Title Insurer May Play a New Role for Home Buyers
Heather Bergman - San Diego Business Journal

 

Executives from Grupo Lagza, Inc., a major property developer in Mexico, are courting San Diego home buyers for new residential developments along the coast of Baja California and want to provide a perk not currently offered from San Diego.

To ease the fear of spending hundreds of thousands of dollars in a foreign country with few concrete guarantees that ownership rights are secure, talks are under way between the developer and the San Diego office of First American Title Co.

Though the popularity of buying a home in Mexico is rising — primarily because the average price of a house in San Diego still hovers near record levels — U.S. citizens historically have been leery of purchasing property in Baja California.

The companies want to work jointly on marketing housing communities in Rosarito and Ensenada to San Diego home buyers from First American Title’s San Diego office.

In the future, the insurer could write the title insurance for U.S. home buyers from its San Diego office.

According to Brian Coe, the vice president and county manager for First American Title in San Diego, “At this point nothing’s been inked, but it’s something we would like to do in the future, once we finish getting approval from the Mexican government and the First American home office (in Santa Ana).

“It’s a little premature to say the program is in place yet.”

But the strategic partnership would be indicative of the increasing aggressiveness on the part of developers south of the border to appeal to U.S. home buyers of varying categories. A title insurance policy can protect against losses that occur if a buyer discovers after closing that someone else can claim ownership of the property.

Grupo Lagza’s goal is to attract 80 percent of its clients from the United States — particularly from Southern California — to fill the three communities it is developing, according to Antonio Zazueta, the director of marketing for the Rosarito-based developer. Zazueta said Grupo Lagza’s existing property portfolio has historically comprised about 55 percent U.S. citizens and 45 percent Mexican citizens.

The developer recently signed a five-year lease on an office on the 18th floor of the Symphony Towers building in Downtown San Diego, which will allow it to work more closely with financial institutions in the United States, Zazueta said. It also enables Grupo Lagza to better interact with potential customers, he said.

Zazueta said affordable home prices for beachfront property in Baja California are an obvious draw. The average price of a condominium with an oceanfront view in most parts of San Diego fetches well above $1 million. He said $150,000 to $250,000 would buy a two-story detached house, with three bedrooms and an ocean view in one of Grupo Lagza’s communities near Rosarito.

In San Diego, as well as in Tijuana and surrounding areas in Mexico, people are increasingly pursuing opportunities for homeownership across the border.

“Housing is a regional issue and there should be more focus on taking advantage of opportunities on both sides of the border. There’s a significant population in San Diego as well as one in Tijuana with a variety of housing needs,” said Doug Paul, a principal with Border Infrastructure Solutions, a development firm. The San Diego-based company, which he founded last year with former Baja California Gov. Ernesto Ruffo, focuses on cross-border investment.

One of the general obstacles developers such as Grupo Lagza must confront is the U.S. home buyer’s perception of risk surrounding Mexican real estate, said Bill Anderson, the managing partner of the San Diego office of Economics Research Associates, an international economic development consulting firm based in Los Angeles. “One of the key issues a potential buyer must face is the security of (his) asset in Mexico. People are concerned about financing terms and most don’t know there’s title insurance available,” Anderson said.

The availability of title insurance from U.S.-based companies, however, can provide added comfort.

“I think what we are seeing in the area is that for a U.S. customer to feel completely assured of his investment, he needs title insurance from a U.S. company that can be purchased in the U.S.,” Zazueta said.

According to Coe, First American is only authorized to sell title insurance for Mexican properties from its Florida office through a special arrangement, so the infrastructure is not yet in place in San Diego.

“But this is something we’d like to do. … Americans feel safer buying an insurance product from an American company. … Especially for properties in northern Baja and any of the resort towns, there would be a comfort level about buying the (title) insurance right here in San Diego.”

The collaboration between Grupo Lagza and First American’s San Diego office could prove even more fruitful, given a variety of demographic considerations.

