Can a recession in Mexico affect my property in Puerto Vallarta?

In today’s globalized world, the economies of many countries are vastly interconnected. Currently, what happens in the economy of one country, for sure will have a direct effect on the economy of the trading partners and neighbors of that country. The U.S. and Mexico are a clear example of that. Our economies are strongly linked and the Mexican economy is still substantially dependent on the U.S. economy. This is one of the reasons why there is a word that in the U.S. and Europe is causing nervousness right now, but in Mexico is causing panic. That word is “recession”. In the last 40 years, Mexico suffered two major economic collapses: one in 1982 and the second in 1994. It took the Mexican economy almost ten years to recover from each one of those slumps. Even though today our economy is more consolidated and diversified, Mexico is still an emerging economy and a recession can still easily evolve in what we Mexicans call “economic crisis”.

So being a foreigner living in Mexico and having my source of income abroad, how can I be affected by a bad Mexican economy?

The first sign that Mexico is entering into an economic crisis is a major increase in the price if the U.S. dollar against the Mexican peso. You might think that this increase works in your benefit because you will be getting more pesos for your dollar, but this is a temporary effect. The expensive dollar triggers a chain reaction in that will affect practically all fields of the Mexican economy. For example: Mexico imports from the U.S. about 50% of the gasoline that is sold here. This will mean that eventually, the price of gasoline will rise considerably here. Having expensive gasoline will generate an increase in the prices of many products in Mexico and this will create inflation, which means that eventually, you will also be paying a higher price for things here in Mexico.

And how can an economic crisis in Mexico affect my property in Puerto Vallarta?

Commercially your property here in Puerto Vallarta is priced in U.S. dollars, so you might think that a weaker peso is not going to affect your property, right? Well, this might be the case … until you sell. For the Mexican government, the value that is used to calculate the capital gains tax is the price you paid in pesos when you bought and the price you receive in pesos when you sell. So let’s say that you bought your property for USD$200,000.00 back in 2011 when the exchange rate was around MXN$12.00 pesos for USD$1.00. By selling your property right now at exactly the same price in dollars, you might think that there is no capital gains, but in pesos, the sales price is much higher because of the current exchange rate (about MXN$19.00 pesos per U.S. dollar). This means that for the Mexican government you are indeed getting capital gains for which you will have to pay the corresponding tax. So bottom line, an expensive dollar will make you lose money when you sell your property here in Mexico.

The economic forecast does not look very promising for Mexico in the following months. Aside from the international threat of a recession, we have other external factors (such tariffs imposed on Mexican products by the U.S. president), and internal factors (such as the bad economic policies of our incompetent president and an economic growth of practically 0% in the past months) that might affect our currency and generate a devaluation of the Mexican peso. Mexicans of my generation and older, we have lived through bad economic times in Mexico. The younger generation of Mexicans have not, and they might have to learn that the hard way. In terms of the Mexican economy, my generation has learned to read the signs, expect the best and prepare for the worst.


Adoption by same-sex couples in Puerto Vallarta.

The concept of a family has evolved worldwide and Mexico is no exception to this. Gay marriage is now recognized and performed all over our territory. However, we still face some rejection and reluctance. Some states like Yucatán and Sonora, still refuse to marry same-sex couples, even though they are required by law to do so. In these cases, an injunction or amparo must be obtained so that a judge orders the officer of the Civil Registry to perform the same-sex wedding. This reluctance has also affected the rights of gay couples here in Mexico to adopt a child and form a family. Many states still refuse to recognize this right to same-sex couples. However, our Mexican Supreme Court issued a ruling on January of 2017, recognizing all over the country the right of same-sex couples to adopt a child.

So can a same-sex couple adopt a child in Puerto Vallarta?

