Trade and Commercial Law Assessment - Honduras - Economic ...

TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004
HONDURAS
V. REAL PROPERTY
A. INTRODUCTION
A major reform in the area of real property is currently being implemented in Honduras through
the Property Law, (Ley de Propiedad, or LdP), which entered into force on June 29, 2004. The
primary purpose of this law is to rationalize the country’s chaotic property system by recognizing
settlers’ rights, resolving title disputes, and modernizing the Property Registry.
The LdP includes the creation of a new entity in charge of property matters, Instituto de
Propiedad, which will have authority over, inter alia, real property registration and a national
cadastre map. The new property system is expected to be fully in place in January 2005. The LdP
created a transition period during which information from current registries would be transferred
into the new system. During the period of the assessment, registries’ employees reported that the
procedures during the transition period were unclear and that they thus used the old property and
registry system by default.
The real property system has a profound effect on credit markets because mortgages are the
primary form of guarantee accepted by creditors. Because land tenure is usually unclear
mortgages and thus credit are difficult to obtain. A survey conducted by a World Bank project in
2004 showed that only one in nine property titles is free of discrepancies. 26 In cases in which
credit is provided, the ambiguity of ownership creates added risks for creditors, which in turn
charge high interest rates, further decreasing access to credit. Securitization of land or land titles
does not occur.
An added problem, as recounted elsewhere in this report, is that the judicial system in Honduras
is unreliable. Execution of real estate guarantees is slow and difficult, thus discouraging
investments in real estate.
Overall, the current state of the Honduran real property system discourages foreign investment
and the growth of local business. Current reform initiatives, if successful, could play a large part
in enhancing the business climate and allowing for economic growth.
B. LEGAL FRAMEWORK
Since June 29, 2004, two sets of law have had authority over real property in Honduras: the Civil
Code and the LdP.
1. The Civil Code
The Civil Code provides for real property purchase, acquisition, donation, use, rent, mortgage,
lien, and legal protection.
26 The survey was conducted in 2004 by the World Bank’s Programa de Administración de Tierras de Honduras
(PATH) project, which is discussed on page V-5 of this report.
V-1