Mexican Beach Developers

John Fleming 

Mexico has a complex and complete legal system and a court system based on models that go back for centuries. It is a civil law system, based on statutes, unlike that of the U.S., which is a common law system, based on precedents. Common law tends to be more flexible in its interpretation. Many U.S. and Canadian citizens have a very poor understanding of how the Mexican system works and make assumptions about the process of buying real estate that can lead to costly and troublesome errors. In order to understand Mexican real estate, we have to gain some familiarity with certain aspects of it that are unknown north of the border. 

Notario

A notario publico in Mexico is not the same as a notary public in the United States, although the names sound alike. In the U.S. anyone who can post a bond can pay a fee and become a notary public. But a notario in Mexico has to have practiced law for at least 5 years and must pass a very difficult examination.  I hear that it's as bad as a bar exam and CPA exam rolled into one. Notarios are appointed for life by the governors of each state, and there are very few of them (only 2 in Puerto Peñasco).

In accordance with the Roman legal system, the notario's certification gives authenticity to legal acts and documents, such as contracts. He or she is a legal expert who can give advice to parties on how to comply with the law in whatever they wish to do, but can not litigate. Notarios close real estate transactions, in which their function is a combination of real estate lawyer and tax collector. Many other important legal transactions, such as forming corporations, must also be finalized before a notario.

In a real estate transaction, the notario investigates all aspects of the property--orders appraisals (city and state), checks to make sure the title is clear, draws up all the documents for the transaction, and calculates the taxes, which are based on the appraisals. The official contract of sale is drawn up, not by the buyer and seller or their agents, but by the notario. It is then recorded with the city registry. The buyers get a certified copy of the title for their records. Since the notario represents the government, buyers should hire their own real estate agents or lawyers if they need representation. 

Bank Trust 

When a foreigner buys residential property in the restricted zone (100 kilometers, or 62.1 miles, from the border and 50 kilometers, or 31.05 miles, from the coast), which includes Puerto Peñasco, title to the real property is transferred to a Mexican bank, which holds it in trust for the foreign buyer as the beneficiary. Foreign buyers, however, have all the rights of ownership. What they own under a bank trust is the right of ownership rather than the real estate itself. It is good to be aware of this legal distinction, although in practice it makes virtually no difference. The beneficiaries of a bank trust may buy, sell, lease, use, bequeath, improve, transfer, and encumber the property. 

It may help in understanding the bank trust to compare it with the deed of trust, a type of instrument used in the U.S. as security for loans. People who buy homes for cash receive their titles right away. But the majority don't buy for cash. Under a deed of trust the buyer of a house has only "equitable title," or an equity interest, with the right to use but only a restricted right to sell, until the loan is paid off, after which the owner receives the actual fee simple title. Until then it is held by a trustee, usually a bank or title company.

In Mexico the bank trust is also held by a trustee, the only difference being that the buyer never receives the actual title. Realistically, many homeowners in the U.S. never receive title to their properties either, because they sell or refinance their homes long before the 30-year term of their loan is complete. At the time a foreigner chooses a piece of real estate, the bank will be instructed to purchase the land as trustee and seek the permit to do so from the Ministry of Foreign Affairs. The beneficiary of the trust has full use and enjoyment of the property. The bank, as trustee, is responsible to the government and sees that the terms of the trust are fulfilled, assuming the technical, legal, and administrative supervision of the agreement for the purchaser's protection, and charging an annual fee. 

Initially, the trust was created for a 30-year term. At the expiration of the term, the trustee had to sell the property to a qualified buyer, another trust, or a Mexican citizen, and deliver the net proceeds to the beneficiary, thereby terminating the trust. On May 16, 1989, the government announced that all trusts would be extended for an additional 30 years with presentation of proper and timely applications. The new Foreign Investment Law of 1993 increased the trust's term to 50 years with 50-year renewals permitted.