3 July 2008 293 views 6 Comments

When purchasing property in Mexico, there are some mistakes that can result in catastrophic losses to your savings.

Not Using a Trusted Neutral Escrow Agent
It is very risky to give money to the seller or agent as a good faith deposit. In Cashing in on a Second Home in Mexico, Tom Kelly writes “If a buyer is willing to give earnest money to the seller or agent in a real estate transaction, be prepared not to get it back.” I would use a large US company that provides escrow services so that the money is safe until legal ownership is fully transferred. The Gringo Gazette reported on an incident in 2003 when the owner of Los Cabos Escrow Services fled Mexico with more than $750,000 dollars of U.S. customer’s deposits. When escrow services are provided by US title insurance companies, the funds are deposited in a federally insured depository and can earn interest while held in trust.

Not Purchasing Title Insurance

You could seriously jeopardize your savings if the title you purchase turns out to be fraudulent. There have been several incidents of people trying to sell property on Ejido land, which is community owned land that can not be sold unless it is privatized by the government. Title companies can provide you insurance, often in the form of a contract of indemnity, meaning the title company will take on the liability if the title turns out to be invalid.

Not Buying Property through a Fideicomiso

There are only two options of legally purchasing property within 100 km of international borders or within 50 km of the coast- a fideicomiso or a Mexican corporation. The latter requires that the property be used only for business purposes so the only real option is to have a Mexican bank set up the fideicomiso, a bank trust where the bank technically holds the title but grants the beneficiary full property rights. If someone tells you that you can buy property directly and you are within the restricted zone, then it is likely a scam.

Buying Ejido Land

You can not legally buy ejido land which is land that has been set aside by the government for community use. Mexican citizens living on ejido land can use the land but they cannot sell or lease it. The exception to this is if the ejidatario (inhabitant of the ejido land) undergoes the legal process of converting ejido land into private land, an option made possible by a 1992 Constitutional Amendment. However this process requires jumping through several hoops and an incorrect action could result the property not being properly privatized. Title insurance can insure you if you unknowingly buy ejido land.

Disclaimer: This information is an overview and does not replace the need for a reputable attorney that is experienced in Mexican real estate law when buying property in Mexico.