1. Understanding Title Insurance in Mexico
One of the most important aspects of protecting a real estate investment is making sure the title to the property is in proper order. Title insurance protects your ownership and use of the property by guarding against unknown and hidden risks that may cause you loss or affect your ownership.
Title insurance is nothing new to most people in the United States and Canada, but in Mexico it is relatively new. For anyone mortgaging a home in the United States title insurance is mandatory. The lender will not lend to you unless you purchase title insurance; in Mexico title insurance is fully optional. Two companies have entered the Mexican market for title insurance; First American Title and Stewart Title.
Real estate transactions involve elements of risk and title insurance policies provide protection for these risks. In Mexico, a Notary Public and the Public Registry System provide legal assurance to the real estate transactions; nevertheless, they do not provide economic assurance if something goes wrong.
Typically, these are the matters covered in a policy:
Invalid documents executed under expired/ nonexistent power
False assumption of identity concerning the legitimate property owner
Liens and financial burdens charged to the previous property owner
Non-registered property easements
Hidden heirs of previous property owners
2. The importance of Title Insurance in Mexico
The process to acquire title insurance in Mexico is the same as it is in the United States according to Robert Calamari, President of Global Title and an issuing agent for First American in Mexico. "We have determined that our risk, as underwriters on Mexican property, is not much greater than insuring property in the United States. Assuming the same due diligence standards in researching the property are met", says Calamari.
Title insurance being new to Mexico we have found some agents that will actually try and talk you out of purchasing it. They will tell you it is not needed because all of the work that is done to get a bank trust on the property is the same work that is done from the title company and it is unnecessary. We have also heard agents tell a client "you don’t need it because the development has a master title policy" or " your neighbor in the development got it and it was clear so you don't need to get it". We believe that these recommendations are from a lack of understanding of the true security of a title policy and what it covers.
First of all we do recommend title insurance for all of our transactions where it is available. If a development has a master title policy that is great for the development, which means if there is a title dispute the development is covered and everyone in the development that also purchased a policy. If you did not purchase a title policy and the development is found not to be the legal owner of the property, only policyholders will be compensated. If your neighbor has a policy and you do not and the development is found not to be the legal owner your neighbor will be compensated and you will not. The only way protect yourself is with title insurance.
3. Service provided by Title Insurance in Mexico
Typically, a title insurance policy provides:
Payment of legal expenses to defend a guaranteed title
Payment of valid claims up to the value of the policy (it varies by company and policies)
Thorough investigation of the title prior to issuance of title insurance
Title insurance protects against claims from things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items specified in the contract.
4. Our Recommendation
The title insurance policies we recommend are from United States title companies and you would enter into a private contract with them in the United States. This means that all disputes are resolved in the United States court system.
In an insurance industry article, Robert Calamari, wrote: "Responding to customer requests, title companies active in the commercial field have all moved forward on the international front. Some have sought to actually expand operations and establish a local presence in certain foreign jurisdictions. Others have developed an ALTA - like product that can be used in any foreign jurisdiction that meets the company's qualifications. This type of product, as used by our companies, keeps the policy solely in the United States. It is a contract of insurance between the insured and insurer. Despite the foreign territory, all litigation regarding coverage is determined in the United States in courts that are familiar with title insurance law".
Title policy conditions, and payment for loss, are the same as those protecting United States properties. If it is a United States company providing the insurance, the title policy is a private contract entered into by two parties in the United States. Therefore, any disputes are subject to United States courts to resolve.