Real Estate Scams in Chile

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Real Estate Scams in Chile

Postby admin » Mon Dec 10, 2012 10:57 am

Another one of these scams came across my desk today. This would be the second or third time one of these to came around this year, but really we have been seeing some version pretty regularly for years.

Anyone selling real estate in Chile to you and claims that real estate can be transferred as some sort of private deed / private contract / private agreement / corporate share swaps or anything like it and you will be the full owner, is scamming you.

ALL CONTRACTS FOR REAL ESTATE IN CHILE MUST BE PUBLIC DEEDS. ALL!!!!! NO EXCEPTION!!!!!

That means a CHILEAN NOTARY AND REGIONAL REGISTRY MUST BE USED!!!!!

If you insist on doing this, my advice would be to take your money to a casino. At least they might give you a free drink in return. In any case, YOU will not own the property.

First thing you do when you buy real estate is get your OWN attorney!!!! You don't have to hire us, but hire someone that represents YOU. Don't let real estate agents represent you. Don't let sellers. Don't let the seller's attorney represent you.

A few of you will ask, what is wrong with owning property by corporations. In theory, nothing. As long as YOU control the company. Just most gringos arriving off the plane, or even after years of living here, will not understand what that means.

Don't do it, if you don't understand it.

So, let me demonstrate a couple real cases (properly stripped of any identifying info), that will illustrate the dangers of doing transfers via corporate shares / private contracts / and so on.

Gringo buys several properties in Chile, sight unseen. The lawyer for the company selling the properties convinces the gringo to sign a private document, rather than a public deed. They even did it at a Chilean notary, so it would come off as all official and proper to the gringo on the surface. Gringo does not know the difference between a private document and public document, just that it was signed at a notary. The title is never registered. The company goes bankrupt, all the properties owned by the company are foreclosed on and forced to auction by the bank. The bank auctions off all the properties. The bank is not aware that the properties have been sold, because there is no public record. In fact, the bank is correct and well within their rights. They have not been sold legally. The company has nothing. The gringo has nothing. We got very lucky in the course of investigating this fraud, and managed to track down the secretary at the notary that handled the private contract, that just happens to years later still have a copy of the contract on her computer. Nowhere else did a copy of that contract survive. At best, that contract is evidence that a fraud of some sort occurred and even that is a stretch because the statutes of limitation have expired (on everything). Over $400,000 US + lost.

Another case. Gringo partners come down, buy some property (the only asset), and they form a corporation to own the property with a nice friend from Argentina. Friend makes his 18 year-old daughter the "Legal Representative" as she is a Chilean citizen. Friend then goes and takes out mortgages, puts the property up for sale, enters leases with the government using the property as collateral to the contracts, and so on. The bank and the government both move to foreclose and auction the property to collect. Gringos gave the legal representative unlimited powers to do anything they wanted in the articles of incorporation. No checks or balances. The Friend is not even a partner, shareholder, or anything else, other than he has a daughter that is the legal representative and a minority partner. Over $3,000,000 US lost.

Another case. Gringo comes down, forms a company. The attorney he hires appoints himself legal representative of the company with unlimited powers because the gringo can not be the legal representative. You need to be either a full permanent resident or citizen of Chile to act as a legal representative. Newly arriving gringos, in a hurry, have to have someone else act as legal representative of their company. Again, no checks or balances on the power given to the legal representative. Well, anyway, one day in a meeting the gringo (being a gringo) says something to piss off the attorney. The attorney gets up and walks out, taking the company with him. Loss, $2,000,000 to 3,000,000 US.

Moral to this story, if you do not know what a "legal representative" is in Chile and what they can do, do not buy property in Chile through a corporate vehicle of any sort. There is a lot of things you need to know in order to use a company to own real estate.

Chile is not a common law country. In contracts and deeds, it is not so much what is on paper you have to worry about, but what is not on paper. The statutes, the written law, can over ride or modify what you put on paper. So, you better make sure that you understand everything. Don't make any assumptions about how things work based on your experience in common law countries.

Here is some real food for thought, for those that say 'I know what I am doing, I trust the person selling, or I don't need to waist money on a hiring a lawyer''; in at least one of the three cases above, one of the victims was an American attorney.

That does not even begin to scratch the surface of the problems with these structures.

