Substitute beneficiaries: Is your Mexican land trust in accordance with your last will?

If you own a home in Puerto Vallarta, then you are fully aware that foreigners must use a land trust to acquire property on the Mexican shores. You might complain that this trust is unnecessary and expensive, but having this trust also brings benefits. One of the benefits is the designation of substitute beneficiaries and the mechanism established in the same trust agreement which will allow your heirs to acquire the rights to the property without going to probate. However, you should make sure that the names of your substitute beneficiaries are clearly stated in the testamentary clause of the trust agreement, otherwise, some problems may arise when you are not here.

So what can happen if the testamentary clause of my Mexican land trust does not include the names of my heirs?

The first scenario would be that your trust does indeed include the names of your heirs but these names have spelling mistakes or are not their current full names. If the full names of your substitute beneficiaries have changed since you first set up your trust or if they are written incorrectly, your trust should be amended to include the correct and current full names of your substitute beneficiaries as they appear on their current passports, otherwise the bank holding your trust will request more documents to your substitute beneficiaries in order to verify that they are the same person than the one stated in the trust.

And if my trust has no testamentary clause at all or if the substitute beneficiary I designated is already deceased?

This is going to represent a serious problem for your heirs because having no designation of substitute beneficiaries or if the beneficiary you designated is already deceased at the time of your death, this will mean that your rights over the property will have to go to a Mexican probate and if you don’t have a will valid in Mexico then these rights will go to what is called an open probate and anyone who is considered as next of kin or descendant under Mexican law can claim the rights on the property. Moreover, this proceeding (if resolved) can take years.

Leaving everything in order regarding your estate, will bring you peace of mind and will eliminate conflicts among your relatives that can last for years. That is why the testamentary clause of trust represents a big benefit, but you have to make sure that this clause reflects your intentions as to who is to acquire your property in Mexico upon your death.

Ejido: are you buying property that is no man’s land?

In Mexico we have a saying: “Lo barato sale caro”, which would translate into “What is cheap in the end will be expensive”. When shopping, we all want to make the best use of our money and get bargains. This can also happen in real estate deals. But what happens if you are buying property in Mexico and you are offered a bargain, a piece of land that eventually will be worth much more and that is called “Ejido”? In this case, you should consider really carefully paying any money to the seller, since most surely you will never get title.

So what is Ejido?

Ejido land comprises a high percentage of the total Mexican territory and there are certain limitations applicable when acquiring this type of land that can disrupt your purchase process and put your investment at risk. The main aspects you should be aware of when planning to purchase ejido land, are the following:

• Ejido land is not private property, which means that it cannot be purchased freely through direct title. The ejido legal system was created for agricultural purposes and is a type of “communal ownership”, where the members of the ejido own rights of use (and not direct title) over an undetermined part of the total area of the ejido.

• Ejido rights can be subject to purchase and transfer, however this can only take place between members of the ejido. Non-Mexican nationals cannot be members of the ejido.

So how can I acquire land that is Ejido?

Ejido land can be transformed into private property and then sold to any individual who is not a member of the ejido, either national or foreign. This process is commonly known as “regularization” and must meet many legal requirements. The regularization of ejido land can take months and in some cases years. Once the regularization process is concluded, you may acquire (through a land trust) the piece of property you are being offered to purchase.

You should keep in mind that acquiring Ejido under the name of a Mexican national in order to get your way around the regularization process and the Fideicomiso, will put your investment at risk since you will have absolutely no legal rights over the property, and yes, you might get a bargain but in the end you run the risk of never getting title.

Is your contract with the developer a one-sided contract?

Justitia or Lady Justice is an international symbol of law and justice.  She is always portrayed holding a balance which represents equity for all the parties of a transaction or dispute. Equity for all parties is precept that applies not only in the legal field, but also in the business field with the famous “win-win situation”. All contracts should also be fair and balanced. However, there are some contracts that can be one-sided and this may represent a risk to one of the parties. Developers in Mexico are prone to have one-sided contracts in their favor, even though by law there are required to include certain clauses in those contracts for the protection of the buyer.

