I Asked a Mortgage Lender to Prove Me Wrong.
Here’s What Changed.
- Dennis J. Easters
- Dennis@pldatenasrealty.com
- +506-8854-7721
What Second Street taught me about financing property in Costa Rica—and why preapproval is still only the beginning.
Several months ago, I wrote an article titled We’ve Been Pre-Approved: Why Those Five Words Make Me Nervous in Costa Rica.
It began with a client named Bill climbing into our car for his first day of showings.
“We’ve been pre-approved,” he told me. “Now it’s just a matter of finding the house.”
My stomach sank.
That reaction had been earned honestly. In nearly twenty years of selling real estate in Atenas, Gerardo and I have worked in an entirely cash market. We had never completed a transaction that depended on institutional mortgage financing. We had tried. More than once. Each attempt brought delays, uncertainty and, ultimately, disappointment.
Bill believed his experience would be different. So did his lender, Second Street.
One of their representatives assured me the loan was a slam dunk and asked if we could meet afterward to discuss sending future clients their way.
I gave him a challenge.
“Close this transaction,” I said. “Prove to me conventional financing works in Atenas, and then we’ll have that conversation.”
The transaction did close.
But the loan did not.
Bill purchased the property with cash, and I walked away believing that my skepticism had once again been justified.
Then I heard from Zach Kay, Second Street’s founder and CEO.
The Email I Needed to Read
Zach could have sent a defensive response filled with corporate language.
He didn’t.
He began by acknowledging that our first experience with Second Street had not been a positive one and apologizing for it. Then, point by point, he addressed what I had written.
He brought dates.
He brought numbers.
He explained the legal structure behind the loan.
And he corrected several things I had gotten wrong.
That matters.
I have spent much of my career telling buyers that Costa Rica rewards those who ask difficult questions. The same standard has to apply to me. If I expect lenders, attorneys, agents and sellers to deal in facts, I have an obligation to do the same—especially when new information changes the picture.
I was right about the risk.
I was wrong about the conclusion.
It Wasn’t Three Days Before Closing
In my original article, I wrote that Bill’s loan was denied three days before closing.
According to the transaction records Zach reviewed, Second Street notified Bill on July 18, 2025, that it could not lend on the property. The purchase contract called for an August 8 closing—approximately three weeks later.
The following day, July 19, Bill asked how to proceed with his earnest-money deposit because he had already decided to complete the purchase with cash.
My recollection of the timing was wrong.
More importantly, describing the problem simply as “zoning” failed to explain what Second Street says it actually discovered.
The seller could not produce a building permit or confirm that one had ever existed. According to Second Street, the home was also in conflict with the local zoning code. From the lender’s perspective, that created a risk that the municipality could take enforcement action against the property.
Bill was willing to accept that risk as a cash buyer.
The lender was not willing to accept it as collateral for a thirty-year loan.
That distinction goes to the heart of what buyers need to understand: a borrower can be pre-approved while the property is not.
The lender is underwriting two things—the person borrowing the money and the real estate securing the loan. Approval of one does not guarantee approval of the other.
Were the Costs Really Hidden?
Another section of my original article was titled “The Hidden Costs Buyers Don’t See.”
Zach took issue with that characterization, and fairly so. Second Street had supplied Bill with a written closing-cost estimate. The costs were not hidden. They were listed on the page I later used to illustrate the article.
I had grouped escrow charges, currency-conversion costs, property taxes and homeowner’s insurance together with expenses caused by financing. Zach correctly pointed out that cash buyers encounter many of those same costs.
Property taxes remain due whether a buyer borrows money or not.
Most foreign buyers use escrow even when purchasing with cash.
Currency conversion can arise when Costa Rican taxes, registration charges and professional fees must be paid in colones.
Homeowner’s insurance is not unique to a mortgage, although a lender may require it.
Second Street calculated Bill’s closing costs—excluding ongoing expenses such as property taxes and insurance—at $32,141 on a $650,000 purchase. That equals approximately 4.94 percent of the purchase price.
In our Atenas transactions, a cash buyer’s closing costs are typically closer to 3.6 percent. On the same $650,000 purchase, that would be approximately $23,400—a difference of $8,741.
That does not mean financing is free.
The estimate included a $1,495 application fee and a 4.5 percent loan-origination fee. Those are real financing expenses and should be evaluated alongside the interest rate, loan term, prepayment provisions and every other cost of borrowing.
The costs were disclosed, not hidden. Zach was correct about that. Some of the items I questioned were also ordinary purchase or ownership expenses rather than lending fees.
