An Expert's Opinion On Proposed Changes to ROP Titling Bill

Editor's Comment: Earlier this week I called Susan Guberman-Garcia to get her input on the Airbox Express vs. Aeropost fiasco. When we finished talking about that issue, she changed the subject and wanted to talk about this entire issue of the titling of island and coastal land, and the current efforts by the government of Ricardo Martinelli to repeal or modify Law 2 of 2006. In short, Susan tried to get me motivated to investigate and report on what was happening, and the hearings that will be held in Panama City this week. I simply asked her to write the article for a number of reasons. First of all, she has been deeply involved in this issue since day on, and she watches it like a hawk. Secondly, I don't "have a dog in this fight" and Susan does because she owns property on an island in Bocas del Toro. Third, this is a complicated issue and Susan is uniquely qualified to sort it all out and present it in an understandable manner - Susan is a good writer for this kind of stuff. Anyway, may I present the one person in the entire Republic of Panama who has the best grasp of this large and complex issue. Susan Guberman-Garcia is without a doubt an expert in these issues, and the Panamanian National Assembly would do well to invite her to speak at the hearings they will be holding as this bill works its way through the process towards adoption. Don.

(Comments End, Article Continues Below)

Why is so much of this land untitled? There are several reasons:

• 1. Large parcels of land are owned by prominent Panamanian families who did not have them formally titled because they did not want to pay property taxes.
  
  
• 2. Most of the Panamanians who live on untitled land (including the majority of island dwellers) couldn't afford the legal and administrative costs required to seek and obtain title.
  
  
• 3. Article 291 of the Panama Constitution bars the issuance of "new" titles to island territory that was not titled prior to 1941 - unless and until the government of Panama decrees a "Development Plan" for the islands and until a few years ago, the Panamanian government did not wish to do so. Its important to note that such a decree requires merely a rote recitation of the existence of a development plan, the Constitution is silent as to specific pre requisites for what a "development plan" would entail.
  
  
• 4. Like most third world countries, particularly in Latin America, there is a cultural preference for government ownership of land, primarily because it provides a traditionally fertile source of graft. Judicial insecurity equals confusion and confusion means profits. Administrative agencies (particularly lands offices) have wide discretion in their decision making, and historically, it is widely perceived to have been sometimes exercised for the benefit of those who are willing and able to reward them for the "right" decisions.

Government agencies routinely issued "certifications" of ROP to national and foreign buyers: But while new titles could not be issued, for years, government officials routinely issued "certification of the right to lawfully occupy" untitled island to buyers who presented notarized sale documents. The majority of these documents were issued by the local office of the Reforma Agraria. Some were issued by Catastro and others by local Municipalities. They were issued to Panamanian natural persons and, Panamanian corporations belonging to Panamanian and foreign shareholders. Lawyers representing foreign buyers advised them that it was perfectly safe to purchase ROP, so long as you exercised "due diligence" to make sure nobody else had a valid claim to it (by checking with adjacent property owners and looking for signs of human habitation, cattle trails, farming activity, etc.). Buyers were usually advised to purchase in the name of a Panamanian corporation. Meanwhile, most locals continued to live on, farm and otherwise peacefully occupy untitled island land, as their parents and grandparents had done before them, usually without any legal formalities at all.

A New government decides that island ROP is "illegal." In late 2004, soon after the election victory of Martin Torrijos and the PRD, the new government decided that all island ROP was illegal, and that all the government agencies who for years had routinely issued certifications of possessory rights "had no jurisdiction to do so." Newspapers featured quotations of certain high ranking government people threatening to "throw the foreigners who have stolen our patrimony out of Bocas." This prompted grave concern on the part of small foreign holders of ROP in Bocas, and a group of them wrote a letter to the President expressing concern about the security of their retirement homes and investments. The President responded by directing Catastro officials to meet with a delegation. At that meeting, and at seveal subsequent meetings, the government officials repeatedly issued reassurances that people who bought ROP in good faith would be protected and while the new government now believed that a succession of prior governments "shouldn't have issued" the certifications, they would be honored so long as the recipients had not engagd in any kind of fraud to acquire their property. The government officials further explained that the government was working on a development plan and that new legislation would be forthcoming that would create an orderly system for land rights in the island. They indicated that titling of ROP might or might not be included in the legislation.

In early 2005, a bill was presented to the Asemblea authored by a Bocas del Toro Representative. This bill declared the existence of a development plan which included the ability for all ROP holders to title their property. The bill was strongly supported by everyone in the islands - locals, foreign retireee and the business and real estate community- but it was rejected by the Torrimos administration and quietly went away.