So what clauses is the developer required to include in the sales contract?  

The Mexican Consumer Protection Law states in article 73 and 73 Ter, that the developer must register the template of the sales contract before the Consumer Protection Agency, and in order to be registered the contract must include the detailed rights and obligations of both parties, equal penalties for both parties in case of default,  a specific date when the construction will be finished, a specific date for delivery of the unit, a specific date for the transfer of the title, and the technical characteristics of the construction and the finishings.

And can there be an extension in case the construction is delayed?

According to the Federal Consumer Protection law, the developer can only unliterally extend the delivery date if he provides proof to the Consumer Agency that this delay was caused by Acts of God (such as a hurricane or earthquake) or Force Majeure (such as a strike or a riot). Other than that, the developer will be in default and in order to have an extension you will need to sign an amendment to the sales contract.

Having a balanced contract requires both negotiation and knowledge of the law. It is usually when one of the parties is kept in the dark that a contract is one-sided towards the other party. If you are buying property in a foreign country you should know your rights, foresee any risks and have proper legal representation, this way you will have a fair contract and you will protect your investment.

Why do I need a Notary Public if I’m buying property in Mexico?

If you have been through any legal or bureaucratic process in Mexico, you probably have noticed that here we love our paper. Because our legal system is Civil Law everything must be written in order to be proven and valid.  Also, contrary to what happens in Anglo-Saxon countries, it is part of our culture to have a certain degree of distrust when engaging in any transaction and therefore we need to document everything and provide as much formality as possible to that transaction.

This is why here in Mexico if you are buying real estate, your purchase contract must be signed before a Notary Public and granted in a public deed.

So what is the difference between a Notary Public in Mexico and a Notary Public in the U.S.? 

Here a Notary Public is a person empowered by the Mexican government to validate and give formality to certain acts. Even though the basis of this role is the same as in the US (to certify that someone’s signature is in a piece of paper), in Mexico the Notary has a more extended field of work because by law the use of a Notary is mandatory if you are executing certain contracts or performing certain acts. In Mexico a Notary Public must also have a law degree and they must pass something similar to a bar exam to be granted a Notary license. All real estate transactions in Mexico that exceed a certain amount, must be performed before a Notary Public.

If I’m buying or selling real estate in Mexico, will a Notary Public represent my interests?

The Notary Public is neutral. He won’t represent either buyer or seller. Notaries are required by law to verify certain facts regarding the transaction brought before them (such as if there is a lien on the property that is being sold), but it is not the role of the Notary to negotiate the terms of a contract with your counterpart or to provide you with legal advice on your transaction. The Notary represents the state government and must act in an impartial manner accordingly to what is established in the Notarial Law.

You must be aware that here in Mexico we have different kinds of Notaries. Most of them are competent, knowledgeable and they follow the law, but every now and then you can find those who don’t exactly fit into that description. If you are buying property in Mexico, choosing the right Notary is extremely important because your investment will be protected and therefore you will have peace of mind.

New Year’s resolutions: new Bylaws for your HOA?

2017 has arrived and many people are now starting to work on their New Year’s resolutions. As you may know, accomplishing these resolutions is not an easy task since old habits die hard. However, some people very determined to bring come change into their life, a change for the good that eventually will become a permanent state, and maybe you are one of these people. But what about your HOA? Is it changing with the times? Many HOAs here in Puerto Vallarta operate with obsolete bylaws and this can represent a big challenge in the administration of your Condominium Regime. Bylaws can be amended but, like any New Year’s resolution, achieving that change will require some work.

So how can I modify the bylaws of my HOA?

Bylaws of an HOA can only be amended through an extraordinary homeowners’ meeting. You will need the consent of the homeowners representing 75% of the vote of your HOA. This vote can be obtained either at the meeting or 30 days after by gathering the vote in writing from the homeowners who didn’t attend the meeting. These requirements apply whether you want to change the wording of a bylaw or if you want to add a totally new bylaw.