If you are going to buy property in Chile, just buy property under your own name. It will be safer, it will be cheaper, it will be easier. Buying property anywhere is complex as is, don't go adding complexity to the system when you don't know what the system is. Keep it simple. Once you have been here a while, kind of got the hang of it, then you can perhaps look in to owning property under a company or buying property in other irregular situations. Chances are, you will find there are not a lot of benefits to it; over just owning a property in your own name vs. the risk and problems added to buying property.
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
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From USA and outside Chile dial 1-917-727-5985 (U.S.), in Chile dial 65 2 42 1024 or by cell 747 97974.

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Re: Real Estate Scams in Chile

Postby Home'sCoolMom » Mon Dec 10, 2012 11:37 am

I like this saying: "no confíes ni en tus propios dientes porque te pueden morder la lengua". Sad, but you need to be careful.

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Re: Real Estate Scams in Chile

Postby jehturner » Mon Dec 10, 2012 12:08 pm

This is unrelated to the mandatario judicial that one ordinarily needs to buy a house with a mortgage, right?

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Re: Real Estate Scams in Chile

Postby admin » Mon Dec 10, 2012 12:16 pm

Here is thing. Setting aside the outright scam situation for the moment, foreigners almost always have a gross misconceptions of the pros and cons of owning real estate through a company structure in Chile. Talking about just a gringo that owns 100% of a Chilean company, that owns the real estate.

We regularly have foreigners we meet with that want to form a company to buy or hold real estate. When we start to question them why specifically they want to form a company to own the real estate, either they do not know or they are under the impression they are getting advantage they are not.

Here are a few of the common ones:

1. Tax advantage.
There is none really. If the property tax is not payed, the IRS will auction the property all the same. They don't care if you own it through a company. Tax deductions do not work the way they do in the United States or other countries for business expenses. You have to run a real business, with real factorias (e.g. ) In fact, if you own property as a private citizen in Chile for 1 year and then sell it, there is no capital gains tax on the profits. It is all yours. If you do it through the company, there will be income tax to pay.

By the way, even an idle company, needs to file taxes each month.

2. The goverment will take my property
Let you in on something, you got it backwards. The government already owns your property, and they are letting you use it. That is the point of real estate laws. If they want your property, they can just take it. They are the government. Here, there, and everywhere.

3. legal law suites protection
Very limited, but perhaps there is some minor advantages. The truth is, if the property is so well hidden that a good attorney can not track it down in the public records you are required to use to own a property and a company, then you likely don't own the property anyway. Essentially, you got bigger problems. On the other hand, a privately held piece of property could for example be declared "family property" or other mechanism attached to it that make it really difficult for someone to seize it in court.

Any time someone comes to us to bring a lawsuit against someone else in Chile, the first thing we do is determine if they have any exposed assets. Companies rarely pose a problem for us to trace their assets. Even at that, we can always seize the shares in the company if all else fails. It only takes one share holder to be in a law suit, for the rest of the company to have issues. really, just read all the court ordered property auctions in the back of any newspaper in Chile to see that a company structure is no protection from such things as workers collecting wages they are owed.

As for your bill collectors coming after you from outside the country to get your property, based on some mickey mouse credit card contract you signed in another country, please?

I actually had a lawyer for a credit card company call me up one time from the states to look in to trying to collect against a former U.S. resident in Chile. We just laughed at them. First of all, the boiler plate language they use in most contracts in the United States, is illegal in Chile; even if a court was willing to entertain it, the chances are the credit card company would be sued.

However, If you own just shares under some sort of foreign entity or contract in a company in Chile, and not the real estate directly, they might very well be able to seize your shares in someone else's court outside of Chile.

4. inheritance rights over the property
Chile has mandatory inheritance laws. You can not leave your property to your cat or your best friend, through a company or anything else. If you try to circumvent the inheritance laws through a company or any other sort of contract, they can all be ruled invalid in court. That goes for foreign wills, and real estate in particular (under international law) is territorial based. If you try to buy in to a property that is even partially owned by a contested will, you are buying in to mess.

5. community
Whatever is written in your contract / articles of incorporation, might be worthless anyway because of the rats nest of statutes regarding common ownership of property in communities. You have laws that cover things like common water right organizations. you have laws that cover things like common expenses, common this, common that. It all might be void, because the statutes cancel out whatever airy fairy gibberish they thought they could stick in the contract to sell you some property.

The list goes on and on.
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
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From USA and outside Chile dial 1-917-727-5985 (U.S.), in Chile dial 65 2 42 1024 or by cell 747 97974.

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Re: Real Estate Scams in Chile

Postby admin » Mon Dec 10, 2012 12:17 pm

jehturner wrote:This is unrelated to the mandatario judicial that one ordinarily needs to buy a house with a mortgage, right?