The "boom" in island and coastal properties created an inviting climate for fraud and corruption: As the world had discovered coastal and island Panama' natural attractions for tourism development and as a home for foreign retirees and snowbirders, property in Bocas del Toro, and other coastal/island areas boomed. Most of the people who came and bought were decent, honest people who quickly became involved in their new communiities and participated in charitable and public interest activities. Their investments created entrepreneurships and jobs for locals that supplemented the growth created by increasing tourism. But the boom, as booms are wont to do, also created great opportunities for fraud and corruption. Phony land claims became a cottage industry with the help of crooked politicians and beaurocrats. A few unscrupulous developers, both foreign and Panamanian, blatantly stole land from indigenous, local and foreign owners and the courts turned a blind eye. (Some of these cases have been written up in the Panama Guide and will not be repeated here.) The calls for the development of an orderly, judicially secure regimen of property ownership, most particularly, for titling of ROP, increased.

The government's solution: Titling of island ROP only for large developers, "concessions" for everybody else: Later that year, after quietly killing the titling bill, the government unveiled its "development plan" for the islands, in accordance with the requirements of Article 291, in the form of what would eventually be Law 2 of 2006, and significantl, entitled: "Whereby Concessions for Tourism Investment and the Conveyance of Insular Territories are being regulated in order to be of Benefit to Tourism and other Dispositions are enacted." Titling would be permitted only for large developers, everyone else would be able to obtain only a "concession." The early drafts of the bill were highly confiscatory. They would have allowed anyone the right to "bid" on anyone else's ROP, and the highest bidder would be granted a "concession," even if the land was occupied, and even if it had been occupied for years or generations. Free concessions would be awarded to people who actually lived on or worked their land, but they would have to prove they had voted using the "address" of the land and could do so only by way of written documents (the voting requirement obviously excluded non-citizens.). Most concessions would require payment of an unspecified amount of money. After the first draft was circulated, a few bottom feeding lawyers began promoting business by promising would-be clients that they would be able to look around, find beautiful homes that had been built on ROP, and "bid" on those homes.

There was a groundswell of opposition to this bill by the local communities. Local small holders, indigenous organizations,and foreign retirees and small businesses joined in opposition, and sent delegations to the capital to argue against the bill. The legislature held a hearing in Bocas del Toro at the local gymnasium which was attended by hundreds of people. At the hearing, every speaker from the community spoke in strong opposition to the bill and demanded full titling of all ROP.

In response to the growing opposition, the bill was repeatedly amended. The final version left few islanders satisfied, but the worst of the confiscatory provisions were amended out of the bill (particularly the "bid on someone else's ROP" language, and the provisions disallowing oral evidence of the requisite 5 year occupancy. The draft that was eventually signed by the President included an important grandfather clause that specifically recognized the validity of ROP in the islands and declared that the concession requirements in the law were not applicable to people who could demonstrate a valid ROP claim based on documents filed with any government agency. Derivative possession would be permitted to meet the length of possession requirement. But by denying the right to title to all ROP holders other than large developers, the bill fell short of what virtually all economists understand to be a key ingredient in creating an economically successful, juridcally secure land tenure system, and kept the door open to widespread corruption.

Although over 4 years have elapsed since that bill, Law 2 of 2006, was signed by President Torrijos, only a handful of concessions - if that - have been issued. The "open window" for filing concession applications never opened. Implementing regulations were not submitted for another two years, and when submitted, they were so vague as to be virtually unworkable., and included no provisions for the free concessions that the law mandated for small holders. It was clear that the sole purpose of the bill was not to benefit small holders, but to allow large developers to offer title to their buyers so that they could get mortgages. Many people have come forward with stories of seizure of ROP land occupied by generations by Panamanian famillies being "awarded" by government officials to foreign developers. Both Panamanian and foreign homeowners have had to defend against increasinly numerous false claims against ROP and even titled property. And the survey required by Law 2 to identify and survey all ROP properties in the island and coastal regions in preparation for a Public Registry-type database of ROP never materialized.

Finally - a titling bill that would benefit all: In October of 2008, a bill was presented to allow, and indeed require, titling of ALL claimed ROP parcels. The bill was written by a group of Panamanian lawyers who are experts in land law. In compliance with Article 291 of the Constitution, Article 1 of the law declared: "Insular (island) land is hereby declared a special development area. In order to exploit it, the regularization and massive titling of rights of possession existing on insular land, duly evidenced as provided in this Law and pursuant to the criteria set forth in Law 24 of 2006."

