American Title Insurance Guards Against Risky Land Deals
Buying property overseas can be risky, but US and Canadians have access to a special service that can guard against loss.
It’s called title insurance – a standard item for domestic property purchases for decades, and a growing safety net for people buying second and retirement homes abroad.
Companies like First American Title Insurance Company, Stewart Title and a handful of other North American insurers have a growing network of real estate lawyers and agents abroad who research the chain of ownership of a piece of property a client wants to buy.
First American representative Turalu Brady Murdock, who supervises title research in 35 countries in Latin America and the Caribbean, said her company insures the buyer in American dollars after carrying out a “due diligence” title search. If there are questions about ownership, the company might warn against a purchase or insure at a less-than-absolute level.
“If we say you own it, and it turns out you don’t, we have to indemnify you against the loss,” she said in a telephone interview. “We’re insuring that you own it, no one else has a mortgage on it, and no one else has the right to use it.”
If a challenge is made down the road, the company also pays for attorneys to defend ownership. Property buyers pay a one-time fee for title insurance. Typical rates are 1,000 dollars for a 200,000-dollar land purchase in Mexico, or 850 dollars for 150,000-dollar properties elsewhere in Latin America.
The fee goes up accordingly for more expensive properties: a 5-dollar charge is added for each additional 1,000 dollars in property value. Across Latin America, some property is only held on a lease, or possessory title system, and can only be titled to a potential purchaser after the lease expires – a risky enterprise, Brady Murdock said.
Other land might belong to the government but have been occupied by squatters for decades who claim ownership.
And citizens from the US and Canada seem to attract frivolous claims against their newly-acquired property because some locals believe they have deep pockets and will readily settle out of court to avoid hassles, Brady Murdock noted.
With title insurance, however, a lawyer would be engaged to combat such claims – although cases can be tied up for years in the courts.
“Most people are risk takers when they are buying overseas,” Brady Murdock said. “I can’t imagine buying a piece of property overseas without title insurance.”
Symptomatic of the rocketing real estate interest in Latin America, First American only started its foreign business in the 1970s in Mexico. In 1997, as the dot.com sector was thriving and US baby boomers were starting to think about retiring, demand increased exponentially, she said.
That’s when the company started developing its network of reliable English-speaking real estate lawyers across Latin America.
From 1998 onwards, First American doubled its foreign title business every year. In 2006, the business nearly tripled at a volume of 160 per cent times the previous year. She declined to estimate actual numbers of purchases pending release of the 2006 annual report.
Brady Murdock noted that it’s not just wealthy or baby boomer Americans buying second homes in Latin America.
As land prices have skyrocketed in the US, many young American families with small children are moving south to live for good, doing either home schooling or sending children to local schools.
Many Americans have been starting businesses, or are connecting to businesss at home via the internet. “It’s just amazing,” she said.
By Pat Reber
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