But the financing transaction was still materially more expensive than the typical cash closing we see in Atenas. My original description of the individual charges was imprecise; the underlying cost difference was real.
There was a reason for that, and it was the line item I understood least.
What “Transfer Tax Deferral” Actually Means
Bill’s estimate included the phrase Transfer Tax Deferral.
In Costa Rica, language like that deserves attention. The word deferral naturally raises another question: deferred until when?
Zach’s explanation led me to Article 662 of Costa Rica’s Commercial Code.
Second Street does not secure its loans with a traditional mortgage lien. Instead, the property is transferred into a fideicomiso de garantía—a guarantee trust—in which the property serves as collateral for the loan.
When the fiduciary and financial beneficiary satisfy the legal requirements, Article 662 exempts the initial transfer into that guarantee trust from the real estate transfer tax and most registration charges while the property remains in the trust as collateral.
That exemption helped offset some of Second Street’s loan-related fees and kept the difference from being even greater.
If the property is later transferred from the trust to a new buyer, the normal transfer taxes and registration costs become due on that transaction. Zach also explained that borrowers who repay the loan may have options for keeping the property in a different trust structure rather than transferring title into their individual names.
That last step is something each borrower should review with an independent Costa Rican attorney and tax adviser. Trust agreements, repayment plans and future sales can create different consequences. No buyer should rely upon a general explanation—including mine—when deciding how to hold title to a specific property.
But the underlying tax exemption is not a clever phrase invented for a fee sheet. It is grounded in Costa Rican law and is used in qualifying guarantee-trust transactions.
I understand it now.
I did not understand it when I wrote the original article.
Trusts are part of Costa Rican law, and Zach explained that local banks primarily use trusts when they lend, including to Costa Rican borrowers. That is different from saying trusts are common in the cash transactions most foreign buyers encounter.
For twenty years, Gerardo and I have worked in an entirely cash market, and none of our sales has closed through a guarantee trust. We understood what a fideicomiso was; we had no practical experience with this particular structure or its tax treatment. That was the gap in my knowledge—not whether local lenders use trusts.
A buyer considering this type of financing should have an independent Costa Rican attorney with direct experience in guarantee trusts review the agreement and explain what happens during ownership, upon repayment and when the property is eventually sold.
Then Came the Number That Changed the Conversation
Bill’s loan did not close.
According to Zach, Second Street has since closed more than $30 million in Costa Rican loans, and counting.
The company says only a handful of its transactions have failed because property due-diligence problems could not be resolved—and that no client has lost an earnest-money deposit because Second Street was unable to close a loan.
Those are Second Street’s figures, not mine. But they represent something I did not have when Bill climbed into our car:
A track record.
Second Street is a private lender registered with Costa Rica’s Superintendencia General de Entidades Financieras, commonly known as SUGEF. It offers dollar-denominated, fixed-rate loans with terms extending to thirty years and says its capital comes from a publicly listed U.S. mortgage lender.
Most importantly for our market, the company says its underwriting is designed specifically for Costa Rican property rather than forcing every parcel, easement and land-use designation into a model created for a suburban American house.
That doesn’t mean every property will qualify.
Bill’s did not.
It means I can no longer say that conventional financing simply does not work in Costa Rica.
Apparently, it does.
What the New Lending Model Does Not Change
A lending product can be legitimate, well funded and thoughtfully structured and still face serious limitations in Costa Rica.
Those limitations are not necessarily problems with the borrower or the lender. They may come down to the property, the documentation available and the requirements of a particular lender.
Due diligence in Costa Rica does not follow one uniform checklist. In our transactions, it generally includes reviewing title and the survey, obtaining a use-of-land report, confirming that property taxes and municipal bills are current, and arranging a home inspection.
Building permits have not traditionally been requested in every sale, although some attorneys are beginning to ask for them. In our experience, that is still the exception.
A lender may ask for additional records as part of its own review of a property. The requirements can vary with the lender, the property and the documentation available. A request for a document does not, by itself, mean there is a problem with the home. It means the lender needs to decide whether the information it has meets its requirements.
That can create a gap between what the buyer and seller consider ordinary due diligence and what a particular lender needs before it will approve a property as collateral.
For rural and semi-rural properties, the available documentation and the lender’s requirements may affect whether a property qualifies. Second Street’s familiarity with Costa Rica may help it navigate irregularities, but it still needs sufficient evidence to satisfy its underwriting standards. There is no single checklist that applies to every transaction.
Then there is the seller.
