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. 'Furthermore, there are at least six additional provisions to be included in the treaty for clarity, interpretation and to avoid potential constitutional challenges'.
The legislation will also lead to an increase in legal work, explains Medina-Alva, because as the market grows there will an increase in arbitration and litigation. It will also push lawyers in each country to learn more about their neighbour's legal framework, he says.
"The increasingly dynamic market, facilitated by the law, will compel business, corporate, banking and transactional lawyers in the region to acquire additional academic and practical knowledge from each of the jurisdictions covered by the law, in order to respond to their clients' growing needs," he says. "With the 'Central Americanisation' of the banking industry, both banks and companies will place a premium on the cross border capacities of their attorneys, prompting firms to adopt new technologies and modernise their legal practices' culture, in procurement of cross border and multi-jurisdictional expertise."
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