Private and Public Management of the Real Estate Registry in Chile

Abstract

The present work seeks to reflect on the best real estate registry management system in Chile, from a private one, such as the one that exists today, or a public one; examine their strengths and weaknesses; and to what extent both are convenient to use technology. Chilean legislation will be reviewed for this under a historical and also dogmatic perspective.

1. Introduction

Since 1855, Chile has had a real estate registry system, which was designed for a world different from the one in which we live today.

Our Civil Code, promulgated in 1855, came into force on January 1, 1857, with the exception of its article 695, which gave the President of the Republic the mission of generating a regulation that would regulate in detail the functioning of the system, from the figure of a Conservator of real estate, derived from the French mortgage legislation (Conservateur des Hypothèques), to how to practice the entries of registration, modification, and cancelation of the rights with access to the registry.

The system did not enter into force until the aforementioned regulations were issued, which occurred on June 24, 1857, and after some setbacks, the system came into operation on January 1, 1859. On that date, the rules of the Civil Code on the real estate registry system finally came into force.

After the aforementioned date (1859), some formal modifications were made, without going into the substance of its rules. Such modifications referred, for example, to the removal of the rules on the appointment and functions of the real estate conservators, from the 1857 regulations to the Law on the Organization and Powers of the Courts of Justice, enacted in 1875.

After this legislative milestone, the State of Chile amended the law in question, giving rise to another law that is still known today as the Organic Code of Courts, which replaced the law of 1875, introducing the generic denomination of auxiliaries of the administration of justice, which included notaries and real estate conservators, by the way. Thereafter, there have been minor amendments to legal bodies related to taxation, which have not reformed the system in its essence.

Already in the twenty-first century, and due to the technologicalization of the notarial and registry activity, in some minor aspects, a digital registration system was created for some types of companies, which exists in parallel to the paper or physical system, created at that time by mandate of article 5 of the Code of Commerce, dictated in 1865.

The idea, very different from that of the real estate registry, was to give strength to the creation of companies without the bureaucratic procedures that had to be complied with by those who chose to incorporate a commercial company. In the same way, the government of that time wanted to avoid the costs involved in incorporating a commercial company, such as the minutes of a lawyer, the public deed of incorporation, the extract, its publication in the Official Gazette of the Republic, and its registration in a special registry, still kept by the Real Estate Registry, all within the fatal period of 60 days.

However, the entry made in the commercial registry did not create a personal right different from the one created by virtue of the partnership agreement; rather, such entry in the commercial registry has always and to date only served the purpose of formal, and not material, publicity.

The new system shortened incorporation times from 60 days to one day. That is to say, in one day the future partners can have a company incorporated free of charge. Registration is done automatically in a special commercial registry which is kept by the Ministry of Economy, and not by a legal professional, as is the case of the parallel and older commercial registry which is kept by the Real Estate Registry.

The fact of creating companies in one day produces many benefits to those who opt for this type of human associations. By way of example, improvements in the costs of incorporation of the companies which are close to “0”-, of operation, of certifications, of procedures before tax and accounting services, etc.¹

However, other problems arise that are related, among other things, to the control of such entities in relation to the delay in the initiation of activities, or the making of the first Monthly Provisional Payments (PPM), or the making of the first sales or services, and others that refer to the fact that most of the data required in the form that is filled out online, are nothing more than declarations that may well be dissociated with reality; for example, there is the issue of the domicile in which the company will have its head office, so that government agencies, such as the Chilean Internal Revenue Service (SII), have many problems to control these incorporators, which are called for that reason “taxpayers of difficult or no control,” which already existed before, but now, have been accentuated.²

In 2002, Law 19.799³ was enacted, creating the so-called “Advanced Electronic Signature” (FEA), which was intended to put an end to the endless lines of users of public services, the judiciary, notaries, and real estate registries. By means of a simple certification and validation mechanism, it was possible to carry out procedures that previously required the presence of the requesters.

In 2018,⁴ the government presented a bill in which it intended to introduce reforms to the real estate registry system, mixing notaries and judicial archivists in the process, a matter that clearly turned out to be inappropriate and ineffective in practice. Despite the fact that the project is advancing at a dinosaur pace, the changes will come whether notaries, conservators, and archivists want them to or not.

Most of the proposed modifications are formal so that the substance of the real estate registration system was not altered, all of which has resulted in a loss of resources for the State after a long parliamentary discussion, which has been slowed down by the social outbreak of October 2019 and the pandemic that is still not completely over.

