FROM SWEET DREAMS TO NIGHTMARES

Arturo López Corelli
Notario Público # 14, in Mexicali, B.C.
In collaboration with Lupita Foudy.

Everybody wants to buy a lot in Baja. Prices are low, specially compared to the U.S. West Coast and people feel that besides being a sound investment, the idea of retiring in a community which has vast undeveloped areas, lonely beaches, dry climate and good neighbors, is most appealing.


However, many such decisions have been tainted for people get carried away in their enthusiasm and plunge into deals that they wouldn’t touch with a mile long pole back in the U.S.


Therefore, let’s travel the road starting from a safe, legal, clean and tight deal and then descending down the ladder in desirability until sinking into definite no-nos.


NOTARIAL DEED AND TITLE

Undoubtedly the safest and most convenient way to purchase land in Mexico, as regards formalities of the agreement, is to have both parties, Seller and Buyer, appear before a Notario Público and have him/her draft, execute and register the agreement and deliver a complete title.


A Notario Público (not to be confused with a notary public) is a certified attorney which is authorized by the State Government to attest and witness facts, signatures, documents, agreements; most important, he participates in drafting the document, being impartial by essence. His responsibility is to protect both parties and ensure that there is no breach of legality.


The law requires a Notario to have in hand the Seller’s Title, to examine such title and determine if its satisfactory, if its legal, if it is duly registered, also he requires an appraisal made by a certified professional, a survey authorized by the Municipal authorities, property taxes and public utilities paid and a non lien fiscal certificate before authorizing a signed contract.


Therefore, in a sales contract executed before a Notario Pùblico, the purchaser can be confident and sure that the Seller’s title is examined by a qualified and impartial attorney, that the contract is drafted with care not to hurt any party involved or cause undesirable fiscal, environmental or illegal effects, and that the contents of the final document will be explained to both parties before signing.


The Notario will obtain a certificate issued by the Public Registry of Property and Commerce which attests that the seller’s title is duly registered in his name and no liens or encumbrances are outstanding. Normally this certification is issued with a five year search but one can obtain a certificate with several five year periods.


In Mexico, the Public Registry of Property is the only legal means of making a title search and in Baja California this agency runs very efficiently, open to the public with a friendly manner. In Mexican law, the registered owner holds the legal title and contesting its validity is seldom successful.


Also the Notario Público is responsible for calculating, retaining and paying all taxes and duties on behalf of both parties, i.e. profit tax and purchase tax as well as Public Registry of Property fees.


Once a sales contract is signed, taxes paid and duly registered, the contract and attached documents comprise the legal title for the buyer.


Foreign individuals are not allowed to own real property in the restricted zone (100 kilometers from the borders; 50 kilometers from the coast line) and may only hold real property through a Fideicomiso or Bank Trust which should be granted before a Notario Público.


Mexican Corporations (SA) and Limited Companies (S de R L), even with 100% foreign owned capital, may hold real property in the restricted zone provided it is not used for residential purposes, for in this case, the fideicomiso format is applicable. Hotels, condos, time share apartments used or rented by third parties are not considered “residential purposes”. Also commercial, industrial or touristic buildings although partially used as homes are under the above treatment as non residential, as well as real estate residential developments until sold to third parties.


Foreign individuals may purchase real property outside the restricted zone with permission of the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores). All Baja territory is under the restricted zone.


Ejido land may only be purchased as private property after a special proceeding is held in which a qualified majority attendance and vote at the Ejido assembly meeting is required and a resolution taken to admit full property status (dominio pleno). Once this resolution is passed, the Agrarian Authority, a government agency, issues a Title which withdraws the land from the protectionist Ejido regulations and allows the land to enter Civil Law status as any other private property.


PRIVATE INSTRUMENT RATIFIED BEFORE NOTARIO PUBLICO

In a descending order, a private instrument may be ratified by both parties thus certifying the signatures and the acceptance of its contents as well as setting a secure date of execution. Once the document is agreed upon, the signature and the document is ratified before a Notario Público.


In this case, the appearance before a notario does not vest the document of a public document nature. It still will be a private document, only authenticated in its signature, date and agreed content by the certifying Notario.


Private sales contracts involving real property are only legal if the sales price is under a fixed amount (equal to 7,000 minimum wages; currently about $28,500 dollars).


As can be easily seen, the drafting of the document in this case is not responsibility of the Notario. There is no impartiality involved and both parties are basically on their own as regards their rights and obligations as stated in the document.


Also the Notario is not responsible for calculating taxes, nor requiring administrative documents (survey and appraisal certificates, etc.) involved in a public instrument.


It is up to the parties involved to obtain the necessary documents, file tax returns and have the contract and documents registered at the Public Registry of Property and Commerce.


Many times this is simply not done, due to problems in the title, in the surveys, or apathy on part of whomever should fulfill those requirements, and the land stays in the name of the seller at the Public Registry of Property. The risk is that the property may be attached by the sellers creditors and a lien filed at the Registry, or worse, that the seller fraudulently sells once more the property to a third party.


