Myths about Buying a Home in Costa Rica
Nov 25, 2012
When buying a home in the U.S. or Canada, you have to remember not to take certain things for granted, don’t think that certain elements of the buying process will be automatic. More specifically, the title insurance: you will not be reminded to buy it, but you should. A sale should not be closed without it, because once you have it, your title will be guaranteed. In case someone attempts to claim your property, the title insurance will cover the defense costs or it will cover the actual loss.
The classical definition of title insurance is that it is a type of insurance that can cover the loss of interest in a property as a consequence of legal defects. Before the concept of title insurance existed in the U.S., buyers in property transactions were solely responsible for ensuring the validity of the property title the seller was holding. If it happened that the title was deemed invalid at a later time or if it was discovered to be fraudulent, the buyer would lose his investment. You probably agree that this would not have been a very happy event.
The Most Common 3 Myths Regarding Title Insurance
There are a few myths when it comes to discussing title insurance. The following are the most common:
“There is no title insurance available.”
“You don’t really need title insurance.”
”If the seller has title insurance, then I don’t need it.”
Myth Number 1: You might be told by the attorney or by the house seller that you simply cannot get title insurance. Actually, local property owners will usually not bother with the title insurance and there are two good reasons for this: they do not know or understand what it is or they just do not know that it is available. There are a few small countries, such as Cuba, where indeed you cannot get title insurance. But for the most, if it is really not available, you should take this as a bad sign. That’s because it signals the possibility that you cannot actually own the house you are considering buying legally or cannot hold the property. Of course, you want the legal aspects of the transaction not to create any problems for you.
Myth Number 2: “You don’t really need title insurance.” That’s not quite so. There are many attorneys who will explain that the property registry system in their country is infallible. Basically, you will be told that this system is highly regulated and perfectly organized and therefore title insurance is not really something you need.
You will then stumble upon Myth Number 1 in a way, as you may be told that locals never buy it, so you might as well do the same – or not the same, in this case! The truth is that there is no such thing as an infallible registry system. For starters, such a system relies on human data entry, and humans will make mistakes, it’s natural. Also, this means that there is potential for fraud. Moreover, you will find the title insurance to be useful, as it covers things that do not otherwise show up in a title search. For example, the title insurance covers unknown heirs, forgery or fraud.
Myth Number 3:”If the seller has title insurance, then I don’t need it.” Again, that is not quite so. Title insurance will cover property that is owned by the policyholder. Once the owner sells the property to you, the property will not be covered. Therefore, you actually need your own policy.
3 Important Tips to Keep in Mind
We have gone through the myths and now, a few tips for when you buy title insurance.
1. Do not forget that this insurance only covers things that you do not know about. Let’s say you buy a home or land where you know that a family has lived for many years. You cannot expect the title insurance company to be of any help in case the family lays claims on this land. Title insurance will only cover things that you were not aware of when you bought the property, not those that you already knew about.
2.You should remember to check the exclusions. This type of insurance must cover you when something goes in a bad direction. The worst-case scenario is to buy a property that went through the process of being confiscated in the 1980s by the government, without the original owner being compensated. This leads to the possibility that the owner will show up to ask for the property back or for financial compensation – a sum of money that is equal to the value of the property. We could expect the title insurance to cover this, however, some policies will specifically exclude such a situation. Actually, it will explain this in the small print that people usually skip reading. Before buying a property somewhere, it is best that you speak with your attorney to help you find out what can usually go wrong in that specific area. Then, you should make sure that your title policy covers you.
3. You should do some background research on the title insurance company as these companies vary greatly. It’s recommended that you do your best to find out how trustworthy they are, if they are financially sound and also who will underwrite the insurance policy. You want a company that has a good name and that you can trust. You can also ask to see their claims record. Some companies are happy to issue policies and take your money, but they are less enthusiastic when it comes to offering compensations at the time when something goes wrong. So, you should make sure that you feel confident with the company you have chosen.
You are now aware of the reasons why having title insurance is a necessity and you know what to pay attention to when purchasing. Now all you have to do is go choose the house that is right for you!