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Buying property in Chile: scams and pitfalls

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Everything you need to know is included in our Chile Property Pack

Chile's stable economy and natural beauty are drawing more foreign buyers into its real estate market.

Buying property in this area can be a complex journey though, particularly if you're not a local. There are many potential challenges and surprises to be aware of.

Both our property-buying clientele and our local partners have raised several common concerns with us. We've listed them all in our Chile Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in Chile?

When it comes to buying property, foreigners should be mindful of certain peculiarities of the Chilean market.

One distinctive feature of the Chilean property market is the prevalence of ‘derechos de llave’, a term used to describe a situation where a property is sold with an existing tenant.

While this might be seen as an instant income source, it can also pose challenges, particularly if the tenant is problematic or the rental price is below market value. It is crucial for buyers to fully understand the terms of any existing lease agreements and consider the implications on their investment.

The issue of land rights, particularly in the southern regions of Chile, presents another unique challenge. There have been instances where disputes over indigenous land rights have resulted in protracted legal battles, impacting property owners and investors. Foreign buyers should be especially vigilant when purchasing property in these areas, ensuring that they have a clear understanding of the land’s history and any potential claims.

When it comes to scams and fraudulent activities, while not rampant, they are present in the Chilean market. There have been reports of individuals selling properties that they do not own, exploiting legal loopholes, and taking advantage of uninformed buyers. This underscores the importance of thorough due diligence and verification of ownership before proceeding with any property purchase.

The bureaucratic nature of the Chilean property buying process is another factor that can pose significant challenges, especially for foreigners. The process is notorious for its complexity and the multitude of documents required, which can be daunting even for locals.

Foreign buyers are at a distinct disadvantage due to language barriers and unfamiliarity with the local legal system. It is highly advisable to engage the services of a reputable local lawyer who can guide through the intricacies of the process and ensure that all legal requirements are met.

While Chilean laws do provide a level of protection for property buyers, the legal system’s slow pace can be a major drawback.

Resolving property disputes can take years, and while the outcome is generally fair, the process can be arduous and costly. This highlights the importance of getting things right from the outset, minimizing the risk of potential disputes down the line.

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Potential real estate buying mistakes in Chile

"Derechos de Agua" or water rights

When purchasing residential property in Chile, an often-overlooked pitfall, especially by foreigners, is not fully understanding the implications of the "Derechos de Agua" or water rights.

Unlike many other countries, in Chile, land ownership does not automatically grant you rights to water on or under that land. Water rights are a separate entity and can be bought, sold, and traded independently of the land.

The scenario you might face is when you find a perfect property, maybe in a rural area like the Colchagua Valley or near a city like Valparaíso, and decide to buy it. However, you later discover that you don't have the rights to use the water from a stream running through it or to extract groundwater.

This can be a significant issue, particularly if you planned on agricultural activities or even just maintaining a garden.

These rights are governed by a complex legal framework, and the frequency of such issues can vary.

In some cases, previous owners might have sold the water rights separately, or the rights might be owned by local agricultural or mining companies. This situation can lead to unexpected additional expenses to secure water access or disputes with neighbors or other entities.

To avoid this, you should thoroughly investigate the water rights associated with any property you're interested in. This often involves consulting with a local lawyer who specializes in Chilean property law and possibly also a water rights expert.

They can help you understand the specific water rights attached to the property and any potential legal complications.

The importance of "Rol Único Tributario"

Another unique and often overlooked aspect when buying residential property in Chile is the importance of the "Rol Único Tributario" (RUT) number.

As a foreigner, you might not be fully aware of its significance in property transactions. The RUT is a tax identification number used in Chile for all legal entities, including foreigners involved in financial transactions.

Here's how this might affect you. Suppose you find a property in Santiago, Viña del Mar, or another Chilean city.

Before you can complete the purchase, you're required to have a RUT.

This number is essential not only for the transaction itself but also for subsequent activities like paying property taxes, setting up utility services, and even for selling the property in the future.

The process of obtaining a RUT can be more complex for foreigners, involving various bureaucratic steps and potentially requiring assistance from a Chilean solicitor or a gestor, who is a professional specialized in navigating administrative processes.

This step is often underestimated by foreigners, leading to delays and complications in the property buying process. The frequency of issues related to the RUT for foreigners is quite high, given the intricacies of Chilean bureaucracy.

Not having a RUT in time can significantly delay your property purchase or lead to legal complications.

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The concept of "Posesión Efectiva"

Another less-known but crucial aspect to consider when buying residential property in Chile, especially for foreigners, is understanding the implications of "Posesión Efectiva".

This term refers to the legal process in Chile for dealing with the estate of a deceased person, including property.

Imagine you find a beautiful house in a picturesque area like Puerto Varas or in the historic streets of Valparaíso. You might be ready to proceed with the purchase, only to discover that the property is part of an estate under Posesión Efectiva.

This means the legal transfer of the property from the deceased to their heirs is still in process, or there might be unresolved disputes among the heirs.

In Chile, the Posesión Efectiva process can be lengthy and complex, especially if there are multiple heirs or disputes. Buying a property that is entangled in this process can lead to prolonged legal complications and delays in the transfer of ownership to you.