The law was reportedly presented amidst the backdrop of reported intense pressure on the Torrijos Administration by international finance organizations involved in funding the Canal expansion project that the Panamanian government should engage in a program of massive land titling. These organizations were well aware that virtually every economic think tank, whether liberal (Clinton Foundation, George Soros Foundation) or conservative (Heritage Foundation, Cato Institute) as well as international grantors and lendors (Inter American Development Bank, International Monetary Fund, World Bank) agrees that private ownership of land, with valid, judicially recognized title, is essential for development and particularly, for alleviating poverty. It provides access to credit and the opportunity to acquire wealth. It provides juridical security, a key requirement for investors who can help grow the economy. International lenders also know that titled property brings a steady flow of property tax payments, which go right to the national treasury, rather than to some corrupto's pocket. And it didn't hurt that the Inte-American Development Bank made available over two million dollars, either on a loan or grant basis, to initiate a massive nationwide survey of all untitled land, with the goal of identifying every piece of untitled land to which ROP claim was made, enter it into a database so that titling could proceed in an orderly fashion.

Public hearings on the titling bill drew hundreds of attendees, mostly small holders of ROP on the mainland, contingents from the islands, community organizers, and a scattering of foreign small property owners and business people. It seemed that support for the concept of mass titling was strong across the board, even among the previously resistant PRD (whose representatives actually sponsored the bill). The primary public opposition to the bill came from the Catastro directorate of the Ministry of Economics and Finance (MEF), who did not want to lose their control over property and were philosophically opposed to titling. The biggest fights were over two things: How much would it cost to title, and who would have control over the titling process. The Torrijos administration, and partiulcarly, the Catastro people, argued for charging high prices for land in potentially attractive tourist areas, such as the Bocas islands. The public supporters of the bill argued in favor of free or extremely low cost titling. Presidential candidate Ricardo Martinelli took the position that all titling should be free.

In the end, after vigorous debate on several proposed amdnements, the Asemblea adopted a compromise: titling would be extremely low cost: $50 per hectare for up to 20 hectares, $100 per hectare for parcels of from 20-50 hectares, and $150 per hectare for parcels larger than 50 hectares. Low income titlers would have ten years to pay. However, a 25% capital gains tax would be imposed on the titler upon the first sale of the property after titling, plus the usual 2% of value transfer tax. The bill also contained provisions for referral to the courts in cases of multiple ROP claims to the same land. And titling was not optional: anyone occupying or holding a claim to the right to occupy untitled land was required to title it.

Candidate Martinelli endorsed the bill, President Martinelli promised in his inaguration speech to implement it. Debates, hearings, and modifications continued into the spring of 2009. The primary public opposition to the bill came from the Catastro directorate within the Ministry of Economics and Finance. On April 21, 2009, the bill, which had been heartily endorsed by presidential candidate Ricardo Martinelli (who actually advocated granting titles to all ROP holders free of any charge whatseover) was signed by President Torrijos, and became Law 23 of 2009. Following his May 2009 election to the presidency, Ricardo Martinelli stated, in his inaguration speech: "We will begin a massive land titling program, so what I can tell everyone who's listening who has possessory rights, prepare these rights because you're going to have your piece of land titled."

The President's Minister of Economics and Finance demands repeal of the titling law that his boss had endorsed: As with all such legislation, a set of implementing regulations were required to be presented for approval by the responsible directorate. Catastro presented a a "preliminary draft" of proposed implementing regulations in April. Those proposed regulations were not well received, and Catastro was made aware that they needed to do some more work on the regulations. A series of meetings were held involving people from Catastro, PRONAT, and their lawyers. A final version of the regulations was reportedly agreed to. But a final version was never presented, much less gazetted. And when President Martinelli took office (and promised in his inaguration speech to implement titling for all ROP holders), there were still no implementing regulations published. Meanwhile, PRONAT contracted with a private company to extend the survey of all ROP to the islands, and as of this writing, the surveying is reportedly still going on.

Sometime in June of 2009, a private attorney filed, ostensibly on his own behalf, a lawsuit in the Supreme Court alleging that Law 23 is unconstitutional. Reportly, the basis for the lawsuit is that: (1) law 23 does not comply with Article 291 of the Constitution (island territory cannot be titled unless pursuant to a development plan), even though Article 1 of Law 23 specifically states: "Insular (island) land is hereby declared a special development area. In order to exploit it, the regularization and massive titling of rights of possession existing on insular land, duly evidenced as provided in this Law and pursuant to the criteria set forth in Law 24 of 2006." Notably, Article 291 lacks any definition of or requirements for such a "development plan," unless of course the Supreme Court elects to play legislstor and write one. Another reported basis for unconstitutionality is the allegation that Law 23 allows for titling of rivers in violationi of Article 206 of the Constitution (it doesn't).

