Despite detailed checks undertaken by the large majority of legal professionals in Brazil - occasions do happen where buyers may end up liable for previous issues with the property or land. Examples include errors committed by clerks at the Cartorio de Registro de Imoveis, forgery, survey omissions, fraud, title flaws, hidden / undisclosed liens and encumbrances.
The risk is also magnified with cross-border transactions as foreigners are less likely to be familiar with local laws and customs and unfortunately are often seen as easy victims by unscrupulous sellers. Added to this is the fact that both Brazilian buyers and lenders rely on an opinion letter from the lawyer with regards to the security of the asset and there are occasions where issues with the title only appear post completion.
*** WHY IT IS HIGHLY RECOMMENDED TO TO TAKE TITLE INSURANCE WHEN BUYING REAL ESTATE OR LAND IN BRAZIL - SOME EXAMPLES OF INVESTMENTS GONE WRONG ***
The worst case scenario is for investors to face a complete loss of their property to a third party who has a superior claim. Although the Brazilian economy has made incredible strides over the past few years, the legal and land registration systems have lagged behind and continue to create uncertainty for investors. This is particularly true in less developed regions of the country, such as the Amazon and the Northeast, where many foreign investors currently focusing. For example, over 500 European investors lost their investment capital in a luxury resort near Natal. The developers had plans for 30,000 homes, a marina, golf course, sports centre, spa, heliport, shopping centre and a plastic surgery clinic - all on an idyllic beach and around a lagoon. However, nothing was ever built and none of the investors' funds ever reached the project (the developer was subsequently jailed and many complex lawsuits have yet to reach court).
In rural areas, land grabbers have an 'investment' strategy called grilagem, from the Portuguese word for 'cricket'. People have been known to falsify a deed and then store it in a box full of crickets to make the paper seem older and authentic. In addition to fraud, title issues can arise when mistakes are made in transferring property. For example, an American investor in the North East of Brazil lost a significant amount of cash due to the discovery illegitimate children of the deceased seller claiming possession of the land and property. There have also been occasions where buyers have become liable for post completion environmental violations. In less developed regions, the boundaries between properties can be based on physical objects that can move or disappear. Squatters such as the Landless Workers Movement (Movimento dos Trabalhadores Rurais Sem Terra, MST) could obtain possession rights over land even if they do not appear in any registry.
*** ENSURING YOUR INTEREST IN BRAZILIAN PROPERTY AND LAND IS PROTECTED ***
Although a Brazilian lawyer or cartorio could theoretically be liable for a mistake, investors that have chosen to take legal action against them have been faced with a lengthy and costly process (for which the outcome has usually been unfavourable). The lawyer will identify such risks when researching the property's title and ownership but it is ultimately down to the investor to decide whether or not to accept the risks of unforeseen circumstances to avoid the possibility of substantial loss or damages. An investor would also need to prove negligence in order to win a lawsuit, which is no easy matter for a foreigner up against well-connected local lawyers. Even if the investor wins the lawsuit, the Brazilian courts can easily delay the date of judgment for decades.
*** IN CONCLUSION... ***
It is generally recommended, therefore, to obtain title insurance as a means to protect your legal risks and ensure a clean title (it can be obtained relatively cheaply). You will find that most policies are fully underwritten to protect against any losses as well as the cost of litigation to defend against title claims; defects; encumbrances and compliance problems (such as zoning, codes and permits). Such policies also have the added benefit of simplifying the legal requirements and due diligence processes undertaken by lawyers, lenders and credit rating agencies.
Make sure that you are obtaining the policy from a reputable company and you read through all terms and conditions prior to signing. Note that there are also several cross-border title policies which are designed to be used by foreign investors. Some Brazilian real estate and land investors also choose to send the policy to a separate lawyer for added security.