The legislators of the State of Jalisco, where Puerto Vallarta is located, still refuse to recognize in the state laws, the right of same-sex couples to adopt a child. However, due to the ruling from our Federal Supreme Court, the state government authorities that deal with adoptions must process an application from a same-sex couple if the applicants file an injunction or amparo for this proceeding. Once an injunction is filed and the application is submitted, the government authorities from the State of Jalisco that deal with this matter, must process the request in the same terms that any other heterosexual couple. You should know however that the neighboring state of Nayarit, fully recognizes adoption by same-sex couples and therefore if the papers for adoption are filed in that state, there won’t be any need for the injunction (amparo).

And what about adoption by non-Mexican citizens that live here in Mexico or abroad?

If the couple intending to adopt are non-Mexican citizens but are residents of Mexico, the process will take place like with any Mexican national. The papers must be filed before the state government office here in Vallarta that deals with adoption called Sistema para el Desarrollo Integral de la Familia or DIF. This office will review the case and issue a certificate of eligibility stating that the couple is suitable to be adoptive parents. After that certificate is obtained, a proceeding in court must be followed so that a Judge grants legally the adoption. In case of non-Mexican citizens who are not residents of Mexico, the adoption would be considered an international adoption and the proceeding must be started in their home country, where the must obtain the certificate of eligibility from the competent authority, and then finish the proceeding here in Mexico before a Mexican judge.

In Mexico, a large segment of our society still opposes adoption by same-sex couples. Luckily for us, most of our jurists recognize the right to form a family as a human right. Same-sex couples have been granted that right and there is no way to debate that. The conservative way of thinking of our society still has to catch up with our changing laws. That is still to be seen, but in the meantime, adoption by same-sex couples is a fact in our country and this is something to be proud and joyful. By the way, happy Vallarta Pride!

 

 

 


Developers in Mexico: are they really untouchable?

Legal disputes can be exhausting and costly, but in many cases they are necessary. Legal action must be taken in cases where a breach of contract generates damages. In real estate transactions, the amounts for damages tend to be substantial and many times these amounts represent the lifetime savings of a person buying a property. Mexico is no exception in this regard. Damages here can represent high amounts, especially if you are buying a brand-new unit from the developer. If you bought property in Mexico and the developer fails to fulfill the contract, our legal system allows you to take certain legal actions in order to obtain a remedy.

So what are the legal actions that can be taken against a developer that doesn´t fulfill a contract?

If a developer refuses or is not able to fulfill his obligations under a contract, such as to deliver the unit that you paid for or failing to provide you with title over the unit, a lawsuit can be filed in court so that the contract is either terminated and the developer is ordered to return your money and pay damages, or you might obtain a ruling from the judge where the fulfillment of the contract is ordered. If the developer did deliver the unit but is not respecting the guaranty established by law, then you can start a proceeding before the Consumer Protection Agency in order to force the developer to make the guaranty valid.

And what about filing charges against a developer who incurred in criminal activity?

If the developer incurred in a criminal offense such as fraud, you can press charges and start a criminal proceeding that eventually will trigger a trial. These criminal proceedings can be stopped if the developer reimburses you the amounts that are the base for the charges. In order to avoid going to trial and eventually setting foot on a Mexican prison, many developers reach a settlement with the victim during the criminal investigation.

Some developers use intimidating tactics to make you believe that they are untouchable and above the law, but you should know that this is not the case. Our legal system here in Mexico is far from perfect, but it is still able to provide protection to someone who falls in the hands of a dishonest developer. The key element here is to find the proper legal counsel.

 

 


Possession of a property in Mexico: do’s and don’ts.

In the process of buying a property, there are two aspects that require special attention: one of course is obtaining title, the other one, which is as important, is obtaining possession of the property you are buying. In Mexico, possession of a property is a very delicate matter and in many cases is not treated with the importance it deserves. Under our legal system, the concept of possession can be quite complex and may differ considerably from the legalities of possessing a property in the U.S. or Canada. This is why in dealing with this controversial topic, it is best if you are aware of some scenarios in which you should act within the scope of what is considered lawful.

So what should I do regarding possession if I am buying property in Mexico?

If you are buying a property from the developer, the purchase contract should specify a specific date for the delivery of the unit, with penalties in case of default. When this delivery date comes, most certainly the developer will have you sign a contract in which you agree to the conditions in which the unit is being delivered, and if there are still details or work to be done in your condo, then you should specify that in the agreement (punch list), along with a due date for those details. You should also be aware that your one-year guarantee starts to count as of the day you take possession.

