San Diego Metropolitan - The Connection

The vast majority of Southern Californians buying property in Mexico do so on the Baja California peninsula, an area with ownership limitations applicable to all foreigners, not just Americans. Most of the peninsula is considered to be in the “restricted zone” where foreigners are not permitted to own land within 100 kilometers (about 62 miles) from the U.S.-Mexico border, and within 50 kilometers (about 31 miles) from the coast. Foreigners may own land along the middle of the peninsula — 31 miles from the Pacific Ocean and 31 miles from the Sea of Cortes, and 62 miles from the international border.

In the late 1990s, foreign investment laws underwent changes that allow wholly foreign-owned Mexican corporations to have land ownership rights in the restricted zone for the purpose of real estate development.

Still, most land-use transactions are by individuals who cannot own the land and must enter into a real estate-trust arrangement called a “fideicomiso.” Under this arrangement, a bank is the owner of record and the buyer is the beneficiary for a period of 50 years.

In these cases, the beneficiary has all the rights of ownership, but without land title. The beneficiary can sell the trust at market value. If it is purchased by another foreigner a new trust must be created.

The fideicomiso has worked well; this is not where foreigners have experienced land ownership problems. Most problems have arisen in the areas of seller misrepresentations, alleged or real, and land ownership disputes.

Some misrepresentations deal with promised amenities and infrastructure not yet built. Misrepresentations often deal with the issue of land ownership. Many Americans have entered into fideicomiso believing that since a bank was the trustee, no land ownership dispute would arise. Only later have many found out — as in the case of the now famous Punta Banda where several hundred Americans lost their homes — that it was not the responsibility of the trustee to assure land ownership.

In the United States, title insurance has made ownership disputes uncommon. Homeowners, investors and land speculators cannot get financing without title insurance coverage. The title company researches the history of land ownership, easements, liens and other potential defects on a property before issuing a policy. If a title dispute arises, the title company defends, and if wrong, pays the insured in accordance to the policy.

Had such title insurance been available to Punta Banda buyers, they would not have lost their investments. Then again, the title company would probably have discovered the land dispute and refused to issue title insurance. That, in turn, may have stopped most of the buyers from entering into the purchase.

But title insurance does not protect buyers from a “bad deal” purchase, or any related misrepresentations made by the seller.

The good news is that title insurance is available in Mexico, and has been for some years.

In the 1980s a U.S.-based title insurance company began issuing title policies for Mexican properties. But too many Americans disregarded them as no more than marketing tools for Mexican real estate developments.

But then came Stewart Guaranty Co., and Lawyers Title Insurance, two extremely reputable U.S. companies. Those firms began working with real estate developers in the United States who were investing in Mexico. In those cases, the developer’s Mexican attorneys would perform the proper title search and gather other pertinent information before issuing a legal opinion on the ownership of the land. The title insurance underwriters would then scrutinize those reports to determine the type of coverage they would provide.

Both Stewart Guaranty and Lawyers Title were able to sell title policies without being registered as title insurance companies in Mexico because there was no Mexican insurance company in the field.

Then, in 1995, Grupo Provincial, Mexico’s second largest insurance company, began issuing title insurance. Its policies were co-insured through Chicago Title, the largest title company in the United States. Provincial and Chicago Title are represented in the United States by Texas-based Title Insurance in Mexico. TIM is the exclusive U.S. broker for the title policies issues by Grupo Provincial and co-insured by Chicago Title.

When Grupo Provincial entered the field, it became unlawful, under Mexican law, for foreign companies to continue selling Mexican title insurance policies. However, Stewart, Lawyers and other companies continue to sell such policies, but only to citizens of the United States. Those policies are protected by American law.

Obviously, Grupo Provincial and Chicago Title would like for non-Mexican registered companies to stop selling title policies. They note that it is against Mexican law for nonregistered companies to sell and for people to buy. Part of the argument is that Grupo Provincial must charge the Mexican added value tax (IVA), placing the firm at a competitive disadvantage with the nonregistered companies who don’t pay the fee.

Provincial, which also has an excellent reputation, has a competitive advantage in that it can offer title insurance to Mexican developers, a growing number of which are beginning to see the wisdom of having such coverage. And with Chicago Title, it can offer American buyers title insurance protection.

Ultimately, Stewart and other U.S. title insurance companies likely will need to register themselves in Mexico under that country’s laws. At least one of the companies may be moving that direction.

Meanwhile, Americans who have purchased title policies from reputable companies in the United States remain protected.

Most important is that all Americans contemplating purchasing Mexican real estate should invest in a title insurance policy and should make sure it is from a reputable company.

Patrick Osio Jr. can be reached through San Diego Metropolitan or by e-mail at posiojr@aol.com.