In early August, President Martinelli's new Minister of Economics and Finance formally joined the lawsuit. The case is now pending before the Supreme Court of Panama. Unwilling to wait for the results of that lawsuit, on or around October 1, 2009, a bill that would repeal Law 23 was presented by the Presidential Cabinet to the Asemblea. The bill was kept secret, particularly from the people of the islands, until it was formally presented. No input was sought or obtained from the affected constituencies - island and coastal mainland residents. Hearings were scheduled for October 12, 13 and 14 for the "first reading" of the bill, identified as P. 71.

What's wrong with the titling repeal bill, P. 71? To island and coastal residents and their business communities, and to anyone who believes that economic development requires a juridically recognized and secure system of land ownership, the bill to repeal Law 23 is detrimental to the public interest and a betrayal of a promise repeatedly made by the President - both before and after his election, to the constituents of these regions: "We will begin a massive land titling program, so what I can tell everyone who's listening who has possessory rights, prepare these rights because you're going to have your piece of land titled." What happened, Mr. President?

Some Panamanian lawyers with extensive experience in land law are severely critical of P. 71. Among other things, they contend that:

1. It does not permit holders of possessory rights on islands, no matter how well proven and documented, to obtain title to land utilized for residence, farming, non-tourism businesses, or econological conservation. It allows titling only to ROP used for the purpose of tourism businesses approved by ATP (the Tourist Board, formerly IPAT). Everyone can only apply for a "concession" in accordance with Law 2. (See P. 71, Article 14)).



• 2. The "concession" process is widely perceived as inefficient, non productive, and sometimes tarnished by corruption, particularly in the Bocas Islands, where long time occupants of ROP have been thrown off their land, their own concession applications refused in favor of strangers to the land but more money and "connections." This has happened both to Panamanian citizens and foreign residents. This has occurred even though Law 2, imperfect as it is, purports to provide guarantees of the right to concession to existing ROP holders.
  
  
• 3. The concession process provides no juridical security. Panamanian courts, even the Panama Supreme Court, has in the past denied judicial review to legitimate ROP holders when strangers to the land were awarded concessions instead of the rightful occupant, on the theory that the award of a concession is an administrative process that cannot be challenged in court because there is no "procedure" to challenge the award of a concession.
  
  
• 4. For mainland coastal ROP holders, possessory rights must be personally acquired, by living on land for at least 5 years (for a natural person) or at least 15 years (if the occupant is a legal person; ie a corporation or foundation). Natural or legal persons who purchased the land from prior possessors who met those qualifications would not be able to demonstrate eligibility, whether they purchased for residential, agricultural, commercial or conservation use. (See Articles, 3,4) This would create the danger of expropriation by government or a third party without the right to indemnification. Again, no right to indemnification or restitution if the land is appropriated and given to a stranger to the land. This would violate the definition of "possession" in the Civil Code (defined as "dominion with the animus of ownership" in favor of a mere "option to purchase."
  
  
• 5. Catastro (MEF) would be entitled to determine how much of the land occupied by an island ROP holder who seeks title for a tourism project may actually be titled. It only recognizes the possessory rights on that portion of the land necessary for the project. For example, what of a ROP holder who lives on one portion of his property and operates a tourism project on another part? Catastro could decide to title only the part used for the tourism project and not the part used for residential puroses. (See Article 3).
  
  
• 6. For coastal mainland residents, P. 71 purports to offer "free" titling. But what it offers is a sham - a title of up to 5000 square meters that cannot be mortgaged or sold. It can be conveyed only upon death, to the newly titled possessor's spouse, children or heirs. A title that cannot be sold or encumbered is not ownership at all. (See Articles 5.7.) These "free" titles were supposed to satisfy small holders, but if the title holder wishes to apply for a loan to build or improve his home, he must first pay to the government whatever Catastro deems a fair "market price" for his house. (See P. 71, Article 7). And if the possessor wants to title a parcel greater than 5000 SM for agricultural or other use, he cannot do so.
  
  
• 6. If the possessor wishes to exercise his "purchase option," he must pay whatever price MEF (Catastro) chooses to set. It is required to make an estimate to determine the "market price" in each region, with no constraints on the criteria it may choose to utilize in doing so. If a developer wants the farmer's land, Catastro could, with no recourse, "oblige" the developer by setting a market price more suitable for a fancy real estate development, rather than look to the market value of agricultural land in the community. Of course, low income farmers and other local residents will not be able to pay such prices. If this occurs, the ROP holder may be denied judicial recourse, even if there is evidcnce that the "market price" was set in a manner that is unfair or even corrupt.
  
