Buying in Mexico
http://www.signonsandiego.com/news/mexico/20051002-9999-1h02...
Title insurance can provide peace of mind for those wary of Baja California real-estate investments
By Lori Weisberg
October 2, 2005
The promise of lucrative profits and the allure of stunning ocean views have drawn U.S. citizens in droves to invest in Baja California real estate,
but buying property in Mexico is not necessarily without risk.
It wasn't all that long ago that dozens of Americans were evicted from their homes in Punta Banda outside Ensenada after a Mexican court ruled that
the land on which they were living be returned to the original, lawful owners.
The potential for harrowing property disputes, though, may well become a thing of the past with the increasing availability of title insurance
policies issued by U.S. insurers.
As commonplace as title insurance is in the United States, it has not been a standard component of real estate transactions in the Rosarito-Ensenada
corridor ? until recently.
With growing numbers of foreigners clamoring to buy beachfront homes along the Baja California peninsula, U.S. title insurance companies are
responding with policies designed to ensure that buyers are not caught in the middle of a contentious disagreement over ownership rights.
One title insurer recently opened an office in Tijuana to take advantage of the development boom, and another set up shop this month in San Diego for
the same reason.
"I think title insurance is as important as it is in the United States or maybe more so, primarily because many of the issues that foreigners face
when they buy in Mexico have to do with clear title," said attorney Jos? Larroque, who specializes in Mexican real estate for the Baker & McKenzie
law firm. "There are numerous examples, some public, some not so public, in which people thought they acquired land only to find out that they have
not acquired it from the rightful owner, or there is a cloud looming over their property.
"The insurance is a good independent filter, and the title insurance companies don't take title commitments lightly."
Companies familiar to Americans, like Stewart Title Guaranty Corp. and First American Title, are now offering policies to foreign buyers in the Baja
California area, providing Americans with a sense of security when they invest in Mexico, say company officials.
While many Americans will hire Mexican attorneys to ensure the legality of their purchases, title insurance offers an extra level of protection for
the buyer, insurers contend. Legally, foreigners cannot own coastal property in Mexico in the conventional sense, but they can secure title as
beneficiaries of long-term trusts held by a Mexican bank.
Because ownership rights on land in Baja California can sometimes be murky, title insurers will undertake an exhaustive search of property records,
sometimes going back decades to establish clear title. They will also examine records to determine that taxes have been paid and that there are no
remaining liens on a property that could become the obligation of the new buyer.
In Mexico, the notario publico (notary public), who is an attorney, certifies all real estate transactions after reviewing various property and tax
records culled from a title search. Title insurers, however, stress that American buyers should not rely solely on the certification of a notario.
"What happens when the notario publico (notary public) in Mexico has made a mistake and the buyer loses his property?" said Hector Barraza, senior
vice president of Stewart Title Guaranty of Mexico. "How are you made whole? They're not going to defend or protect you. They're going to say 'Oops,
I'm sorry, the certificate of public registry didn't tell me there was a lien there, so you have to pay it.' "
Stewart Title, which has an office in Tijuana, started its Mexico division more than 10 years ago. Although it has issued thousands of title policies,
until recently, transactions in Baja California have represented just 5 percent of all policies sold in Mexico, said Mitch Creekmore, Mexican division
manager for Houston-based Stewart Title.
He points out that Stewart is the only U.S. title company to have approval from the Mexican government to operate a Mexican title insurance company,
known as Stewart Title Guaranty de Mexico.
Insurance rates typically average $5 per $1,000 of the purchase price, Creekmore said.
U.S. buyers, he noted, are becoming more sophisticated when buying property in Mexico, but there are some who still plunge ahead without taking all
the necessary precautions.
"What's happening is there's this appreciation in the marketplace and Americans don't want to lose the opportunity, so they're willing to roll the
dice," Creekmore said.
Developers of housing projects in Baja California can secure, for a fee, a title insurance policy for their projects or a commitment to insure that
essentially says the property is clean and insurable, explained David Wiesley, vice president of sales in Mexico for First American Title Insurance
Co.
For its Mexican clients, such as developers, First American has set up an arrangement with the Mexican insurance company Grupo Nacional Provincial to
issue title policies under its name but reinsured in the United States by First American.
For American buyers in the Baja California area, First American can issue title insurance policies out of its San Diego office, Wiesley said.
"We feel that an American who is buying a title insurance policy is more comfortable with a policy issued in the United States under U.S. laws," he
added. "If you're denied on a claim against us, you can sue us in California, as opposed to having to sue in Mexico."
Increasingly, Mexican developers and real estate agents are seeing the wisdom of securing title insurance and are urging American buyers to purchase
it. Not only is it a good marketing tool, but it also makes Americans feel more secure about their purchases, they say. "In the developments that
we've already built, nobody asked us for title insurance, because we didn't see the necessity," said developer Hugo Torres, a former mayor of Rosarito
Beach and owner of the Rosarito Beach Hotel. "I believe that from now on, one should not build a single development without title insurance."
His son, Gustavo Torres, a real estate agent who is marketing condos in half a dozen developments in the Rosarito Beach area, estimates that about 60
percent of the buyers he deals with express concerns about title issues.
"Everybody mentions what happened with Punta Banda, and they don't want it to happen to them, so we tell them the importance of title insurance," said
Torres. "Two years ago, no one had title insurance, but now almost everyone does, and we try to get the listings of developments that either have
title insurance or are title insurable."
Not everyone, however, is convinced that title insurance is a necessary precaution when purchasing property in Mexico.
"To me, it is the most redundant business that these (title insurance) companies are doing," said Tijuana attorney Rafael Gama. "I honestly will tell
you that if someone has really gone over the (list of previous legal owners) and has found that the title of the person who is selling is very solid,
title insurance is not necessary; it's an unnecessary expense."
San Diegan Mark Ortiz, who has put money down on two oceanfront condos in Rosarito Beach, said he is not especially concerned about getting title
insurance, noting that he relied more on the reputation of the developer to reassure him that his investment was sound.
The development in which he purchased is currently not insurable by a title company because of long-standing litigation on the property that has not
yet been resolved.
"The condos I bought won't be ready until 2007, so I have time to think about it," said Ortiz, a landscape construction contractor and real estate
investor who plans to resell one of his condos and use the other as a second home. "The builder has a pretty good track record, he's already built a
few developments, and the fact that all the condos in towers one and two are already sold, I'm pretty confident it won't be an issue.
"They have it in the contract that if they don't fulfill their obligations, they'll give you your money back. We had a judge in Tijuana check out the
contract."
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