Panama has title insurance companies from the United States offering the same services they offer in the U.S.
Panama title insurance protects real estate buyers by insuring that the title has no flaws, there is nobody else claiming ownership, there are no encumbrances, no boundary disputes, no liens, and no encroachments on the property. Any one of these problems could create havoc with the peace of mind a real property purchaser should be experiencing when obtaining title to real estate.
Here is a true life example of someone who didn’t purchase Panama title insurance. Two foreigners bought Panama real property in 2006 when the seller provided a “Paz y Salvo” document from Panama’s Ministry of Finance (MEF) claiming he did not owe and property taxes.
The reality was that when the seller bought the property it was not properly registered with MEF’s Cadastro office which levies property taxes. The seller was supposed to pay higher property taxes. MEF eventually found out and filed an $11,000 property tax lien. The buyers ended up paying the $11,000 even though it was the seller’s fault. Panama title insurance coverage would have paid the entire $11,000 because it was a “hidden lien” not discoverable during the title search but still covered by the insurance policy.
Defining Panama Title Insurance The word “title” describes one’s legal right to own, use, possess, and transfer title to other people or entities. A “title search” involves investigating Public Registry filings on the property to determine whether the property is free & clear of any encumbrances or title defects before the title transfers.
“Encumbrances” are claims on the property’s usage made by outsiders like a power company with an easement to run power lines through the property. A lien is another type of encumbrance. A court judgment filed against the seller can be a lien on the property. Property taxes which are unpaid automatically are liens on the property.
A “title defect” occurs when an important element is missing from the title. For instance, the seller’s spouse did not sign the title transfer documents making him or the owner. An undisclosed heir of a prior owner can file an ownership claim with the property. These are title defects.
Mortgage lenders require that a property be free & clear of all encumbrances and title defects before title is transferred to the buyer.
“Title Search” is a research of the Public Registry records on the property including liens, court records, and deeds. Included with these will be unsatisfied mortgages, unpaid property taxes, restrictions limiting usage of the property, and court judgments against the seller.
A title search is not foolproof. There can be “hidden defects” which will not show up even with a most thorough title search. Hidden defects can include forgeries, fraud, seller’s mental incompetency, defective deeds, undisclosed spouse, and clerical records errors. The reason why they are called “hidden defects” is because they are usually not discovered until after title transfers. These can result in ownership being voided.A deed cannot guarantee title because it merely shows a title transfer. A defective title transfer or a hidden encumbrance or lien can result in the deed being challenged or unexpected payments. Panama title insurance covers all of these potential problems. Panama title insurance only costs about 1% of the sales price which offers a lot of protection against the unknown.