Your Baja Connection Blog

Title Insurance not an Option!

Although originally printed in JOINus Rocky Point, January 2008, Your Baja Connection recommends this message to all Baja Real Estate buyers. Don't forget that title insurance is NOT available on property until you get title. Title insurance is not available on preconstruction contract.

Title Insurance is Not An Option!
By Angelica Gonzalez, CEO, OTP Trust

In the course of the title verification process that our bi-national title and trust processing firm OTP Trust provides our American and Canadian clients, we are often asked about the advisability of obtaining title insurance for the Mexican property our client is purchasing.

Our answer is always: Buy Title Insurance!

Many of those asking this question are sophisticated investors. When we ask -- Would you buy your neighbors' house in the United States or Canada without title insurance? -- universally, the answer is No!

Then why do these intelligent Americans and Canadians -- if they are buying property in Mexico where they don't know the law and potential risks involved -- even consider not buying it?

There are two general reasons why title insurance is sometimes considered an "option" for Mexican properties:

First, title insurance is a relatively new concept in Mexico, and Realtors, Attorneys, Notarios, and even Brokers are often confused about the benefits and importance of title insurance for Mexican properties. Often this relative inexperience with the mechanisms leads to an incomplete or improper presentation of the benefits of title insurance to the client.

Second, closing costs are higher in Mexico than in the United States -- usually between 4-8% depending on the size of the transaction -- and often Realtors, Brokers, and Developers are scared to increase the closing costs with title insurance (usually just 0.5%!) and they only offer it -- if you are lucky -- as an option.

We believe that "passing" on title insurance in Mexico is a big mistake and that -- just as in the United States or Canada -- title insurance should be an integral component of every real estate transaction.

It is clear that no single group of choices a buyer makes purchasing real estate -- anywhere -- is more important than his/her choices related to all aspects of the title to the property. When a citizen of the United States or Canada purchases real estate in Mexico, there are often concerns on the buyers side regarding the safety of their investment. While understandable, in the modern era of Mexican real estate in most instances these concerns are groundless.

However, in a minority of cases real issues do arise that cloud the legitimacy of ownership of the property, and are the cause of great uncertainty, unhappiness, and sometimes financial loss.

Since title insurance is available in Mexico, why do some Americans and Canadians "pass" on title insurance for their Mexican properties?

Most Americans and Canadians are aware that a Notario is involved in real estate transactions in Mexico. It is a unfortunately common misconception that because there is a Notario -- a person with a certain knowledge of Mexican law who is involved in aspects of paperwork preparation related to real estate transactions -- that the Notarios' sign-off on the legitimacy of a given title is sufficient. This is simply incorrect.

There is a further misconception that Notarios check the chain of title on the property you are buying. In fact, the Notario is only obligated to check the last transaction, which may have been very recent. In contrast, title insurers check the chain for the past twenty years or the last two transactions, which gives you the assurance that the property you are buying has clean title.

More importantly, Notarios are not obligated to verify the authenticity of the documents they receive, or to look for potential risks involved in an specific transaction: all they are obligated to do is to verify that the documents related to the transaction satisfy Mexican legal formalities.

If a Notario clearly makes a mistake he is obligated to pay for it (if he/she has the money to pay), but what if there is no clear mistake?

Here are two examples about what can happen in any country in the world -- including Mexico:

1) You buy a property from a man who is recently divorced. He hid ownership of the property from his ex-wife. He sells you the property, but his ex-wife discovers the transaction and goes to court. She nullifies your transaction because the property was purchased while they were married, and the sale was made without her consent.

2) You buy a property from a company. Months later you are served by the Court because the power of attorney the representative used was revoked the day before your transaction.

In these two examples, no one -- especially the Notario -- could detect or prevent those incidents. Who will pay for your loss, litigation costs, and damages? There is only one good answer: the title insurance company!

These examples illustrate why title insurance is not an "option" for any real estate transaction anywhere: it is something you need to both protect your financial interest in your real estate investment and to ensure your worry-free enjoyment of it -- and this is as true in Mexico as in the United States or Canada.

When working with your realtor and/or developer in Mexico, always ask them if you need title insurance. If they answer "you don't need title insurance" or "yes, we'll take care of your title instead of a title company" then you have more than a yellow light in front of you!

And if the property is uninsurable? Walk away from the deal: would you buy property in your home country that you couldn't obtain title insurance for?

Luckily for the American or Canadian buyers, Baja California Real Estate offers a very competitive title insurance market, with coverage offered by First American Title, Stewart Title and Land America. All are United States based (and licensed) organizations with professionals who have worked harmoniously and efficiently with OTP Trust.

Simply put, buying property in Mexico does not have to be risky or feel risky, which the several hundred thousand American and Canadian families who enjoy secure ownership of properties throughout Mexico can attest!

Your Baja Connection team