I think, but I am not sure I understand the question.
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
For more information visit: https://www.spencerglobal.com

From USA and outside Chile dial 1-917-727-5985 (U.S.), in Chile dial 65 2 42 1024 or by cell 747 97974.

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Re: Real Estate Scams in Chile

Postby jehturner » Mon Dec 10, 2012 10:55 pm

admin wrote:
jehturner wrote:This is unrelated to the mandatario judicial that one ordinarily needs to buy a house with a mortgage, right?


I think, but I am not sure I understand the question.

Since people seem to have inadvertently given away excessive legal powers in the cases you mention (perhaps through statute as you point out), I was wondering out loud whether there are any comparable risks when appointing a mandatario judicial. It has been a few years since I originally read my own compraventa, but I see that it does incorporate some statute by reference (articulo septimo del Codigo de Procedimiento Civil) FWIW. It was clear that the point is for the bank to have someone they can deal with in the event that one disappears abroad and is uncontactable, but the language isn't quite as specific as that ("para que lo represente en todas las gestiones judiciales y extrajudiciales que se deriven del presente contrato"). I'm not particularly worried about this case, but I'm just wondering whether the problem is limited to owning real estate through a company or not.

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Re: Real Estate Scams in Chile

Postby admin » Tue Dec 11, 2012 9:34 am

Let me check with the legal department. My shoot from the hip inclination is that in in reference to them needing someone to serve in the event they want to foreclose or otherwise go to court.

That did bring something to mind though in regards to banks, and perhaps a nice test of 'is your deal for real'.

If someone is selling you a property in Chile with some sort of strange joint ownership structure, ask yourself would a bank in Chile give you a mortgage over that property (assuming you qualified in all other ways)?

The reason I pose that hypothetical is because banks in Chile are very, very good at protecting themselves. They do very detailed title searches and appraisals of properties before they issue a mortgage. If they smell even the hint of a problem with a title, they go to ground. It is why Chile did not get sucked in to the global mortgage crisis. They are that careful.

The point is most of these real estate scams, would not pass the very stringent bank smell test. You will not be able to ever mortgage your property or do other normal property owner type of things. However, the "legal representative" of the company that does own the property very well could mortgage it, sell it again, break it up, and so on.

Perhaps a better way to put it, ask yourself who the bank would give a mortgage to when the deal is complete?

It will be the REAL owner of the property.

So again, if you don't understand it, don't do it.
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
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From USA and outside Chile dial 1-917-727-5985 (U.S.), in Chile dial 65 2 42 1024 or by cell 747 97974.

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Re: Real Estate Scams in Chile

Postby Vicki and Greg Lansen » Tue Dec 11, 2012 9:41 am

I appreciate the posts Charles. I will direct prospective buyers for my place to this thread because that is perhaps one of the most asked questions I get..."should we form a corporation.". My response is that we did not and the process was smooth and proper with a clear title registered with the public registry. Here is the problem people interested in my place will face...how DO you find an attorney who will do an adequate job? How does one know what the standard, or fair fees should be?

In the US, buyer and seller would not normally use the same attorney, and I am guessing in Chile it might be the same rule of thumb? So while I have your firm listed in information I send out to inquiries with the disclaimer that your firm is the one we used, someone would likely want to search out a different attorney.

Good discussion and explanation Admin. Thanks.

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Re: Real Estate Scams in Chile

Postby admin » Tue Dec 11, 2012 10:45 am

Well, the way we deal with those conflicts of interest is to refer the other party to another attorney we know that is qualified to deal with whatever it is they need. From our perspective, much better that they have proper representation, because dealing with a crooked or incompetent attorney on the other side makes our job more difficult. If we are going to recommend another attorney, we make dam sure the other attorney is not going to put our reputation at risk even by the loose association of having recommended them to another party.

Typically it works quite well for us in the long-run of capturing clients. We have "inherited" a lot of clients that were the opposing party in some real estate deal or other issue. We refer them to another attorney for handling the specific situation where we have a conflict of interest. Later, once the conflict is resolved, many of them come back and hire us to deal with other things. Specifically in real estate deals we have a bunch of clients where we were representing the seller, the seller sold and left the country, and the foreigner that bought the property is now our client.

We are really not interested in one shot disposable clients. We are interested in keeping clients for years.
Spencer Global Chile: Legal, relocation, and Investment assistance in Chile.
For more information visit: https://www.spencerglobal.com

From USA and outside Chile dial 1-917-727-5985 (U.S.), in Chile dial 65 2 42 1024 or by cell 747 97974.


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