There is a registry (Registry of Property) in each canton for the recording of documents relating to conveyance and encumbrance of real property. The registry include also the registration of mortgages, deeds, land titles and some special property contracts.
Property transaction information is not readily available in Ecuador. Real estate transaction is highly localized in Ecuador. This makes it difficult for those who are not locally based to get information about the property market. To get information on real estate market the local real estate agent can give some assistance.
There is transfer and registry taxes collected by the government on conveyances of property. Income received from real estate property is also taxable (income tax). Tax rates for undistributed estates and individual domiciled in Ecuador range from 10% to 25%. Corporation taxes for corporations organized in Ecuador and branches of foreign corporations are subject to 25% .Capital gains tax on property transfer is also common in Ecuador. Non-resident foreign individuals are taxed at 20% rate on total income whose services are not performed on regular basis.
Prescription is the acquisition of property through adverse possession and extinction of obligations by failure to require performance within the statute of limitation. Any property may be acquired by ordinary prescription in 15 years in Ecuador.
Deeds must be prepared by notaries. Notaries are public officials appointed by a superior court. They must be Ecuadorian citizens, over 30 years of age and must have passed a competitive written examination. Public instrument executed before a notary is prepared with certain formalities, including the use of Spanish language; the date of document; the names of parties (with marital status) involved and together with their witnesses. The Judiciary Law Act 1986 is the main legal authority for public notary procedures.
A sale of real property, easements, annuities or inheritances is not finished until proper instrument of conveyance has been executed. It is worth noting that "rescission may be asked within four years from date of execution of contract by vendor if it is found that price received is less than one-half value of property, and by vendee if it is found that the property is worth less than one half price paid".
Title & Contracts in Ecuador:
The conveyances of real estate must be by public instrument and should contain a true statement of the consideration since the state tax on transfers of title is based on the real consideration. Deeds must bear stamps, signed by both grantor and grantee and recorded in the Registry of Properties. There is no estate by curtsey or dower right in Ecuador. At death a decendent’s estate passes to the following:
(1) descendants of deceased heirs (by right of representation);
(2) ascendants and spouse;
(3) brothers and sisters;
(4) state.
Even though there might be a will, a part of the estate goes to certain heirs by operation of law. Certain persons are excluded from "testate or intestate" succession, for example, persons who were guilty of crime against the decedent or his spouse or legitimate ascendants or descendants.
Law of Registrations and Recordings of 1966 governs the recording of land titles and other civil matters. Land titles are registered with the Registry of Properties. Other recordings include the registration of births, deaths and marriages with Commercial Registries ( Civil Registry Law of 1966).
Contracts in Ecuador are governed by the Civil Code which setup the requirements for a binding agreement. Contracts may be unilateral or bilateral. The object of a contract must be definite or subject to definite determination. Inheritances and hereditary rights cannot be object of a contract. Civil contracts involving more than 2000 Sucres must be in writing. The type and form of contract is determined by the place where it is executed. Normally, in case of breach, indemnity for damages include monetary damages. Public contracts (those executed with the government, state agencies or state enterprises) have some special rules to be followed.
Property Taxes:
Property Tax: Amount depends on the province and cantonin which the property is located. From 0.6% to 1.6% for rural property and two taxes for urban property; one from 0.3% to 1.6% and the other from 0.1% to 0.3%.
Payment of the Property Transfer taxes (1% of official value) and the Property Appreciation tax at the Municipality (1 day). These taxes are paid based on the official rather than on the market value of the property. The differences are quite important.
The Property Appreciation tax (a capital gains tax) is calculated on the difference between the sale-price and acquisition-price of the property. In addition, the amount of the tax is reduced taking into account the economic benefits added to the property by the seller and the antiquity of the property. The tax is 10% of the difference. The tax will be cut to 0.5% only for the first transfer of any real estate delivered after January 1st, 2006.
The registration tax (1% of the official value) has been eliminated.
After payment of the taxes, the Municipality will take 5 days to issue a municipal permit-letter and to register the property in the cadastre (World Bank Group, Ecuador).
The law in Ecuador recognizes the use mortgage as a bilateral agreement between the relevant parties. Mortgages must be executed in the form of a public instrument as mentioned above. They may be made in a foreign country with respect to property in Ecuador. Recording of the property with its encumbrances is very important. The mortgage is effective only from the date of record in the registry. Mortgage foreclosure is effected by a summary excutory suit. After closure there is no right of redemption.
The financial institutions and banks in Ecuador prefer short term financing rather than long term debt financing.
There is a limited mortgage market in Ecuador. Most banks provide short term funding in order to limit their financial exposure in most of the projects. Due to lack of long term financing, real estate is dominated by those who have excess cash to invest.
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