In what is relevant to this work, and which is noteworthy, the project proposes a series of technological modifications, including online platforms and registries in charge of state agencies, such as the Civil Registry and Identification of Chile, a public service that is far from being efficient.

What is peculiar is that the legislator intends to hand over some matters to an inefficient and technologically permeable public body, while maintaining the position of Real Estate Conservator. A parallel system is created that has no genuine meaning in itself.

What then is the sense of applying technology to improve the important aspects in the processing of registrations, entrusting the keeping of records to a legal professional such as the Real Estate Registrar, while incorporating a partner called the Civil Registry that will keep parallel records containing the same documents as the registrar?

In this paper, we will therefore try to answer this question and others that will surely arise along the way, in order to establish which is, in our opinion, the best system to operate the real estate registry system in our country.

2. Change from a paper format to a virtual or digital format

The paper format in the records which is kept by the Real Estate Registry has been in force for a little more than 160 years since it was created by the Civil Code of 1855, and later developed in the Regulations of 1857.

This system has undoubtedly served all those who today can say that they are owners of real estate property, or of rights in rem constituted therein. Banks and other financial institutions have achieved a level of certainty and legal security in real estate and credit transactions that no other system could have given them.⁵

This does not admit much discussion, despite the comments and opinions of the notaries and conservators’ union sector that are reluctant to make changes to the system. It is true that the 2018 project does not make serious incursions in substantive aspects of the system, but it announces in a brutal way that the will exists in the congressmen to evolve, even if it means going against the current. In this regard, the silence of the system’s financial operators, who may not benefit much from the changes, especially with regard to the costs and securities currently offered by the system, is striking.

If the reform intends that the real estate registry transits from the paper that has given news of legal certainty, why is it about modifying rules that have nothing to do with the substance of the system?

Except for what refers to the keeping of books by the real folio mechanism, the truth is that the 2018 reform does not innovate in other central aspects of the system, such as the keeping of partial records. That is not understanding how not only our system works, but all the systems in the world. But what kind of world is that?

Based on what was raised by the National Economic Prosecutor’s Office in 2018,⁶ and the reasons underlying the project of the same year (to which we have alluded previously), it turns out that the vision of the prosecutorial body of activities contrary to the free market and the support for it from the government translated into the aforementioned project are the two sides of the same coin—the influence of the economic rules of a system whose fundamentals differ from ours. In effect, it is a matter of applying economic rules typical of Anglo-Saxon countries to a reality that does not comply with continental legal principles such as those that govern systems like the Chilean one.

The lightness with which issues such as notarial and registry public faiths are treated seems to us to be an attack against legal certainty. A market-based model, which seems to be the panacea of the moment, is an issue that we do not share, precisely because of the need for activities such as notarial and registry activities to be based on principles of probity and transparency that the market does not properly ensure. Business ethics is far from being accepted in English-speaking countries.

Now, what does this have to do with replacing the paper format with a virtual one? The truth is that not much, a priori.

Basically, the fact that registrations or public deeds are recorded in virtual instruments is not new. As we have said, it already exists in laws such as the one creating the FEA, or the electronic commercial registry for companies.

What is there than in the paper that does not exist in electronic or virtual? For one thing, legal certainty, both are dynamic and static.

In a world in which everything is electronic or digital, the paper format offers security in terms of the fact that everything that is recorded in the physical record is covered by a halo of legitimacy that the electronic format unfortunately does not yet have.

Let us take as an example, the real estate financing carried out through online operations, which today reaches aspects of the real estate registry, through the Blockchain mechanism, and Tokenization [4].

In the first case, a Blockchain can be defined as a “shared digital ledger comprising a list of blocks connected and stored in a distributed, decentralized and cryptographically protected network, serving as an irreversible and incorruptible information repository” ([5], p. 63).

According to Castiñeira, it is “a technology that allows the transfer of securely encrypted digital data” [6]. This transfer, “continues the author,” does not require a centralized intermediary to identify and certify the information, but is configured through nodes (nodes, if you will) independent of each other, which register and validate the transfers without the need for prior knowledge or to generate a situation of trust between them.” [6]

In the second case, tokenization comes to complement the chain in the sense of “abstractly representing a value through the blockchain” ([5], p. 61).

It is assumed that, through these mechanisms, both transactions and registration are transferred to the electronic or virtual environment, promising higher security standards than those provided by the paper format.

