly exercise contingency.
Escrow agent’s duty: Hold funds for three business days while seller objects. If seller doesn’t object, return funds to buyer. If seller objects, continue holding until parties resolve dispute or court orders disbursement.
Escrow agent doesn’t decide who’s right—they just hold the money safely while the parties resolve it.
Scenario: Title defect discovered after DD but before closing
During DD, title was clear. After DD expired but before closing, a new lien appears. Buyer refuses to close. Seller argues buyer already waived objections.
Resolution: This should be covered in your PSA under “seller’s obligation to deliver clear title at closing.” If seller can’t deliver clear title, buyer can terminate. Escrow returns funds.
Scenario: One party vanishes
Seller stops responding. Won’t sign deed. Won’t authorize release of funds.
Resolution: The escrow agreement should address this with interpleader provisions. After reasonable attempts to contact the non-responsive party, escrow agent files interpleader, deposits funds with court, and lets the judge decide.
This is still better than having sent money directly to the seller—at least the funds are preserved and under court control, not lost.
DIY Escrow: Why It Doesn’t Work
Some buyers think they can create informal escrow by having an attorney they know hold the funds.
This creates several problems:
Liability issues: If the attorney isn’t formally acting as escrow agent pursuant to a written escrow agreement, their duties and limitations aren’t clear. If something goes wrong, who’s liable?
Professional responsibility: Attorneys holding client funds in most jurisdictions have strict trust account rules. If your attorney isn’t following those rules precisely, they risk professional discipline.
Lack of neutrality: Even if the attorney tries to be neutral, one party will perceive bias.
If you’re going to use escrow (and you should), do it properly with a formal escrow agreement and qualified escrow agent.
The Bottom Line
Escrow is the difference between a protected transaction and a gamble.
Without escrow:
- Seller controls funds before performing obligations
- You must sue to recover your money if problems arise
- You’re vulnerable to last-minute extortion
- You have no leverage to ensure seller performs
With escrow:
- Neutral third party controls funds
- Release occurs only when all conditions are met
- Your deposit is protected during due diligence
- Both parties have incentive to perform
Every legitimate seller should agree to escrow. It protects both parties. If a seller won’t agree to escrow, it’s not because escrow is unusual or unnecessary—it’s because they want access to your money before they’ve earned it.
Don’t wire hundreds of thousands of dollars based on promises. Use escrow.
In our next article, we’ll walk through the closing process itself: what happens on closing day, who needs to be present, what documents are signed, and what can still go wrong at the finish line.
Need Help?
We structure escrow for every real estate transaction we handle. We know which escrow agents are reliable, how to draft protective escrow agreements, and how to avoid the pitfalls that leave buyers vulnerable.
Don’t risk your deposit or your purchase price without proper escrow protection.
Contact us to discuss escrow for your transaction.
This is Article 4 in our Real Estate Series. Next up: [The Closing Process: What Happens When You Sign the Deed]
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