And If I already own a property in Mexico, what are my do’s and don’ts in terms of possession? 

Mexican law tends to protect the person in possession of a property, especially if that person obtained the possession through legal means, like for example through a lease agreement. The legal premise is that you can only evict someone through a ruling from a judge obtained after a proper trial. Without this ruling, evicting someone (either by denying access, locking out or changing locks or codes) can be considered a crime which is called Unlawful Dispossession of Property (or Despojo in Spanish) and this crime can be punished with up to 3 years in prison.

You might think that just by having title over a property you have superior rights over anyone who is in possession of that same property, but this is not always the case. That is why before evicting someone from your property, you should consider carefully taking this action without following the proper legal proceeding since by not doing so, the consequences can be severe and may include criminal charges.


Should I sign a contract with my realtor if I’m buying property in Mexico?

Under Mexican law a contract is defined as “an agreement between two or more parties to create, transfer, modify, or extinguish obligations.” Contracts are an essential element of any undertaking since they provide clarity and accuracy to the terms, conditions and obligations agreed between the parties involved in a transaction.  In real estate matters, contracts are of paramount importance, especially in countries like Mexico where anything that is written in a contract has significantly more value than any verbal agreement reached by the parties.

So if I have a verbal agreement with my realtor, is that considered a valid contract in Mexico?

Mexican law does not specify that a contract for the provision of services (in this case real estate agency services) requires to be in writing to be valid. However, the ideal scenario would be for you to have a written contract with your realtor since in case of a dispute, the written contract would have more probatory value of the relationship between you and your realtor.  A written contract will also be very helpful in determining the specific obligations of your realtor and the specific cases in which he or she would be in breach of contract.

And what about indemnity in case my realtor was negligent or acted in bad faith?

Article 2261 of the Civil Code for the State of Jalisco establishes that the provider of a service will be responsible towards the client for any negligence, lack of expertise or fraud incurred in the provision of the services. In this case, a written contract can also be very helpful in a Mexican court since it will provide a judge the documented evidence of a contractual relation and this will facilitate a ruling condemning your realtor to indemnify you by paying damages and lost profits.  Furthermore, in case of criminal activity by your realtor, the written contract can be used as a piece of evidence in a Mexican criminal court.

There is a famous saying that goes: “Words are gone with the wind”. Nowhere has this saying more significance than in a legal dispute, especially here in Mexico. This is why a written contract with your realtor will not only be of use in court, but it will also be a preventive tool since your realtor will know that not honoring the contract can bring serious legal consequences.


Should realtors be drafting legal documents?

Writing is a skill and in many cases an art. Whether it’s an article, a novel, an essay or any other type of document, clear and accurate wording is required so that the reader is able to understand the message the writer is trying to get across. This skill is paramount when writing documents that require a specific knowledge in a certain area or an academic or professional level. Just like a civil engineer should not be writing an essay about the new discoveries in medicine, or an accountant should not be writing a thesis on nuclear energy, drafting legal documents like a contract, requires a high degree of legal knowledge as well as professional legal experience, and of course proficiency in the legal language.

So should a realtor be drafting a legal document, such as an offer?

In my opinion, no. Here is why: even though some realtors have an academic degree and have taken courses in real estate matters, drafting an offer is drafting a contract, and this requires certain legal skills that most, if not all, realtors lack.  Some realtors have templates of offers and other documents that they use by filling the blank spaces. However, if your realtor is not stating in the offer the complete and accurate information of the parties (such as full names, address or description of the property), the result will be a legal document that is imprecise and vague, which won’t be of any use in terms of protecting your interests. Furthermore, some offers have peculiarities and special conditions that require modifying the template in order to adjust it to the specific case.  This is a task that will surpass the capability of any realtor who is not also a lawyer.

And what can be the consequences of signing an offer with deficient legal language?

