Lending in The Bahamas: Topics of Interest
Land Title Insurance in The Bahamas
The same land title insurance required by banks in the U.S., is available in The Bahamas through a company that has been insuring land titles there since 1989. International Data Management, Inc. (IDM), has been a policy-issuing agent for the largest title insurance companies and has its own automated title plant of the property records from all the Islands that make up the Commonwealth of The Bahamas. IDM personnel are experts on land title and Bahamian land title matters. They also have extensive knowledge of the Bahamian culture, government, business practices and legal system. IDM is a full-service company that provides consultative services on The Bahamas, as well as all services related to land title insurance and related settlement services.
Securing the Loan
As in the U.S., real estate can serve as collateral for loans. The documents used to encumber property are as follow:
- Residential transactions: Mortgage (Similar to U.S. deed of trust); and
- Commercial transactions: Debenture and Legal Mortgage.
The Bahamian debenture is a great tool from the lender’s perspective and can create a higher level of security than that created by instruments normally used in the U.S. It can create a fixed charge on the real property owned by the borrower at the time of executing the instrument and specifically included as collateral in the instrument. It can also create a floating charge on all the borrower’s remaining real, leasehold and other property, both present and future, so that the borrower cannot create another mortgage or a lien arise or affect any of the borrower’s property and lender’s collateral. In effect, a species of “super mortgage” is created.
More importantly, both these instruments not only serve to secure the loan, but actually convey the real property to the lender subject only to the proviso of the borrower’s right of redemption, at the borrower’s cost, if the loan is paid in full pursuant to the agreed terms and conditions. The lender, therefore, acquires a legal ownership interest in the real property that serves as collateral; not merely an equitable interest, as many of the United States.
Due to the lender’s ownership interest, if the borrower were to default, the lender’s only obligation prior to exercising its ownership interest would be to provide the required statutory notice to the borrower. Also, due to the mortgagee’s statutory power of sale, the lender can then convey the fee without judicial foreclosure.
Recording and the Property Registry
The Registrar General of the Commonwealth of The Bahamas maintains the property registry where all transactional documents may be “lodged” for record. Like in many jurisdictions in the U.S., a recorded document has priority over any document that is not recorded. A recording charge of $4.50 per page, 2.5% stamp duty and 7.5% VAT based on a percentage of the consideration is required to record a Deed of Conveyance or Indenture. For mortgages and debentures, the stamp duty is 1% of the loan. “Closing” is known as “completion” in The Bahamas and customarily takes place in the office of the seller’s attorney or the office of the Bank’s/lender’s attorney. Drafting of legal documents must be accomplished by Bahamian attorneys, or at a minimum, a Bahamian attorney must adopt the document and indicate evidence of the adoption by signing the document on the margin. All documents must be notarized. Bahamian attorneys also serve as notaries.
Foreign Ownership of Real Property
The acquisition of property by foreigners is regulated. Application must be made to the government for ownership of residential and commercial property as follows:-Non-Bahamian individuals or entities must submit a statutory form application to the government for a Certificate of Registration, along with the applicable registration fee to acquire an interest in (i) a condominium unit; (ii) an existing single family residence; and (iii) vacant land with 2 or less contiguous acres on which a single-family residence has been or will be constructed. The property is then registered and a certificate is issued to the applicant. The certificate must be recorded with the deed. If the certificate is missing from the recorded deed, the recording will be invalid and the document will not obtain the usual priority.
For all other property, a permit must be obtained. If the permit is missing from
the recorded deed, not only will the recording be invalid and the document not obtain priority, but the Deed will also be null and void for all purposes. Negotiations may be required for the issuance of this permit on certain large commercial purchases or other purchases of larger tracts of land. As a result of these negotiations, the government may impose certain requirements such as the commencement of construction within a specified period of time. Representation by a Bahamian attorney is essential for these negotiations and an ultimate favorable outcome.
Although non-Bahamians must obtain a certificate or permit when acquiring real property, they are not specifically restricted in the type or size of property they can purchase. The property may be purchased in a personal capacity or through a legal entity.
If a borrower purchases owner’s title insurance, the standard rate for the owner’s policy would be paid and the Bank’s loan policy would cost significantly less if the policies are purchased simultaneously.
Fees vary depending on the services required. The Bahamian Bar has promulgated an advisory schedule of fees. The highest amount is 2.5% for up to $500,000.00 worth of consideration, and the lowest is .5% for consideration over $5,000,000.00. Specific charges can be negotiated, but most attorneys will insist on the promulgated schedule with a minimum of $5,000 or more.
Recording: $4.50 per page
Deed of Conveyance: 2.5% Stamp Duty if less than $100,000.00
A total of 10% if $100,000.00 or more comprised of 2.5% Stamp Duty and 7.5% VAT, charged based on the consideration.
Mortgage: One percent (1%) of the borrowed amount
Debenture: One percent (1%) of the borrowed amount
Certificate of Registration (for non-Bahamian residents): $250.00 for application
This will vary depending on size of lot, location, the Island and if there are established points. Generally speaking, a platted residential lot, 50’ x 200’ in size, where two points can be found, will run approximately $400.00.
Real Estate Agent’s Fee
There is a customary commission for the sale of commercial or residential real property. It is 10% of the price for unimproved property, businesses, car parks, farms and groves; and 6% for all other improved property.
* A 7.5% Value Added Tax (VAT) is charged on real estate services