However, and as we have seen in other opportunities, these modern and digital mechanisms generate conflicts that, in general, are related to their lack of regulation by nations; the need for greater acceptance by legal systems; fiscal consequences arising from the discussion about their nature (which in any case does not offer major difficulties), and the application therefore of exaggerated taxes, thus causing a diminished legal security (inflation and high costs, lack of transparency and use of cryptocurrency, as a basis for the generation of profits) [6].

In Chile, these technologies (like so many others before) have not managed to be introduced in areas other than the financial one, for the same reasons mentioned by Castiñeira, which may vary by the will of the legislator, which can give a boost to the acceptance of these mechanisms. Slowly goes a long way, says the adage, and to that extent, there are many possibilities that both the Blockchain and the tokenpermeate the domestic legal order, mainly from its acceptance and development at the legislative level, applying it to various facets of national activities, starting with the economy and finance, thereby crossing the protective membrane of the law, lato sensu.

In the words of Pacheco Jiménez, there is a kind of “regulatory uncertainty,” which causes distrust in the nations where it is applied ([5], p. 72), stemming from cases of scams or frauds with cryptocurrencies in the USA. In fact, the Texas Securities and Exchange Board issued an Emergency Cease and Desist Order against Forex Birds and PEK Universe, two financial intermediaries that allegedly defrauded some people by operating from abroad, which obviously makes it very difficult to control both companies and transactions.⁷ In Chile, without going any further, there have also been crypto scams.⁸

In this way, it seems that the system is not so secure yet, thinking especially about what refers to cryptocurrencies and the mechanisms associated with them (Blockchain and Tokenization), which makes you think about what would happen if they were applied to the real estate registry field.

We refer to public faith as a legal principle protecting the real estate registry. In countries such as Spain, public faith seeks to protect the acquisitions made by third party purchasers once they have been entered into the registry.

According to Gordillo Cañas, plainly and simply, the public faith of the registry “means as much as objective reliability of the Land Registry: everyone can trust (fides publica) in what the Registry publishes” ([7], p. 510). For Diez-Picazo “There is public faith in the registry to the extent that third parties can place their trust in what the Registry publishes [...]” ([8], p. 450). Finally, García García points out that it is a (mortgage) principle “[...] by virtue of which the third party who acquires on the basis of the dispositive legitimacy of a registrant is maintained in the acquisition a non domino that he makes, once he has registered his right, with the other requirements demanded by the Law” ([9], p. 227).

The trust in the paper-based registry system is what legitimizes it so that since there is no security in the use of electronic mechanisms and devices for making the most important entries, the truth is that the possibility of applying them to more substantive issues related to the real estate registry, other than financing, still feels distant.

Our country has begun a journey toward technologies related to formal aspects of the various activities related to the registry, demonstrating in practice a facilitation of many procedures that were handed over to notaries and conservators, such as affidavits or certifications that can easily be done online, or that have no importance in terms of their effects.

The AEF law and the reforms proposed in 2018 to the notary and registry system, as we have pointed out, take the path of incorporating technological tools that will make them more dynamic. However, it is very likely that no substantive or substantive issues involving the weakening of public faith will be affected, which is, ultimately, the most important guiding principle applicable in the case of Chile, and what must be avoided. Consequently, we believe that the paper format will continue to offer better guarantees of security in both notarial and registry activities, at least as far as substantive aspects are concerned. The formal aspects, although important, allow the use of modern technological tools that facilitate a large part of the formalities that until now were done in person.

It is not a matter of preventing the application of these tools to the execution of registrations and public deeds, per se, but of offering to those who participate in the different legal acts and contracts, a high level of confidence that what they have agreed upon will be fulfilled or will produce the effects sought by them. This is what we mean by substance and form, two sides of a coin that moves forward.

3. Private or public management of notarial and registry activities

It is clear that based on the abovementioned, it is relevant to refer to the management of the system in terms of the powers that the law has conferred on notaries, and more specifically, on real estate conservators.

The government’s proposal of 2018 moves forward in some formal ways that involves the dynamization of the system, without touching, however, aspects referred, as we have pointed out, to the substance or substance of the system. This, without losing sight of the fact that we do not share what refers to the existence of repositories or files in which the same information is kept by different subjects, and that could imply problems of trust in the information contained in the real estate registry.