The wording of the amended bylaws was voted on and approved in English, what’s next?

Once you have approved the wording of your bylaws you must translate those bylaws into Spanish and this wording needs to be included in the minutes that eventually will be notarized and recorded. If you kept the wording in English and you didn’t include it in the minutes, the amendment to your bylaws is not valid.

Many people don’t embrace change very well and you might have some people like that in your HOA.  This will make the task of amending your bylaws even more complicated, but with some persistence and proper counsel you’ll be able to achieve this goal, and then who knows, perhaps you’ll have a state of the art HOA in Puerto Vallarta.

Are the resolutions from your annual HOA meeting enforceable?

HOA season is just around the corner. It is that time of the year when you’ll discuss with your fellow neighbors how your homeowners’ association will be administrated in 2017 and who will be in charge of this administration. This discussion will take place at your annual homeowners’ ordinary meeting. The Mexican law requires for this ordinary meeting to take place during the first trimester of the year.  At this ordinary meeting, specific issues should be addressed and voted on. It is extremely important that the result of the voting and the resolutions are properly reflected in the minutes from your homeowners’ meeting. If this is not the case, you can then have problems trying to enforce the resolutions from your homeowners’ ordinary meeting.

So what should the minutes from an homeowners’ ordinary meeting include?

The Civil Code for the State of Jalisco establishes that a homeowners’ ordinary meeting should deal with the following items:

  • The general financial report on the condominium for the previous year,
  • The election of the members of the Board of Directors,
  • The appointment of the Administrator, and
  • The approval of the income and expense budget for the following year.

In the minutes, the full names of the members of the Board of Directors should be included. The same applies for the Administrator since these two bodies will have the legal representation of the HOA.  It is also extremely important that the income and expense budgets are included on a spread sheet as an annex to the minutes. This way you’ll be able to prove how much a homeowner is obligated to pay in dues for the following year and how much the Administrator was allowed to spend.

So my homeowners’ ordinary meeting took place and I have the minutes, what’s next?

The minutes should be in Spanish and they should be signed by whoever acted as President and Secretary at the meeting.  Then the minutes should be Notarized and recorded in the Public Registry of Property. Once you have concluded this last part, your minutes are totally legal and can be enforced against any homeowner, the Administrator or a third party.

Having an organized HOA is not easy, there are many interests involved and reaching a consensus is a very difficult task. This is one of the reasons why the resolutions from your HOA meeting s should be clearly written and notarized.  This way they can be legal, and you can have some peace of mind in case a homeowner tries to challenge a resolution from the meeting.

Closing Coordinator and Real Estate Attorney: Is there a difference?

The precept that lawyers have the legal and moral obligation to act in their client’s best interest seems to apply in any legal system, and Mexico is no exception. If you are buying a property in Puerto Vallarta and you hire a real estate attorney, this attorney should work just for you, without having other interests in mind, such as the interests of real estate agents or the developer. In Puerto Vallarta, it is a common practice for closings to be handled by what is called a Closing Coordinator (which would be the equivalent to a closing agent in the U.S. and Canada). Most of the time this closing coordinator is also a Mexican-licensed attorney. However, in real estate transactions there are differences between what a Closing Coordinator does and what a Real Estate Attorney does.

So how is the work of a Closing Coordinator different from the work of a Real Estate Attorney?

A Closing Coordinator is neutral, and therefore he doesn’t represent either buyer or seller. The job of the Closing Coordinator is to put together all the paper work so that closing takes place on the date established in the offer. The Closing Coordinator is chosen by the Real Estate Agent representing the buyer and therefore the Closing Coordinator considers this Agent as the client. The Closing Coordinator gets paid by receiving a participation from the fees charged by Notary Public granting the purchase deed.

