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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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