The existence of public services that reduce, at least in theory, the costs and time associated with the delivery of the information contained in the registry is not an obstacle to good registry management. That is to say, if the idea is that users pay less for some certifications and copies, there is nothing to prevent the conservator himself from issuing them efficiently. There is no need to hand over this function to a State service that is far from being efficient.

We believe that the conservator can grant this kind of documents and, therefore, is a sufficient guarantee of trust in the delivery of the information contained in the different books that compose the registry. Having the quality of minister of faith, the information becomes authentic or trustworthy, so that it surrounds the issued document with legitimacy.

The interesting thing about the 2018 project is that these actions can be carried out by the conservators through websites created for this purpose, and in which you can find at an adequate cost (which could be reviewed without a doubt by the legislator, given the ease of obtaining them because they are electronic PDF), all those registry actions that are related to the registry, such as copies of registrations, domain certifications, or of the limitations to it, guarantees that affect the real estate, copies of plans, and other existing documents in their files.

Regarding the elaboration of registrations, they can also be subject to electronic applications, which are done nowadays by some conservators in Chile. The registry, to that extent, seems not to be affected; however, the same does not happen with the notary’s work, which is prior to the authentic title entering the registry through the registration entry.

Indeed, when an authentic instrument enters the registry for registration, it must be reviewed by the registrar, who carries out a true control of the legality of the title. This is because if the title presented contains any defect that makes it legally inadmissible for registration, this defect will affect the registry in terms of legitimacy so that the system of qualification of authentic instruments that enter the registry must be reinforced to protect third parties operating in it.

We are about to continue with the development of digital platforms in which the registry information can be consulted without the need to pay for it, which seems to be one of the formal objectives of the projects that have wanted to reform the system.

And what, in our opinion, should be the way to avoid conflicts with the public faith of the registry and the legitimacy of the registry acts?

Firstly, to understand that “digital” is not something negative or detrimental to people, both for registrars and for system operators. Digital platforms should be thought of as tools that facilitate the economic and social development of a country, in the broad sense of the term. Therefore, we cannot think that something that facilitates an activity should be understood as a setback.

Secondly, an efficient system must balance legal principles with the reality of modern real estate and credit traffic. Undoubtedly, credit is the engine that drives real estate circulation. The creation of added value offered by the construction industry is evident and necessary in a stage of economic growth that positively affects social health indicators (although it is not the panacea of social emergence and mobility).

The real estate market moves at great speed, and that speed is met with a slow State and subject to a bureaucratic legality that slows down the processes, causing situations of corruption that should not exist in ethical terms. This slowness even appears as something that is added to the cost structure of the projects, thinking precisely about the speed of return of investments, especially those involving large sums of money. In this sense, there is talk of mega real estate projects.

Within this tangle of administrative obstacles, there is that related to the registry activity, since the process of preparing the proper entries for the transfer of ownership, or the constitution of encumbrances, preferably mortgages, is slow due to the advance of technology.

Creating a secure digital system for the preparation of registry entries is necessary today, but not for economic reasons, which may be very reasonable, but for legal reasons of certainty and security.

Therefore, rather than encouraging the development of tools such as Blockchain and Token, used for the purpose of wealth generation, we should focus our efforts on the creation of secure systems against, for example, attacks by hackers and other cybernauts. Therefore, applying this knowledge and keeping it away from greed seem to be the best way to go in the registry activity.

Let us imagine a system based on principles that make the activity secure, and inevitably, we must recognize that the paper format and the vaults in which the registry information is kept and guarded, allowing us to sustain confidence in the system.

Thirdly, changing the management of the registry activity in charge of a legal professional, invested by the State, and handing it over to a State organ, does not solve the problems of slow administrative procedures, because the problem comes from above, from the legislator, who sees in an excessive amount of operations, the answer to the legal certainty that must exist in the traffic. That is to say, the State and its organs direct their efforts to the creation of unnecessary formalities, with the erroneous idea that this protects the system.

Therefore, when the legislator presents his reform projects, he does not intend to solve technical problems of the system, which are at the base of its essential or substantive structure, but rather his efforts are focused on formal aspects that any public policy coming from the government of the day can easily change without the Parliament necessarily having to participate.

Since its establishment in the second half of the nineteenth century, the management of the registry activity has been entrusted to persons trained in law (preferably lawyers), under the protection of figures such as the notary, which is prior to that of the real estate conservator, and which comes from the Spanish legislation applied in Chile until well into the same century [10].

