The Need for Title Insurance in Chile
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Title insurance is traditionally a construct of the legal faults and risks associated with buying real estate in the United States (Wiki article on Title Insurance). The real estate laws in Chile do not suffer from most of those basic legal defects of land registries as found in the American legal system that would make title insurance useful in Chile.
In fact, the legal safeguards built into buying, selling, and owning property in Chile are such that there is almost no circumstances under which a title insurance policy in Chile would ever pay out, even if you were to buy title insurance from one of the foreign companies that offer such coverage in Chile. In the rare event of litigation, the cost of defending legal disputes in Chile is much more affordable and quick than comparative legal disputes regarding real estate in the United States or many other countries, and Chile has many special quick legal procedures related to real estate in Chile.
Such foreign title insurance companies before issuing title insurance in Chile will do exactly what you should do: they will have a full title search conducted by a qualified Chilean attorney. These companies will only issue insurance policies in Chile because they are certain of exactly what the problems and risks are before a title insurance policy is issued on a property in Chile.
This is similar to the way banks in Chile will also have their attorneys conduct a title search on their behalf before issuing a mortgage in Chile, as to know exactly what the problems and risks are regarding any particular property. In both cases, neither will put their own money at risk unless a title search shows that a property in Chile is free and clear of all possible problems. Thus, you should also have a Chilean attorney conduct a title search before you put your money at risk. With a full title search almost all issues can be detected before the purchase, and most problems with the title can often be corrected before any money changes hands between buyers and sellers of real estate in Chile.
Reasons why title insurance is not needed in Chile nor commonly used in Chile for real estate sales in Chile:
1. All mortgages on a property to be valid must be registered on the title of the property. Properties can not be transferred until all mortgages are fully cleared.
2. Banks in Chile do not normally issue mortgages to foreigners without residency and credit. Banks will have their attorneys also conduct a title search before issuing a mortgage.
3. All sellers are liable by law for all claims or other monetary damages arising from the sale of a property and for legal cost associated with defending such litigation or disputes. An experienced real estate attorney in Chile will also carefully draft contracts wich add declarations and clauses that make the seller not only financially liable for the sale, but criminally liable for problems with the sale. This will help protect against and document any intentional criminal fraud on the part of the seller.
4. Chile has clear statute of limitations on claims that can be brought against a property. In most cases the statute of limitations expires between 5 and 10 years. No claim can be brought against a property of any sort by third-parties, once those statutes of limitations expire. Thus, a title search should be conducted for at least 10 years to clearly determine that all statutes of limitations have expired, and in certain special cases up to 30 years.
5. All property transfers and contracts are public record by law. All contracts for real estate must be signed in front of a notary public in Chile. Notary publics in Chile are regulated directly by the Supreme Court of Chile, and are personally liable both financially and criminally for all documents signed in front of them. Contracts or agreements regarding real estate not signed in front of a notary public are not recognized in Chile as valid.
6. All documents related to the title of a property must be registered with the regional title registry. This includes such things as liens, mortgages, easements, subdivisions, inheritance rights, rights of use, indigenous land, legal incompetency declarations of the seller, family property restrictions. The registry is also regulated by the Chilean Supreme Court and is personally liable for the certificates they issue and the accuracy of the records they keep.
7. A full title search should also include the certificates from both the city and federal government certifying there are no planned expropriation issues regarding a property. Even in the case of expropriation, the government by law must pay fair market value for the private property expropriated. Typically the goverment pays more than fair market to speed the process.
Still skeptical about the need for title insurance in Chile?
The World Bank “Doing Business in Chile” survey of leading attorneys, law firms in Chile, and other real estate experts also agrees that title insurance is not required in Chile. Spencer Global is proud to have been invited to participate in the annul “Doing Business in Chile Survey” and fully supports the World Bank’s efforts to provide standardized and transparent comparative information about real estate and other investment issue involving Chile and other Latin American countries.
Title Insurance in Chile (www.doingbusiness.org)
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Post available in: English