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.

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.

There is a famous saying that goes: “Trust everyone, but cut the cards”.  In Mexico when it comes to money, distrust is part of our culture. This is because if we trust someone with our money and this person steals or misuses our money, it will be very hard to get that money back, even through legal means. For us, this distrust is just a way to protect our patrimony, especially if this patrimony is managed by someone else. Here Puerto Vallarta, many homeowners’ associations manage a significant amount of money and it has been the case that due to the lack of supervision, some administrators have disposed for their own benefit of the funds available in the HOA.

So what can I do if the Administrator of my HOA is stealing money?

There are several ways in which an administrator can profit from the funds and goods belonging to the HOA. Some administrators use the staff, the goods and the premises of the HOA, as well as their working hours to provide property management services and rentals, or just for their own personal benefit (such as do renovations in their own home). In worse cases and because of the accessibility to all the funds available in the HOA (including the reserve fund), the administrator can be prone to dispose of these funds for his own personal benefit.  Both the use of the HOA goods and staff for personal benefit, as well as the embezzlement of funds, can be typified as a criminal offense under the Jalisco Criminal Code which establishes that a crime called “Fraudulent Administration” is committed when someone who has been delegated with the administration of goods and funds, uses them improperly or in a way different to the purpose of the entity that owns those goods and funds. Therefore, in case there is evidence of the misuse of goods and funds belonging to the HOA, criminal charges can be pressed against an administrator who is committing this criminal offense.

And what if the Administrator of my HOA is the same developer?

Some HOAs are still managed by the same developer who constructed the building some years ago. This can represent a serious situation because of the lack of transparency. In this case, both homeowners and board members have the legal right to obtain information from the Administrator regarding the financial situation of the HOA, even if this Administrator is the same developer.  Criminal charges for Fraudulent Administration may also be filed in this case provided there is evidence of misuse of funds.

Protecting the patrimony of an HOA from an untrustworthy administrator requires both preventive and corrective measures. Some administrators may think that they are untouchable, but they are not, and now you know there are legal ways to deal with this situation.

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.

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.

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.

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.

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.

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.

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.