Even though in these cases the buyer’s unregistered but authentic title may prevail, no one wishes to undergo costly and lengthy litigation which carries a substantial risk.


PRIVATE INSTRUMENT WITHOUT RATIFICATION

Next step down is a simple private document with no ratification of signatures before a Notario. This contract may not be registered and a judicial proceeding is required to upgrade its nature to a legal title.


Stay away from any deal involving a simple private document unless you are conscious of your risk and instability.


It is true that having possession of real property with a simple private document as title may be sufficient to retain and defend such status from outsiders, invasions or some property claims, but any unregistered title is very vulnerable against a previously registered one.


Any unregistered title should be regarded as insufficient or suspicious and a clear sense of the risk involved is mandatory.


Land owned through an unregistered title has a lesser value. It can not be put up for financing, loan or mortgage nor can it be held in fideicomiso.


It is important to distinguish between the Municipal Property Office (Catastro) which deals with the technical aspect of real property, measurements, tax codes, mergers, subdivisions, property taxes, etc., and the State Public Registry of Property and Commerce, which is a State agency which registers property titles.


Do not fall for any allegation that a title is registered just because it has a Municipal Tax code and is filed at the Catastro agency, or in the Surveyors office, under any name. This is just a technical matter and has nothing to do with legal ownership.


ASSIGNMENT OF RIGHTS

Sometimes a sales agreement takes the form of an assignment of Seller’s rights to the buyer. It is true that any sales contract implies an assignment of property rights but it is normally under the heading of a sales contract whose specific purpose is to transfer property rights.


Assignment of rights is a valid transaction. The important issue is understanding what nature of rights are being assigned. Be wary of an assignment of rights agreement, it normally means that the seller’s title is shady, incomplete or has not been yet issued. Possibly the rights assigned are only possession rights and not property rights, so any way, this agreement can not be registered. The “buyer’s” situation is such that his fate is subsidiary or vicarious to the assignor’s original position, whatever that may be.


PROMISE OF SALE

Next step down is the promise of sale agreement.

The legal and technical purpose of a promise of sale is when both parties agree to execute a future sales contract. Typically when some documents are still pending, or they wish to close a sale and the seller can not come up with the title or the whole price can not be paid by the buyer. Promise of sale is also called an “option” when examined from the standpoint of the future buyer.


One has to take into consideration that the only obligation under a promise of sale is to execute a contract in the future.


This means that the non compliant party cannot be forced to actually sell or buy, and his denial or refusal only originates damages which can be defined in the promise of sale document or determined by the Court upon litigation.


A promise of sale cannot be registered.


The promise of sale may or not be ratified before a Notario, but again, this is only an authentication of the signatures and dates but does not convert the document into a public instrument.


A promise of sale may be executed as a public instrument but that is rarely done ant the effect of the limited obligations of both parties still stands.


POWER OF ATTORNEY

The next step down is a power of attorney in lieu of a sales contract.

Beware! Very often a prospective seller, not having the accessory documents and the buyer not having the funds for a formal deed, taxes, notarial fees and register fees, draw a power of attorney in favor of the buyer so that in the future the attorney-in-fact may grant the formal sales contract before a Notario in behalf of the seller.


Normally this runs along together with a private document to ensure that the real operation is a sales agreement and not only a representation empowerment.


The problem with this setup is that no property transfer is actually made. The property is legally and technically still in the seller’s name. If the owner should pass away, probate proceedings would normally involve all property registered under the deceased’s name, and again, the innocent buyer would be plunged into litigation.


Also, according to Mexican law, powers of attorney are void whenever grantor or attorney dies or is incompetent.


VERBAL AGREEMENT

It is strange but we still hear of instances in which the buyer coughs up a sum of money and has no document, no contract, no receipt, nothing, to account for his investment. A handshake, whatever its bucolic nature and nostalgic sentiments it may stir, is worth nothing and any serious agreement is disrespected if settled under such precarious manner.


Whenever a verbal agreement is breached, which is practically always, the offended party has basically nothing to support his claim. Witnesses are usually not enough and easily confused or worse.


CONCLUSIONS:

The best, secure and legal title for any purchase is a public instrument granted before a Notario Público and duly registered at the Public Registry of Property.

A simple private document is proof of ownership, legal if ratified before a Notario Público under the current authorized amount, but if not, it is an imperfect title for it cannot be registered by itself on the buyer’s name.

A promise of sale is a proper document whenever an actual formal sale is foreseen, as evidence of good faith and intention of actually following up. It should be regarded only as a temporary document, never expecting to substitute a formal sales contract.

Stay away from any deal in which a mere power of attorney is offered in lieu of a sales agreement.

No handshakes, please.

Senor Corelli,

Thank you for excellent advice. Do yo have any information on Mexican Home Owner insurance? Should we buy American style insurance?

John

quote:

Fideicomiso

How would one go about obtaining a Fideicomiso in order to buy a house in Tecate? I assume I will need an attorney in addition to the services of the notario público. Any suggestions in finding a reliable attorney? Once I find the right "fixer-upper", it will be a cash transaction. Any information will be truly appreciated.