By José Manuel Pallí, Esq.
I apparently raised more than a few eyebrows by claiming that Cuba’s land title recording system before Castro was much better than anything we have ever had in the United States. At the risk of stepping on even more toes, here is why I said what I said.
First, let me make clear that my statement is not born of any claim to Cuban exceptionalism: Cubans can hardly brag about the recording system they had back in 1959, since it was the creation of Spaniards in the middle of the 19th century, who in turn followed ideas originally developed in Germany. Of course, back then Cuba was part of Spain (it was one of Spain’s provincias de ultramar), and, as a matter of fact, Cuba tasted this Spanish Recording Law (known in its original version as the Ley Hipotecaria de Ultramar) even before it was in effect in the mainland.
And I am not saying that our court-run recording system in the United States is not serviceable as it is. I am saying it can be very much improved if we would only look at what other countries are doing — and have been doing for eons — with theirs. By humbly acknowledging the possibility that others may have a better answer for problems such as mortgage fraud, certainty as to who owns a given secured loan when the time comes to foreclose on it, or people entering into contracts they do not understand the consequences of, we may begin to resolve some of the issues that are keeping us mired in this never-ending “financial crisis” and clogging our justice administration system.
There are two main varieties of land title recording systems. The United States one is the less elaborate, and it simply records and publicizes a private document, assigning a priority to it, based on its date of recordation. All you need to do to have your document recorded is take it to the courthouse and present it, making sure it meets certain minimal formalities, which are the only thing the record keepers review prior to recording it. It is a system that records and publicizes documents.
In the kind of Spanish (German-inspired) recording system in place in Cuba before Castro, the registrar in charge of the recording office reviews the (usually “public” or notarial) document presented for recordation, checking on it from several angles, its completeness and its abidance by the applicable laws among them. The transaction contained in that same notarial document has been previously reviewed to mostly the same extent by a Civil Law Notary, an independent or third-party lawyer who makes sure that the parties (signatories) to the document or transaction fully understand its meaning and consequences. In essence, what this fellow does is make sure the document is legally effective, so as to accomplish what the parties freely will to do. The combination of this strictly reviewed notarial document (which in Civil Law carries a high evidentiary value that makes it almost self-proving), the pre-recordation review by the Registrar (calificación notarial y registral), and the legal principles on which the Spanish recording system is based, make the rights of the owner (of a piece of real property, of the mortgage encumbering it, or of any other real property rights he claims over it) of record virtually unassailable. So it is said to be a system that records (and even more importantly, assigns) real property rights, not just documents. The recording entries of such a system are sort of iron-cladded against the claims of those who may try to question the rights of the owner of record, which rights are thusly said to be legitimized by their recordation.
There are other reasons why this “recordation of rights” system is much better than ours:
•The information pertaining to each piece of land is concentrated in a single entry (called a folio real), which rules out the need to resort to extended and cumbersome searches through grantor / grantee indexes.
•Its emphasis on preventing legal disputes through the power of review both civil law notaries and registrars have, results in there being relatively few lawsuits over land titles in those societies that opt for it.
•Even if the system is not absolutely risk free – no system is, but, I insist, this Spanish recording system is, conceptually, much stronger than ours — it makes title insurance or other such products unnecessary.
And I happen to know a thing or two about how our title insurance-aided system works when compared with these recording models in place on almost every Civil Law jurisdiction in the world, having spent many years trying to “extrapolate” title insurance into other cultures.
My many friends in the title insurance industry have always seen its international expansion from the very American perspective of “if it works for us, it should work for everybody else.” While I was already well into my project of acculturating title insurance to civil law habitats, beginning with Mexico, an American working for one of the largest American title insurance underwriters asked himself a very simple question: ‘Why don’t they have it in Canada?’, where he happened to live. With dedication, well-honed selling skills and hard work, he turned this underwriter’s Canadian venture into a relative success.
But then it all became a matter of finding how to sell – an endeavor we are still unquestionably number one at — American title insurance abroad, and any need to acculturate it or translate it into other people’s needs became an afterthought. So even today, about 99 percent of the very few policies issued over Mexican real property titles are bought by Americans.
The real question is, why do we have title insurance when no other advanced – nor underdeveloped — nation in the world has ever found any use for it? And the answer brings me back to the theme of this little essay: Because our recording system (and even our real estate transactional system) is a lot more frail and uncertain than it should be, or than we, as the Greatest Nation on earth, deserve it to be.
And this is not news to a lot of folks in the United States. The last chapter of the first version of RESPA (the Real Estate Settlement Procedures Act) contained suggestions about how to change and improve our recording system. Nothing ever happened, of course, for the same reason it is very difficult to rid our Internal Revenue Code of a long list of loopholes and tax breaks.
Besides, title insurance is as wired into our financial system as the so-called rating agencies are – hard to believe in them, but at what price the disbelief. We do need title insurance, and we need it, even if it does not always work as we expect it to work. It has not happened yet, but I would not be surprised to read in the near future about the industry’s claims that their policies are only “opinions,” just as those of the rating agencies … And even then, we may still be unable to live without it.
In my next piece, I will try to explain where the Cuban recording system stands today – its operating guidelines were altered by some provisions published by the Cuban government the same day they published Decreto Ley 288/2011, the law that facilitated home sales in Cuba — and explore whether title insurance might prosper one day in the still forbidden island.
José Manuel Pallí is a Cuban-born member of the Florida Bar, originally trained as a lawyer in Argentina. He is president of Miami-based World Wide Title.