Having an offer that is not well worded or that lacks legal technique can bring serious problems in case of a breach of contract, and in some cases, the offer as a contract can be declared null and void. If a dispute over the offer goes to court, the interpretation of the contract will be left to a judge who may have an extremely difficult time trying to understand the intention of the parties when they signed the offer. A litigation proceeding can be stuck for years in a Mexican court and this can result very costly.

Many realtors have the best intentions when drafting an offer, and they can work to the best of their abilities in that offer, but as the saying goes: “The road to hell is paved with good intentions.” This is why in order to protect your investment, it is advisable to have a lawyer revise any document you sign regarding the purchase of your property in Puerto Vallarta.


Is my real estate investment secure if Mexico chooses a left-wing populist government?

On Sunday, July 1st, we Mexicans will go to the polls to elect a new president and a new federal congress (and in some states also governors, state legislators and mayors). This election will be particularly important because even though the country is politically very divided, most Mexicans will cast a vote in the hope that a change of government will bring a solution to problems like corruption and insecurity. Andrés Manuel López Obrador (AMLO), the presidential candidate who is the current leader in the polls, is considered by many as a left-wing populist and by his followers as the virtual winner of the election. Many of my foreign clients who own property in Mexico have asked my opinion about the outcome of the election and when we talk about this I’ve noticed that most people have two words in mind that create concern: “eminent domain” (or “expropriation” for Canadians).

So should I be concerned about my property if AMLO wins the election?

The short answer to that question is: No.  Here are some of my reasons for giving that response: 1) even if Lopez Obrador wins the election, none of his campaign promises are related to exercising the right of eminent domain on assets owned by foreign companies or foreign individuals, he seems to be aware of the important role foreign investment plays in the Mexican economy; 2) In the remote case he decides to exercise the right of eminent domain, he most surely do so on properties owned by Mexicans and there will still a proceeding that has to be followed and certain legalities that have to be met such as proving  the concept of “public purpose” (which is not easy and can be overruled by the Mexican Supreme Court); and 3) Mexico has developed good political and economic relations with many nations, so exercising the right of eminent domain on properties owned by foreigners will create a severe conflict for the Mexican government.  Furthermore, if you are American or Canadian, there is a document that protects you even more in a worst-case scenario: NAFTA.

So how can NAFTA be of help in a case of expropriation?

Your real estate purchase in Mexico is considered foreign investment under Mexican law and NAFTA includes a full chapter (Eleventh) regarding investment among the three nations. Article 1110 of NAFTA states the specific list of requirements in case the government of country intends to expropriate investment from any of the other two countries: public purpose, non-discriminatory basis, due process and compensation. Furthermore, a dispute over a case of expropriation under NAFTA will not be resolved in local courts but in an international arbitration tribunal (like the ISCD in Washington, D.C.), so this makes expropriating even less tempting.

As you may know well, NAFTA has been under renegotiations recently but no new agreement has been reached so the original text is in full force. Even if the whole agreement is canceled (which in my opinion is highly improbable due to the economic repercussions), Mexico will still rely substantially on foreign investment and therefore will have to provide legal certainty to foreign capital coming into the country. This is something that all the presidential candidates, including AMLO, seem to agree on.

 

 


Is your realtor your friend or your foe?

Realtors can be of great help when buying property in a foreign country: they know the market, the prices, and the locations. They also can guide you through the whole purchase process until you acquire the property that best suits your needs. In Mexico many realtors are service oriented and have their clients best interest in mind, however, some realtors face difficulties when trying to serve two masters: one master would be the client and the other would be the commission. When in this predicament, some realtors may choose to chase the commission at all cost and as a consequence they can commit negligence or dishonest acts against their client.

So if my realtor incurred in negligence or dishonesty, can I take legal action?

In Mexico, the job performed by your realtor is considered a provision of services. Article 2261 of the Jalisco Civil Code establishes that the service provider is liable to his or her client for negligence, lack of expertise or fraud. In this case, you can take a civil action which would be a lawsuit to claim damages and loses, or specifically in the case of fraud you can start a criminal proceeding by filing charges against the realtor.