On the other hand, a Real Estate Attorney is chosen and hired specifically by either buyer or seller and therefore represents only the interests of the party who hired him, and this party will be his only client. Among other things, a Real Estate Attorney will review any document for his client, do a title verification, search for leans, and negotiate the terms of contracts, always representing the interests of his client. A Real Estate Attorney gets paid directly by the client by charging a specific fee.

When in doubt about for whom a lawyer is working, … just follow the money.

If a Closing Coordinator tells you that he or she will represent your interests without any charge or charging a commission to the Notary, then that representation is a severe conflict of interest. Also, if you hire a lawyer specifically to represent you and handle your closing, ask the lawyer what is the amount corresponding to his/her legal fees from the closing costs estimate. If the answer is again that they are charging no fees or that they are charging a commission to the Notary, this will also turn into a conflict of interest, so you should establish with this attorney what his/her legal fees will be and then sign a contract where the fees and duties of the attorney are clearly stated and this way you’ll have a better guarantee that this attorney will act in your best interest.

There is a saying that goes: “He who pays the piper calls the tune”. This saying should apply to any real estate transaction in order to avoid a conflict of interest. If you are planning to purchase property in Puerto Vallarta, you should keep that saying in mind and for sure you’ll be able to get proper legal representation.

Is the developer providing you with the right information previous to the sale?

The real estate business can be a very tricky business. Very often you hear horror stories about people who lose thousands of dollars or even their lifetime savings because they made a wrong decision, or at least an uninformed one. This seems to happen anywhere in the world, but here in Mexico foreign buyers are more prone to fall in to the category of “deceived investors”. Having the right information before purchasing your property here in Puerto Vallarta is crucial, especially if you are buying from the developer. Few developers are transparent and willing to provide the right information to their customers. On the other hand, there are developers that are very difficult to deal with and refuse to provide the buyers with the proper information, even if they are required by law to do so.

So what information am I entitled to receive from the developer before signing a contract?

The Mexican Consumer Protection Law states in articles 73 and 73 BIS that the developer must have available for any possible buyer, the following information:

  • The construction project of the building which should architectural, structural and installation plans, as well as a scale model.
  • Proof of ownership (copy of the public deed that proves the developer owns the property where the building will be constructed).
  • If there is an existing lean (mortgage) on the property where the building is being constructed.
  • The status of the property regarding taxes and utilities.
  • Construction and land use permits.

And what about realtors working for the developer?

If the sale is taking place through a real estate broker or a real estate agent, they should have available for you all the information mentioned above plus the contract in which they are authorized by the developer to promote the sale of the development.

If the Developer or the Real Estate Broker refuse to provide you with the information required by law, they can be subject to a monetary sanction of up to MXN$2’658,045.34 pesos (article 128 of the Mexican Consumer Protection Law). In more serious cases, the sanction can be up MXN$3’974,031.62 pesos and the temporary or even permanent closing of the business that committed the infraction (article 128 BIS of the Mexican Consumer Protection Law).

You must also be aware that depending on the type of property you are acquiring, there are many more specific details that should be verified such as: environmental permits, concessions in federal zone, land use, transformation of ejido into private property, and the list goes on.

As you can see, executing a proper real estate purchase contract in Mexico requires for all these conditions to be fulfilled, otherwise you might face conflicts that will cost you a lot of money or even the loss of all your investment.

Is your Real Estate Agent in Mexico trust worthy?

Buying property in Mexico is not an easy task, but if you are buying property in Puerto Vallarta you can make this task much more feasibleby surrounding yourself with the right professionals. These professionals should have the knowledge, experience and reputability to guide you smoothly through the process of purchasing new property here in Mexico. To start with, having a qualified Real Estate Agent in your team is of the outmost importance, especially if you want to secure your investment. However, you should be aware that here in Puerto Vallarta, Real Estate Agents are not subject to any regulation or legal requirements, like they are in the U.S. and Canada, and this makes it more easy for you to fall into the wrong hands when looking for a property.

