FEATURE ARTICLE, SEPTEMBER 2007

THE GLOBALIZATION OF TITLE INSURANCE
Making international real estate transactions safer, easier and more liquid.
John D. Markunas

Today’s real estate market is increasingly going global. Global connectivity and the integration of business and social activity on a worldwide scale is contributing to a dramatic rise in international transactions and real estate investment. 

American cross-border residential and commercial real estate acquisitions along with mortgage and equity financing are the driving forces behind the increasing globalization of title insurance. The roster of trans-national investors includes banks, developers, private investors, corporate real estate departments, opportunity funds and individuals. Indeed, our own baby boomer phenomenon is creating an unprecedented demand for vacation and second homes in the land of sun, surf and sand, overflowing the shores of Florida to the Caribbean, Central America and even South America. The role of title insurance abroad is also expanding as capital continues to move offshore with the securitization of mortgages and on the equity side with REITs.

In the United States, a title insurance policy is behind virtually every real estate transaction, reducing legal risks and providing guarantee to title. It is protection that goes beyond a legal opinion to underwrite risks and assure clean title. (In many countries, real estate owners have had to rely on opinions from local counsel and notaries to address the potentially costly risks of faulty records, ambiguities, negligence, fraud or even simple mistakes.)  

Title insurance also provides a solution for restrictive covenants, which can affect the value of the property and the cost of financing, as well as the ability to close the transaction and ultimately enhance liquidity. This is particularly important today since global property owners and lenders typically are financial institutions and corporations managed by professionals with fiduciary obligations to protect their investors against the legal risks inherent in real estate transactions.

If you think purchasing real estate here in the U.S. is stressful or risky; imagine buying a property in a foreign country where an array of differences in law, culture, language and due diligence processes create special challenges in the search, negotiation, purchase and closing of a transaction. In addition, many countries’ land ownership records systems are unclear and inefficiently maintained, adding to potential title discrepancies.  This should lead to probing questions about the validity of title as you contemplate a real estate acquisition in a foreign country.

So what do you do if an issue arises with a defect in title or right to possession against your vacation dream-home in Cancun or that piece of land you bought in Brazil? In many cases, an investor’s only remedy is to look back to the seller for relief or sue the local attorney who may or may not be solvent for negligence. Litigation is costly, can last for years and there’s no guarantee of winning.

Ultimately, if you have a title insurance policy, you can make your claim directly with the title insurance provider. The provider has the obligation to defend you as well as indemnify you against covered losses. American title insurance is increasingly available on a global basis, but may not be obtainable in all countries, so its availability should be determined.

In the final analysis, it is highly recommended to purchase title insurance for any foreign real estate investment. It adds an extra layer of comfort, security and transparency to the transaction while ensuring the highest level of title protection available.

John D. Markunas manages title insurance business development at LandAmerica Financial Group, New York, New York. 

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.