Central American Mortgage Will Boost Banking System

Published by Latin Lawyer, October 2010.

A Central American mortgage law which was approved in Guatemala and rejected a few days later in the Costa Rican Congress, could lead to a more sophisticated banking system, according to a lawyer familiar with the legislation.

The law, which came into force in Guatemala on 15 October but is still awaiting approval in other Central American countries, will allow people to take out a mortgage using as a guarantee property that is located in a different Central American country.

"As a direct result [of the law], we will see how the banking industry will evolve in its size, as more, and larger transactions, will take place." says Central Law Honduras' Jesús Humberto Medina-Alva. "Furthermore, the financial market's evolution will provide grounds for more sophisticated transactions, increasing the need for additional legal work from law firms, for both the banks and the corporations."

Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and Dominican Republic have all signed the regional mortgage treaty but Medina-Alva believes that countries such as Panama which already have more sophisticated banking structures will benefit more from the law.

In the case of Costa Rica, the legislature rejected the law as it didn't see how it would benefit the country.

'The Costa Rican Congress decided to reject the treaty arguing that there is no certainty about the real benefits and advantages that Costa Rica could obtain through the implementation of the treaty,' says a Costa Rican lawyer...