And what if I don’t have a contract signed with my realtor, can I still sue?

The Jalisco Civil Code does not establish the requirement to have a signed agreement for a provision of services contract to be valid. If you have evidence that there was an agreement between you and your realtor on the services to be provided, such as emails, that would help prove the contractual relationship before a judge. Furthermore, even if you are buying and you are not paying directly to your realtor the commission, your realtor is still liable since article 2255 of the Jalisco Civil Code establishes that payment to the provider of the service can be performed by the receiver of the service or by a third party.

Having a competent and honest realtor is paramount when buying property on Puerto Vallarta. The state of Jalisco does not have a specific regulation for real estate agents yet and this can represent a risk for your investment, however now you know there are remedies and actions you can take in case you come across a fraudulent or negligent realtor.

 

 

 

 

 


HOA finances: should you check them before buying a condo?

Financial information is part of our daily lives. We balance our checkbook, keep track of our personal expenses, file tax returns, and so on. If you are entering into a business partnership it is a common practice to verify the economic solvency and credit history of the counterpart who will be your business partner.  This financial verification is just a preventive measure that is applicable in many cases and especially if you are buying a condo in Mexico.  Verifying that the HOA where you plan to buy a property has healthy finances is an important part of your due diligence in the purchase process.

So what financial information from an HOA should I ask for if I’m buying a condo?

The first thing you should do regarding the financial situation of the condo you are buying is to verify that the condo is current in the payment of the HOA fees. You should ask your realtor or the seller to show you the latest payment receipts for the HOA fees of the condo. You should also ask to see the latest financials of the entire HOA. Some HOAs have big liabilities and have many owners that are in arrears. The lack of income for the HOA can represent serious problems for you if you are not made aware of this at the time of buying.  That is why prior to the purchase you should ask to see the financials of the HOA which can be the financial report presented to the homeowners at the annual ordinary meeting or the trimestral reports that the Administrator should have available for all the homeowners.

And what about utilities and other payments related to the condo?

You should verify that the seller is current in payment of utilities such as water, gas and electricity. You also should ask to see the last payment of the property tax.  If the seller is behind several years in the payment of property tax and also owes surcharges, this can also represent a serious problem for closing.

A proper verification on the financial status of the condo will prevent you from entering into an HOA where homeowners that pay the HOA fees in time are subsidizing the homeowners who are in arrears. It is just a matter of asking for the information, but in the end, it will be you who decides if you want to enter into a bad marriage.


Escrow in Mexico: is it mandatory?

When buying real estate in the U.S. or Canada, it is a common practice to have an impartial third party safeguard the purchase price until the required documents are executed on the closing date. This practice is not common in Mexico and the concept of an escrow account is relatively new for us and to Mexican legislation. An escrow contract as such is not specifically regulated under Mexican law, even though for years we’ve had a rather similar concept called the “Conditioned Deposit” or Depósito Condicionado in Spanish. Furthermore, it is not a legal requirement to have a deposit in escrow to make a valid offer on a property here in Mexico.

So what are the benefits of using an escrow account in Mexico?

At closing, several concepts have to be paid so the transaction can be completed, such as the Capital Gains Tax on behalf of the seller, commissions to realtors, and any other disbursement required by the seller. The benefit for the buyer is the simplicity of performing the payment at closing by just signing the disbursement instructions jointly with the seller.  However, this requirement of the signatures of both buyer and seller in the disbursement instruction can represent a problem for you as the buyer in case the deal falls off or if the seller backs from the sale, since it can leave your money on a deadlock.

So if I put money in escrow, how can I be protected from a deadlock?

Your escrow agreement should include a clause that states that if closing does not take place within a certain period of time, the escrow company will automatically return the funds to the buyer. This way you can be protected against any circumstance that may complicate the purchase process and against having to negotiate with the seller to try to get your money back.

Innovative tools can bring many benefits in real estate transactions herein Mexico. However, when there is no specific regulation for such tools, you should have a contract that protects you against legal loops and safeguards your investment.