For many Costa Rican sellers, the word financing is itself a red flag. They remember promises made by banks and other financing companies that never materialized—loans that took months, approvals that changed and closings that never happened. Some experienced those failures personally. Others heard enough stories from relatives, attorneys and real estate agents to decide that they do not want their sale depending upon a lender.
A preapproval letter may reassure the buyer.
It does not necessarily reassure the seller.
This creates two hurdles. A seller must first be willing to consider an offer involving financing. Then the seller must be willing to accept the lender’s review process, including any additional requirements or extension of the due-diligence period.
In our cash transactions, sellers generally understand due diligence to mean a clean title review, survey, use-of-land report, confirmation that taxes and bills are current, and a satisfactory home inspection. Once those checks are complete, they expect the deposit to become non-refundable.
A lender may have additional property requirements beyond those customary checks. That may leave questions open after the seller believes due diligence is complete. The purchase contract determines when the deposit becomes non-refundable and what happens if the lender cannot approve the buyer or the property.
Zach explained that Second Street has its attorneys complete their property due diligence before the buyer’s deposit becomes non-refundable. If that review is taking longer, they request an extension.
That is useful information about Second Street’s process. But an extension requires the seller’s agreement, and it does not erase the first hurdle: the seller must be willing to accept an offer that depends on financing. It also does not mean I can tell a seller there is no risk. Gerardo and I have not yet closed an institutional-financing transaction.
This is why the lender’s requirements, the review period and the deposit terms need to be understood before the parties commit. Financing creates another layer of review, and the seller has to agree to the time and terms needed to complete it.
What Has—and Has Not—Changed for Me
Would I now tell every buyer to finance a Costa Rican home?
No.
Cash remains simpler. It generally makes an offer more attractive to a seller, removes an entire layer of approval and eliminates the long-term cost of interest.
Even a seller who is open to financing may be coordinating an international move, purchasing another home, managing health issues or relocating closer to family. They are not interested in collecting a forfeited deposit. They want certainty.
And no preapproval letter can guarantee that an unusual rural property will satisfy a lender’s legal review, appraisal and underwriting.
But there is an equally important truth.
Not every qualified buyer wants to liquidate investments, sell another property or tie up hundreds of thousands of dollars in a house. For some, preserving liquidity may matter more than avoiding interest. A fixed-rate, long-term loan can make strategic sense even when cash is available.
My role is not to make that decision for them.
My role is to make sure they understand what they are deciding.
What I Would Tell a Buyer Today
If a client came to me now with a Second Street preapproval, I would no longer dismiss the possibility that the loan could close.
But before we began looking at homes, I would explain that financing may limit both the properties available to them and the sellers willing to consider their offer.
Before writing an offer, I would want the buyer to understand:
- Pre-approval evaluates the borrower, not necessarily the property.
- A buyer’s usual due diligence may not answer every question a lender has about the property.
- Lender requirements can vary, and some properties may not satisfy them, regardless of the buyer’s financial strength.
- Some sellers will not accept an offer involving financing, regardless of the lender’s preapproval.
- The purchase contract must provide enough time for the lender’s property review, appraisal and final underwriting.
- The buyer’s independent attorney should review the guarantee trust, transfer-tax treatment, annual trustee costs and what happens upon sale or early repayment.
- Loan-specific fees should be compared against cash, owner financing, securities-backed credit and any other realistic alternative.
- The buyer should understand exactly when the escrow deposit becomes non-refundable and what happens if the lender’s review is not complete by that deadline.
Those terms may require negotiation with the seller, and not every seller will agree.
Financing creates possibility.
It does not eliminate risk.
The Conversation I Promised
I once told Second Street to close the transaction and prove to me that conventional financing could work in Atenas.
They did not close Bill’s loan.
But they did something else.
They identified a property problem Bill was willing to accept and they were not. Then, after I publicly questioned their costs, communication and lending model, their CEO answered me directly—with enough detail to make me reconsider my position.
Since then, according to Zach, they have closed more than $30 million in loans across Costa Rica.
That is not a promise that the next loan will close.
It is evidence that the conversation has changed.
So has mine.
I remain cautious about financing contingencies. I still believe cash gives buyers tremendous negotiating power. I will continue warning clients that Costa Rica does not operate exactly like the country they left behind.
But I also believe experience should sharpen judgment, not harden it.
When the facts change, good advisers change with them.
Second Street asked me to take another look.
I did.
And now we can have that conversation.
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Dennis Easters
Real Estate Broker
+506-8854-7721
Dennis@pldatenasrealty.com