Issues with Posesión Efectiva are not uncommon in Chilean property transactions. They often arise in cases where properties have been in families for generations, and the original owners have passed away without clear legal succession plans.

To protect yourself, you should conduct thorough due diligence on any property you are interested in.

This includes checking the current status of the property in the Conservador de Bienes Raíces (the Chilean property registry) and ensuring there are no ongoing Posesión Efectiva issues.

Consulting with a local real estate lawyer who understands the intricacies of Chilean property law is highly advisable to navigate these potential complexities.

The risks related to "Servidumbre de Paso”

A specific and often overlooked pitfall in purchasing residential property in Chile, especially for foreigners, is the concept of "Servidumbre de Paso" or Right of Way easements.

This is particularly relevant in rural areas or in properties that are not part of a planned development.

Here's how it could impact you. Let's say you're considering buying a property in the Chilean countryside, maybe in the scenic regions of Patagonia or the wine-rich areas of the Central Valley.

You might find a property that seems perfect, but it could be subject to a Servidumbre de Paso, meaning that someone else (a neighbor or a utility company, for instance) has the legal right to use a part of the property to gain access to theirs.

These easements are not always immediately apparent, especially to someone unfamiliar with local regulations and practices. They might not be clearly marked on the property or adequately documented in the initial property descriptions.

A Servidumbre de Paso can significantly affect your enjoyment of the property, your privacy, and even future development plans.

While not every property in Chile is affected by this, issues related to Servidumbre de Paso are more common in rural areas where properties are larger and access routes are less defined. In some cases, these rights have been established informally over many years and only come to light during a property transaction.

To safeguard against this, you should conduct a thorough review of any property you're considering.

This review should include a detailed examination of the property's title and any registered easements. Consulting with a local lawyer or a real estate expert who understands the nuances of Chilean property law and local practices is essential.

They can help identify any existing Servidumbre de Paso and advise on the potential impact on the property.

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"Terrenos Indígenas" or indigenous lands

Another unique challenge in purchasing residential property in Chile, particularly for foreigners, is the potential issue with "Terrenos Indígenas" or indigenous lands.

This is a crucial factor to consider, especially in regions with strong indigenous communities like the Araucanía region or the northern areas of Chile.

Imagine you find a property in one of these regions, attracted by the natural beauty and cultural richness. However, you may later discover that the land is classified as Terreno Indígena. In Chile, such lands are often subject to special protections and restrictions, particularly regarding ownership and transfer.

These lands are intended to preserve the cultural heritage and rights of indigenous communities, and as such, there are stringent regulations governing their sale and use.

For a foreigner, buying property on indigenous land can be particularly challenging. There are legal restrictions that may prevent or complicate the purchase. In some cases, the sale of these lands to non-indigenous people, especially foreigners, is heavily restricted or even prohibited.

Furthermore, there may be communal rights or traditional uses of the land by the local indigenous community that could affect your use and enjoyment of the property.

These issues are not widespread across all of Chile but are particularly pertinent in areas with significant indigenous populations. Navigating the complexities of Terrenos Indígenas requires a deep understanding of local laws and customs.

To avoid complications, you should conduct a comprehensive investigation into the status of any property you are considering in these areas. This should include checking whether the land is classified as Terreno Indígena and understanding the implications of such a classification on property ownership and rights.

Engaging with a local lawyer who specializes in Chilean property law and has experience dealing with indigenous land issues is vital to navigate this complex area.

"Zonas de Conservación" or Conservation Areas

In Chile, another specific challenge you might face as a foreigner when buying residential property is dealing with "Zonas de Conservación" or Conservation Areas.

These are designated areas with environmental or cultural significance, where development and land use are strictly controlled to preserve their natural or historical value.

Consider this scenario. You find a property, perhaps in a stunning coastal area like the Valdivian Coastal Reserve or near a national park. It seems like an ideal location, offering beautiful natural surroundings.

However, if the property falls within a Zona de Conservación, there will be significant restrictions on what you can do with the land.

These restrictions can include limitations on building, modifying the landscape, or even accessing certain parts of the property. These conservation zones are not uncommon in Chile, given the country's rich natural and cultural heritage. The restrictions in these areas are strictly enforced to protect the environment and heritage sites.

For a foreign buyer, not being aware of these restrictions can lead to unexpected limitations on the use of the property and potential conflicts with local environmental regulations.

To mitigate these risks, you should ensure a thorough due diligence process when considering a property purchase. This includes checking the zoning regulations for the property and understanding any restrictions associated with a Zona de Conservación.

Engaging with a local environmental lawyer or a real estate expert knowledgeable about Chilean zoning laws and environmental regulations is crucial.

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"Afectación de Utilidad Pública" or Public Utility Affectation

A unique and often unexpected pitfall in purchasing residential property in Chile, particularly for foreigners, is the issue of "Afectación de Utilidad Pública" or Public Utility Affectation.

This refers to properties that may be earmarked or affected by future public projects like road expansions, public infrastructure developments, or urban planning initiatives.

