Real Danger...

I recently read a US Embassy's Consular Information Sheet, you may find the excerpt at US Embassy CIS February 2006 and the Travel site of the US Department of State at US Department of State

I came across this after I found several websites misleading foreigners about Mexican property laws. I can't say it better than the first sentence of the CIS: "U.S. citizens should be aware of the risks inherent in purchasing real estate in Mexico, and should exercise extreme caution before entering into any form of commitment to invest in property there."

You can significantly decrease that risk by going in with your feet already wet. By that I mean, know the laws ahead of time. Understand what limitations and restrictions the Mexican government has in place. Learn about the agencies you will be dealing with and the requirements for foreigners purchasing real estate in Mexico. Entering a foreign country be that for business or pleasure requires planning. If you go through such lengths to plan your trip, find that perfect beach property, deal with a real estate broker, set up financing, etc., then why not make sure you are not being scammed?

Take the time to learn the laws, and have a competent Mexican attorney counsel you, believe me you'll be happy you did.

To satiate my own curiosity...

In my Fideicomiso posting I noted that changes to the Mexican Constitution limiting ownership to foreigners of beachfront and border property was made after WWII but wasn't very specific. This was a tidbit of information shared by a law school professor but I never verified the exact historical data. So I did some research and found that in fact Article 27 was modified on February 12, 1948 whereby Section I was incorporated. It is Section I of Article 27 that states in its last sentence that "in a stretch of 100 kilometers along the borders and 50 kilometers on the beaches, under no circumstance can foreigners aquire direct ownership of the land and waters."

I couldn't find (online anyway) the reasoning given by Congress at the time to make this change to the Constitution, and I'd be interested in the true feelings of current Mexican polititians in not eliminating such a limitation on land ownership in Mexico. It seems too many Americans and other foreigners are misguided by what the law states. I've also come across dubious Mexican lawyers and real estate brokers misguiding their clients for the sake of making the sale. Be careful what you get into and don't be afraid to get a second opinion if you are involved in a real estate transaction in Mexico. With the pending Presidential re-elections in Mexico you never know who could end up in power and what outlook they may have on Mexico's international relations.

What is a "Fideicomiso"?

Legal Summary: Fideicomiso is a commercial/credit operation carried out between three parties, one of whom must be a bank/credit institution. The other two parties are the original owner and the beneficiary. Through the fideicomiso, the original owner (fideicomitente) hands over the title/property rights to the bank (fiduciario) for the beneficiary (fideicomisario) to enjoy property rights over the object of the fideicomiso.

Plain English: Fideicomisos dealing with real estate property are contracts by which the seller transfers all rights over the land/property to the bank, which in exchange holds title of the property for the buyer to use, rent, sell or enjoy in whichever way established in the contract.

So why does the Mexican Government make foreigners go through such a merry-go-round when trying to purchase property for "residential" purposes? There are historical and political reasons why foreigners are limited in acquiring ownership of lands on the border and beaches. The historical factor dates back to WWII, when a German war ship was discovered approaching the Gulf of Mexico. Such was the fear of dominance by a foreign power that Mexico entered the war and modified the Constitution to prevent foreigners from acquiring ownership of borders and beaches. I imagine Mexican politicians believed this would prevent a foreign nation from taking over Mexico (doesn't make much sense now, as if the US would even allow that, but could the fear been of the US to begin with?)

However in the 1990's with the new Mexican policies of openness, liberalization of government property, free trade, NAFTA, etc., Mexico wanted to promote foreign investment in Mexican beaches and resort areas. Cancun was the creation of a Mexican president in the 1980's but it didn't become what it is now until commercial foreign investment entered the country. Bottom line Mexico wants foreign corporations to develop tourist areas because tourism is a significant source of the country's GNP.

So then why not also open foreign investment to private individuals who may want to retire in Mexico and purchase residential property on the beach? Here's where I feel politics plays a key role. The historical reason of limiting foreign ownership is all but null. Mexico is not going to be taken over by some foreign power, neither Mexico nor it's big neighbor (USA) would allow such a thing. So who stands to benefit from this? The Mexican banks, lawyers and government. Politics. The Bank and Government stand to gain anywhere between 5-10% of the sale price of the property, in addition to the Bank's annual administrative fees that may range from $400-$2000 USD per year. From the 5-10% surcharge I mentioned the bank gets it's cut and the local/state government receives a nice sum in the payment of the property taxes. And because you need a Notario Publico (will explain the role of a Notario in next blog) whom in essence is a glorified lawyer there will be additional fees.

Still when you consider that beautiful beach front property and the fact that you would never in a million years be able to afford such a place in the US, it may justify the merry-go-round. Who knows maybe at some point a Mexican president will come into power that decides to amend the Constitution or modify the Law of Foreign Investment to allow for foreigners to own beach front property for residential purposes. We can always dream...