Rights of Possession (ROP) land is somewhat unique to Latin America.
It often makes North Americans uneasy. But the concept is not as unfamiliar as you may think.
A little history may help.
In the beginning, land in Panama did not belong to anyone. The indigenous people used it collaboratively.
Then the Spanish came.
They declared all land in Panama belonged to the Spanish Crown. However, the Crown only cared about the land from Colon to Panama City – for the same reason it is valuable now, as a port for global trade.
In the interior, the Crown continued the communal tradition of Panama’s indigenous people by selling some land to villages to be owned collectively. Some large tracts of land were also granted to favored subjects. On the rest, the Crown recognized the right of small farmers to use, but not own, as much land as they needed.
At that point it was a bit like feudal England. The Crown was fine with you using its land as long as you played nice and obeyed the King or Queen. And even after its grants and sales, almost all of the land in Panama remained untitled and in the Crown’s domain.
Then, 300 years later, Spain left. All of that land now belonged to the new government.
Not Much Titling Going On
The new Panama government asked its citizens to title any land they were using by showing proof of their land claim. But very few bothered to do that.
Getting title was an expensive and long process. Even many of the wealthy folks didn’t do it. That’s because once you title, you must start paying property and capital gains taxes.
Titling today is much cheaper and somewhat faster. However, most land in Panama continues to be ROP with the government holding the title. So in many ways it continues today the way it did when Panama was a colony of Spain.
When Even Titled Land in USA is Not “Yours”
Of course, as we all know, even in North America with its almost 100% titled property, government can step in. Have you heard of Eminent Domain? Trump and Cruz were arguing about it in a debate a few months ago. That is, if the state needs your property they can come in and take it, with a “fair market” compensation, of course. Trump and Cruz were arguing whether it was okay for the government to take land to build a parking lot.
What Does ROP Property Mean For You?
It means you can use the property any way you want, just as if you held title to the land. It means you own the right to use the land, just as if you had the title.
Except, because you don’t own the title, you don’t have to pay taxes.
3 Ways ROP Is Different From Titled Property
- More upfront legwork and research required
- Need to maintain or improve property to show ownership
- No taxes levied
Since ROP properties are not registered with the State, you need to make sure that the person selling you the property really owns it. See this post on how to buy ROP property safely for more on how to do that.
To avoid doing that work, you can buy ROP land from someone like us who has done all that work for you. We go through an extensive investigative process to ensure that there is a clear ownership trial and collaborative documentation for all our ROP properties.
In addition to research, you have to go out and physically claim your property in a noticeable way. Something that says there are new owners of this property. We always recommend that you immediately put up a fence. If a fence is already there, paint the fence. At a minimum, have someone go out on a somewhat regular basis and keep the grass cut. Just something so everyone knows that the property is owned and cared for by you. You don’t have to be there yourself, the fact that you are hiring someone to cut the grass is enough. Or you could build a rancho or some sort of structure.
You are establishing that you are the new owner, the person that holds the right to use the property. If there is ever a legal challenge, the court will ask for your proofs of ownership. That is when you pull out your evidence of activity.
We have been establishing ownership of our ROP property for years. We put up fences on all our properties and maintain them. We also get to know our neighbors. That isn’t necessary, but it is a good idea for many reasons. My husband especially loves to chat with all the neighbors. He even knows the names of all their dogs. Because of this there is no doubt in anyone’s mind about who owns those properties – we do. And that certainty of ownership is entirely passed on to you, when you buy our property.
Maintenance & Titled Property Keep in mind, you need to keep your eye on titled property too. If someone is using your land for 10 years in good faith (that is, they didn’t know you owned it), they can get title. Or in 15 to 20 years if they are using it in bad faith (that is they know you own it, but decide to ignore that fact.)
Of course, that can happen in the States too.
My sister-in-law lost part of her land because for years she allowed a neighbor to garden a section of it. When she went to sell it, she faced a legal battle to keep that “garden” as part of her land. She lost. Her neighbor is still gardening that strip. My sister-in-law sold her property minus that section. She never got reimbursed for the loss.
You can avoid my sister-in-law’s loss in both Panama and the US by simply having the people using your land sign a document. A document that states they are using the land on a temporary basis, or even better yet make it a rental agreement, even if only for a nominal fee. That precaution works for both ROP and titled land.
Pay No Taxes
ROP property is excluded from property taxes and all land transaction taxes (i.e., capital gains, transfer fee).
Selling ROP Property & Making Money
There is a big market for ROP property. It is routinely bought, sold, and traded – just like titled property.
You can just as easily earn a profit reselling ROP land as titled land.
In fact, some people prefer ROP to titled property. This is because, as I’ve mentioned, you don’t have to pay property or capital gains tax with ROP property. In addition, ROP land tends to be cheaper than titled land.
As I alluded to in this post, some of the same kind of land issues with ROP (and titled) property in Panama occur in North America as well (think of my sister-in-law’s property loss and eminent domain).
Now that you have a clearer understanding of what ROP means, you can decide if the benefits of ROP land outweighs the costs.
Benefits of ROP land
- No property taxes.
- No capital gains tax
- More properties to chose from since most property in Panama is ROP
Costs of ROP land
- Need to do through upfront investigation and research
- Need to have a regular show of ownership
Which type of property are you looking to buy? Please share in comments below.
Want more information?
Panama’s Poor: Victims, Agents, and Historymakers By Gloria Rudolf
“Property Law Innovation in Latin America”, by Steven E. Hendrix
Indigenous peoples, land tenure and land policy in Latin America by Thomas Griffiths
Marcos Kraemer of Kreamer & Kraemer Law Firm in Panama
If you have questions, please feel free to call us or leave a comment below.