So what are the differences between a Real Estate Agent in the U.S. and Canada, and a Real Estate Agent in Mexico?

Real Estate Agents in the U.S. and Canada must take certain training to get a license granted by the state government. Here in Mexico, only a very few states have the same regulation, however Jalisco and Nayarit are not among them.  In the U.S. and Canada, the state governments hold a record for each agent, and this makes it easier to make a background check on the agent you want to hire. Also in those countries, if the Agent is dishonest or violates any rules, he can lose his license and can’t practice anymore. In Puerto Vallarta, we have none of that, and this makes it easier for dishonest people to keep misrepresenting themselves as Real Estate Agents, even if they have done bad deals in the past.

So how can I know if a Real Estate Agent in Puerto Vallarta has the required qualifications?

Since there is no regulation for Real Estate Agents here, there is practically no way to verify with certainty the qualifications of an agent. Asking for references would a start. Ask the agent directly what are his or her qualifications (Were they real estate agents in their country of origin? Do they work here in PV with an international company? How long have they been working here?). But you should know that in the end there is no legal way to verify this information. Something that might be usefully would be to verify if they are members in good standing of association of real estate agents called “Mexican Association of Real Estate Professionals” also known as AMPI. This association provides training and courses to their members and tries to harmonize the working practices of the agents.

And can I take legal action against a Real Estate Agent who provided false information or didn’t disclose relevant information on the property?

Yes, however Mexico is a country where what is signed in paper prevails. Whether you are buying or selling a property, so you should always try to have a contract signed where the liabilities of your agent are listed. This document will also help you in case you decide to press criminal charges for fraud against the agent, even if this agent works for a developer.

As the real estate market in Puerto Vallarta is experiencing some growth, the number of people who are acting as agents is also growing. Many of them are experienced, qualified and honest, and some of them are not. You should avoid dealing with the latter in order to protect your investment.

I want to thank my friend Harriet Murray, President of AMPI Puerto Vallarta, for her collaboration in writing this article. 

In Mexico, is there a Real Estate Checklist that can prevent me from losing thousands of dollars?

Checklists are a part of our everyday life. We do checklists for our grocery shopping, for our Christmas shopping, when planning a trip, when planning a party, and so on. But there are checklists and there are CHECKLISTS, especially when it comes to your investment. This applies as well if you are planning to acquire property in Mexico, where certain legal requirements must be fulfilled to secure your investment and avoid later conflicts.

So what are the main issues I should include on my checklist if I’m buying property in Mexico?

  • A title verification should be carried out. The documents that the seller provides as proof of ownership over the property must be carefully reviewed in order to certify that the person who is selling you the property is the actual owner and that his title is not subject to any conditions or consent from third parties.
  •  It is important to verify that the property is free of any liens such as mortgages, otherwise you can lose it in case the debt or credit that caused the lien is not paid in due form.
  •  The property must also be free of any encumbrances such as easements, rights of way, leases or deed restrictions.
  •  You must make sure that the seller does not owe taxes for the property you are planning to purchase, otherwise the transfer of title cannot take place.
  •  It is important to make sure that the seller is in possession of the property and that he is able to deliver this possession to you without any difficulties.

And what the specifics if I’m buying a condo?

  • If the seller is a Mexican corporation, you must verify that it is duly incorporated and that the legal representative of that corporation has enough faculties to celebrate the contract and transfer the title, otherwise the contract can be declared null and void.
  •  You must verify that there are no debts regarding utilities and homeowner’s fees.
  •  It would be wise to look at the bylaws and financial statements of the Condominium before putting any money down.

You must also be aware that depending on the type of property you are acquiring, there are many more specific details that should be verified such as: environmental permits, concessions in federal zone, land use, transformation of ejido into private property, and the list goes on.

As you can see, executing a proper real estate purchase contract in Mexico requires for all these conditions to be fulfilled, otherwise you might face conflicts that will cost you a lot of money or even the loss of all your investment.