The notary was a very broad figure used in the pre- and post-Independence period in the American nations, to whom the Spanish regulations conferred a preponderant role in the celebration of legal acts with permanent effects, so that its existence was linked to the public trust or public faith; without prejudice that there were also for judicial work.

In fact, once the offices of conservators were created in 1857, they were slow to be established mainly due to practical issues—low stipends and very large territories.

The idea that the custodian of the most important economic rights in a society, such as property, was given to a legal professional who did not belong to the judiciary and was not remunerated by the State, which denotes a degree of civilization and innovation that was very relevant for the time.

The first Chilean registry was organized on the basis of the already existing office of mortgages, censuses, and ships, created by an unnumbered law of 1845, whose Article 24 gave the power to the President of the Republic to issue regulations, which were promulgated on May 20, 1848. It was a real folio registry kept by an official called “tenedor del registro,” who followed the Spanish tradition of being a legal professional whose remuneration came from fees fixed by law or by decree. This position was assimilated to that of the notary of private acts, as mentioned above [11].

This first registry follows, in turn, the form and content of the norms on the office of mortgages and censuses that was created by King Charles III of Spain, by Royal Pragmatic on January 31, 1768, and whose norms were later included in the Novísima Recopilación de Leyes de España (New Compilation of Laws of Spain) of 1805.

After 1848, the system evolved toward more modern models existing at the time in Europe, mainly in German-speaking countries. The promoter and ideologist of these models were undoubtedly President Manuel Montt, who, supported by Andrés Bello and José Alejo Valenzuela, gave shape to a hybrid system that mixed the best of the models, turning our registry into a robust and secure system in terms of legitimacy and public faith, giving proof of its strength, especially to financial operators throughout these 160 years of existence.

The paper format had much to do with the process and success, without prejudice to the chaos in bookkeeping that existed in the mid-nineteenth century, and that the new system corrected in a remarkable way.

Therefore, we believe that the private management of the real estate registry in Chile has obtained excellent results both in financial terms and in terms of legal security, following the Spanish tradition of notaries, as custodians of the public faith or trust.

4. Conclusions

Whether in paper or digital format, any real estate registry system must prioritize public faith and legitimacy as essential postulates, which will give it a better performance in terms of certainty and legal security for both credit and real estate traffic.

Telematic systems offer a certain level of dynamism to the registries, in general, which decompresses in a certain way all that maelstrom of administrative procedures, easy to replace.

However, there are still cracks in these new technologies that, although they work in terms of speed in transactions, do not offer security in legal terms, since the information contained in the registries could be circumvented by hackers or cybernauts, whose actions would jeopardize the public faith of the registry.

It is not that new technologies do not offer the dynamism that new times require to give a great boost to the economy, especially in times of pandemic. Perhaps the focus should not be on transactions, which are obviously of great importance, but rather on the efficiency of registry acts in technical and substantive terms that generate protection and not weakness. Therefore, perhaps extracting the best of these technologies is the way to be able to apply them. As they are far from money, they would not be the target of frauds or swindles, as associated crimes.

The management of registries by natural persons and legal professionals, with good training in the field, for example, should not be handed over to public bodies, not only because they have proven to be inefficient in the keeping of the so-called factual registries, such as births and deaths; therefore, handing over to them the keeping of legal registries is not a good idea for us.

It is not a question of closing the door to technologies that support the work of the registry offices, since in most cases, these are formal matters that can be perfectly replaced by telematic or digital mechanisms, as in our country has begun to be applied by the law of advanced electronic signature, as we explained above.

The elaboration of registrations, annotations, and other entries made by the real estate conservator can be replaced by digital mechanisms that streamline the work of their offices, turning a system that at times seems slow and old into a speedy one.

Replacing the paper format in this sense does not imply a real affectation of the guiding principles of the activity, and the legislator should emphasize the protection of the contracting third parties, the registered holder, by the way, and of all those who operate with the system, as is the case with the banks and the State.

Like any human work, both the system of digital record-keeping and the processing of the information contained in them must go through the review of the control mechanisms of the activity, which today are minimal and very biased in our country.

Therefore, it is not that the use of technologies is a bad idea in itself, as some would have us think, but to improve the mechanisms of control and management of information in terms of security, both cybernetic (avoiding external attacks) and legal (format). A system that goes in that direction seems to us to be more appropriate to the times and much cheaper for those who give importance to that aspect alone.