  
• 7. P. 71 eliminates the function of PRONAT (Program Nacional de Administracion de Tierras) with respect to surveys of islands and coasts. (See P. 71, Articles 3, 4 and 5). All surveying falls within the dominion of Catastro, who will be required to make visual inspections of in excess of 40.000 parcles of land. Since in the last five years, Catastro has purported granted only 12 titles, it could take decades for the surveying coastal mainland and islands to be completed.
  
  
• 8. For coastal mainland areas, the "inadjudicable" (non-titleable) zone is defined as extending from 10 meters from the high tide to 37 meters from the high tide. (See P. 71, Article 2 (3)). This means that thousands of homes and businesses become properties of the state, which creates expropriation with no recourse or indemnification.
  
  
• 9. Catastro can seize land and destroy homes, farms, businesses, and nature preserves at will, no matter how long the possessor has lived, farmed, worked or preserved the land, merely by refusing to title or concession, even if the possessor has perfected possessory rights. This is ia violation of basic human rights, and conflicts with other laws (including Law 2 of 2006. It may, in fact, constitute a violation of human rights guaranteed by international treaty.
  
  
• 10. Purchaser of ROP in island and coastal zones who followed what they thought were the rules, hired lawyers, obtained certifications documenting their approved status as ROP holders and based on what they were given, invested their life savings, only to be told, years later, that everything they thought was theirs is vulnerable to seizure without recourse. This does not encourage investment in Panama.

Why did the President go back on his promise? Candidate Martinelli and President Martinelli vigorously endorsed Law 23 and promised to enforce it. Why he has chosen, through his appointed representatives, to repudiate that promise is anyone's guess. There is no question that in the short time he has been in office, this President has demonstrated a firm commitment, backed up by speedy action, to end corruption in public life in Panama. Why would he repudiate a promise to guarantee island and coastal residents and property owners in favor of sham titles (coastal) or no titles at all (island residents and farmers), the latter to be substituted by a "concession" process in which the people of those communities lack confidence due to widely perceived inefficiency and sometimes, corruption? President Martinelli is known to be a strong believer in private property, individual rights, and free enterprise. Why would he reject those principles in favor of government stranglehold? It is very difficult to understand why this president, above all others, would authorize his cabinet to do what it is doing. All those of us who are watching this, confused about why it is happening can do is speculate about this. Some of the reasons that some people have raised are:

• 1. Powerful families who own large parcels of ROP land and have never had to pay property taxes on it do not want to start doing it now. They may not have realized that Law 23 made titling mandatory, and having realized it, are exerting pressure on the government to spare them from having to pay such taxes by repealing the titling law;
  
  
• 2. Well-connected individuals and famillies who own large parcels of titled land under development fear that the value of their properties will be reduced if they must now compete for buyers with newly titled parcels which were previously far less desireable to buyers because they were not titled;
  
  
• 3. The President is running a coalition government, and his coalition partners may not share his enthusiasm for titling. He may feel he has to compromise on some things, and this issue may not be at the top of his agenda;
  
  
• 4. Typically, lands offices in developing countiries, particularly in Latin America, have a strong dislike for mass titling programs, and want to keep land under government control. The primary public opposition to Law 23 came from within Catastro. There may be a turf war going on between two agencies within MEF - PRONAT and Catastro, one pro titling and the other anti-titling, and the latter may have the ear of the President.

Its impossible to know whether an of these factors do or don't play a role in this reversal of course. We can only speculate, because the President has not spoken publicly on this issue since his inauguration speech.

What should be done now? Island and coastal dwellers, property owners, and the business communities feel strongly that Law 23 should be implemented, starting now. Should the Supreme Court find constitutional defects in the law, those defects should be rectified. For example, should the Supreme Court choose to amplify on Article 291 of the Constitution by creating new guidelines for the implementation of a "development plan" to include titling, that implementation can and should be promptly done. The proposed repeal is bad economics, bad public policy, would amplify rather than cure juridicial insecurity, promote corruption, and relegate the residents of the coastal and island regions to permanent second-class status, for no good reason.

The writer of this article is a US citizen, retired lawyer, legal resident of Panama and (in the interests of full disclosure) has been living on ROP in Bocas for the past 6 years.

Copyright 2009 by Susan Guberman-Garcia for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.