Anderson said the three major categories of U.S. buyers considering residential property in Tijuana and throughout Baja California include people who work in San Diego but hope to purchase more affordable homes in places such as Tijuana; people looking to purchase beachfront homes who can’t afford coastal San Diego prices in areas such as La Jolla; and retirees who have significant equity built up in their primary homes and can get more for their money in Baja while maintaining access to services they need in San Diego.

An important consideration for any buyer, according to Anderson, is the economic cost and opportunity cost of crossing the border.

“A really important part of how deep the market is and how much it can grow is related to how easy it is to cross the border,” he aid.

A SENTRI (Secure Electronic Network for Travelers Rapid Inspection) pass from the U.S. Immigration and Naturalization Service, which costs $129 per person per year and takes several months to obtain, enables roughly 10,000 San Diego residents to cross the border to commute to their jobs in Tijuana each day through an express lane, according to an estimate from Arturo Roland, an associate at Economics Research Associates.

Roland said sources in Tijuana estimate that 50,000 people who live in Tijuana and beyond commute to San Diego for work each day.

A potentially more important issue for any buyer, U.S. or Mexican, to consider is the security of the asset.

Patrick Osio, a former U.S.-Mexico business consultant, said even with title insurance companies such as First American involved in the purchase of Mexican real estate, the buyer must still be cautious.

As current Mexican law stands, foreigners can buy real estate in their own names throughout the country’s interior, but they are prevented from directly purchasing property in Mexico’s restricted zone – the area that’s within 31 miles of the ocean and 62 miles from all borders. In this zone, which includes all of Baja California, foreigners can buy property only as the beneficiary of a Mexican bank trust called a “fideicomiso.”

In this arrangement, the bank technically holds legal title to the real estate in a 50-year renewable trust. When the sale of the land takes place, the title is conveyed to the Mexican bank and the foreign buyer becomes a beneficiary of the trust while the bank acts as the trustee.

“In this arrangement, the question of escrow is important,” Osio said. “A lot of Americans have been fleeced because there is no such thing as a licensed escrow company in Mexico.

“That being said, involving a title company is a positive development,” added Osio.

It’s also conceivable the title company could handle the escrow for the Mexican developer, he aid.

As an additional consideration, Osio said that because some of the land near Rosarito where Grupo Lagza has much of its property, is part of an “ejido” — a property based on common ownership rights as opposed to private property — it is riskier to purchase real estate there.

“In past years, development in that ejido land was taking place without the proper permit for it. … This presents problems for future home buyers,” Osio said.

According to David Wiesley, the director general of First American Title Services de Mexico, the collaboration between Grupo Lagza and First American’s San Diego office will simplify the process of buying a house in Baja for a U.S. home buyer.

“Although we can’t close the deal, we can certainly give confidence to the American buyer that these people are known to us and that financing is available through U.S. lenders,” Wiesley said.

Grupo Lagza has completed 28 projects in Baja California since 1990 that offer a mix of residences, ranging from $150,000 to $400,000, as well as empty lots for building, according to Zazueta. Zazueta said Grupo Lagza had never provided a master title insurance policy for any of its developments.

Despite this, in the first completed neighborhood in its planned 600-unit gated community, San Marino, Zazueta estimates 65 of the first 100 buyers are U.S. citizens.

“That was without any advertising in the U.S.,” he said. “Now we have started a referral program where residents refer us to friends and family in the U.S. who might be interested in buying in Baja.”

Grupo Lagza is not relying only on word-of-mouth marketing.

Most of the marketing circulating for San Marino, which is about 25 minutes from the border, is in both English and Spanish.

Grupo Lagza has maintained a small office in Bonita for seven years, primarily providing financial and other services for its home buyers in and around San Diego.

The developer’s new Downtown San Diego office will house seven employees, including a corporate lawyer and financial director, Zazueta said.

“Americans thinking of buying a home in one of our developments just want to feel safe and confident. Working with a title insurance company in San Diego would make our properties seem more attractive,” said Everardo Guerrero Gomez, the director of credit for Grupo Lagza.