Imagine you find an ideal property, possibly in a rapidly developing area like the outskirts of Santiago or near a growing town like La Serena. While the property may seem perfect, it could be subject to future plans by the government or local authorities for public projects.

This could mean a portion of your property might later be requisitioned or affected by construction projects, which can significantly impact your use of the property and its value.

In Chile, plans for public utility projects are often not immediately apparent to buyers, especially those unfamiliar with the local administrative processes. These plans can exist in municipal development plans or national infrastructure strategies, and they might not be actively communicated to potential property buyers.

This issue is more common in areas undergoing significant development or urban expansion.

The Chilean government has the authority to requisition private land for public use, which can occur after your purchase, leaving you with limited recourse and potentially affecting the value and utility of your property.

To avoid such scenarios, you should conduct a comprehensive investigation into any potential future plans for the area where you're considering buying property.

This might include reviewing local development plans, consulting with municipal authorities, and engaging a local lawyer who specializes in property law and is familiar with the regional development plans.

"Acuerdo de Unión Civil" (AUC) or Civil Union Agreement

A specific and critical aspect to be aware of when buying residential property in Chile, especially as a foreigner, is the issue of "Acuerdo de Unión Civil" (AUC) or Civil Union Agreement.

This is particularly relevant when purchasing property from individuals who might be in a civil union, a legal status in Chile that grants many of the same rights and responsibilities as marriage.

Here's a scenario that could affect you: You might find a property you like, perhaps in a charming neighborhood of Santiago or a beachfront location in Concon. The seller appears to be a single individual, so you proceed with the purchase.

However, if the seller is or has been in a Civil Union, their partner may have legal rights to the property, even if they are not listed as an owner. The AUC grants rights similar to those in a marriage, meaning that property acquired during the union is considered joint property.

This issue is especially pertinent in Chile due to the legal framework surrounding civil unions.

If the seller's civil union status is overlooked or not properly addressed, it could lead to legal complications or disputes after the purchase, potentially affecting your ownership rights.

To safeguard against this, you should ensure thorough due diligence is conducted on the seller's marital and civil union status. This includes verifying whether the seller is or has been in a civil union and whether the property was acquired during that period.

Consulting with a Chilean lawyer who is experienced in property and family law is crucial.

They can help you navigate these legal intricacies and ensure that all necessary consents are obtained from the seller’s partner in a civil union, if applicable.

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"Bienes Familiares" or Family Assets

In Chile, a unique and potentially problematic aspect for foreigners buying residential property is the concept of "Bienes Familiares" or Family Assets.

This legal designation can apply to properties that are considered essential to the family unit, and it carries specific legal implications that are unique to Chilean law.

Here’s a potential scenario. You might find a property, perhaps in a sought-after area like Providencia in Santiago or a coastal town like Pichilemu.

However, if the property has been designated as Bienes Familiares, it means that it cannot be sold, rented, or mortgaged without the consent of the spouse, regardless of who holds the title. This is a protective measure in Chilean law designed to safeguard the family home. This issue becomes particularly complex for foreigners who may not be familiar with this concept.

The designation of Bienes Familiares is not always explicitly noted in property records or easily discernible during the buying process.

If you unknowingly purchase a property designated as Bienes Familiares, you might later face legal challenges or disputes, especially if the spouse of the seller contests the sale.

Such issues are more prevalent in residential properties, particularly in urban areas where families have established their homes. It is less common in commercial properties or new developments.

To avoid this pitfall, it’s crucial to conduct an in-depth legal review of the property’s status before finalizing the purchase. This includes verifying whether the property is designated as Bienes Familiares and ensuring all necessary consents are obtained from the spouse of the owner.

Engaging a Chilean lawyer with expertise in family and property law is highly advisable to navigate this aspect of Chilean legal system.

"Herencias Indivisas" or Undivided Inheritances

When buying residential property in Chile, a unique and often overlooked pitfall for foreigners is the issue of "Herencias Indivisas" or Undivided Inheritances.

This situation commonly arises in properties that have been inherited by multiple heirs but have not been formally divided or distributed among them.

Imagine you find a property in a desirable location like the vineyard-rich areas of Colchagua Valley or the cultural heart of Valparaíso. The property seems perfect, but it may be part of an undivided inheritance, where multiple family members have inherited it, but no formal division of the property has been made.

In Chile, it's not uncommon for properties to remain in this state for years, especially if the heirs are unable or unwilling to agree on how to divide the property.

Buying a property in such a situation can be risky. Even if one of the heirs agrees to sell their share, the other heirs may have legal claims or objections, leading to complex legal disputes.

Moreover, the process of dividing these inheritances can be lengthy and complicated, involving negotiations among all heirs and possibly legal proceedings.

This issue is more frequent in family-owned properties, particularly those that have been passed down through generations without clear succession plans. It's less common in newly built properties or those that have been recently developed.

To protect yourself from these complexities, you should ensure that the property you're interested in is not part of an undivided inheritance. This involves conducting a thorough title search and legal review, possibly with the help of a Chilean lawyer who specializes in property and inheritance law.

They can help determine the ownership status of the property and whether any unresolved inheritances are involved.

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