Saturday, September 26, 2009
Last Saturday, as part of her “Twelve Things you Need to Know to Do…and Then Do” series, Margaret strongly recommended you engage your own independent legal advice. It seems obvious that “Your local attorney should work for you—and only for you.” Often people fall into the trap of doing the easy thing, though, and being steered in a direction that could raise a conflict of interest.
This week alone I received three advertising brochures from marketing groups offering “Free Legals” as part of a deal. Here’s how this works. A developer or marketing group approaches a law firm and agrees to pay them $X to process a number of identical contracts. Technically, the buyer might be the client…but the developer or marketing group is the one with all the leverage. They pay the bills. Not a situation you want to be in. Remember, your local attorney should work for you—and only for you.
Today in Tip #2, Margaret talks about title insurance. You may take it for granted back home…but you need to pay attention to it when buying overseas, too.
Most of all you need to understand what you need cover for….and exactly what cover your title insurance policy offers. Some title companies have exclusions for issues you really need cover for. It’s like getting health insurance with a policy that’s rendered invalid if you get sick. Don’t just get title insurance…get the right title insurance.
Here’s what Margaret says:
“Tip #2: Buy Title Insurance You purchase it back home as a normal part of the buying transaction—so why not purchase it for your overseas property? Perhaps because it’s taken for granted as part of the buying process back home, you might not think of it…but the seller or your attorney won’t remind you to purchase title insurance. You need to add it to your checklist.
Title insurance is available in most countries through companies like First American Title Insurance, and it’s affordable. It gives you peace of mind. Having a commitment to title insurance in place before making your final payment on a property ensures that you are paying the owner, and that the title is good.
Title insurance covers defects in title, property taxes, boundary disputes, hidden defects (fraud, forgery, and unknown heirs)—up to the point when you buy the property. You may ask why you need it, if you have a title checked by an attorney and/or a notary. Well, I recall speaking to one attorney, who said that he had the local notary check all the documents related to a property—but that he then went to the property himself and spoke with the neighbors to see if anyone thought they had rights to the property, if there was a secret lovechild who could come to light and claim their portion…things that a notary search would not uncover. Attorneys and notaries are human, too—and can make mistakes.
Not all title insurance policies are equal. Check your cover carefully. Make sure you know what is covered…and what isn’t.
Check exclusions in your title insurance cover, which can vary from country to country. In Nicaragua, there are so-called Sandinista exclusions on some policies. The Sandinista government confiscated land in the 1980s, and not all of the original landowners have been compensated.
With title insurance, you are covered for events that have happened up to the point when you purchased the property. Anything that you are aware of at the time of purchase is not covered. Future events—and that includes political risk—are also not covered.
Title insurance is a one-off payment, and lasts as long as you (or your heirs) own the property. If someone challenges your title, based on a past event—forgery of documents, fraud, someone selling a property who was not entitled to do so—then First American has a duty to defend that title. They either cover your defense costs—or they pay you your actual loss if they made a mistake, up to the amount of the policy. If they defend, they hire a local attorney, and monitor the litigation. Court cases can be lengthy overseas. Believe me, it’s easier when someone else handles that for you.
Developers often have master title insurance policies already in place on their land, and that is a good sign. You still need to get individual title insurance though—a developer’s title insurance covers them as an owner, not you. Once they sell you a home site, a lot, or a condo, it’s no longer covered by their master title insurance policy.
Meantime,the big news this week was the elevation of Brazil’s credit rating to investment grade by Moody’s Investor Service. This is quite a turn around. Eighteen months ago, Brazil’s credit rating fell into the “junk” category. Brazil has shown itself to be resilient during the global financial crisis. Unlike most western economies it came nowhere near the brink. This is good for Brazil’s macro outlook. The better your credit rating, the easier and cheaper it is to borrow. What’s good for Brazil is good for our real estate investments here.
Specifically, we have an interest in this move as this upgrade was always seen as a precursor to mortgages being made available to foreigners. This won’t happen overnight. When it does happen it will fuel demand. Good news for those of us invested here. You can read more about this at http://www.bloomberg.com/apps/news?pid=20601087&sid=adcoXl4_vTxo
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