How to Lose Your Money in Mexico Real Estate
3 July 2008
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9 Comments
By: Charles Sipe
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.
I couldn’t agree more with the advice to get title insurance. As a realtor in the U.S., I advise ALL clients to get title insurance. Nine times out of ten they don’t need it, but that 10th time can be a real killer! And to buy land far away in another jurisdiction, it would be 100 times more valuable. Don’t skip this step.
Regarding the Earnest money deposit.
I am selling a house in Merida from here in the states.
My real estate agent has found a buyer, and told me that he has sent the Earnest money however, has not provided me with a copy of the wire transfer which says that it has arrived.
He has only given me a letter from Intercam stating that it is in the account – no signature.
Is this legal, or should I demand to see a copy of the transfer stating that it is in an earnest money account?
Thanks for your help
[...] If you take these simple steps, you will have almost completely eliminated risk that the government will take your property over an ownership dispute. One word of caution is that the Mexican court system is notoriously slow and widespread corruption has been well documented. This makes getting title insurance even more important. Related Articles Do I Need a Lawyer to Invest in Mexico Real Estate How to Lose Your Money in Mexico Real Estate [...]
[...] How to Lose Your Money in Mexico Real Estate [...]
[...] How to Lose Your Money in Mexico Real Estate [...]
[...] How to Lose Your Money in Mexico Real Estate [...]
The best way to loose money is by putting your clients into a project called La Amada in Playa Mujeres Cancun. this project is getting a really bad name amongst the broker community.
The people handling the commercial side of the project 2 gentlemen by the names of Toni Belles and Sergio Wurth managed to steal hundreds of thousands of dollars from real estate agents worldwide. They would con them by telling them they would get 4 or 6 per cent commisions and after the deal was completed they would pocket all the money and state that the developer already payed the master broker and that they have nothing to do with it any longer.
These kind of situations really do mess up the real estate market as brokers will no longer want to work with projects outisde of the US.
Trump Baja Buyers,
For information on the Class Action Lawsuit against the Trump Baja project contact:
Daniel J. King
Law Offices of Daniel J. King
The Trillium Building
6320 Canoga Avenue, Suite 675
Woodland Hills, California 91367
(818) 587-9299
Worldwide Fax Toll Free (866) 260-2160
Alternate Fax (818) 587-9292
John,
What you are telling us about that project in Cancun is really messed up. I am a broker in Toronto and I met one of the gentlemen you are telling us about; a bald guy that could not really speak much english. He was at a show here late last year and he did seem kind of shady. He told me he would pay me 3 per cent for every sale I made (which I see is less than he was paying others) but since I had never done anything in Mexico before it really scared me. Thank god I never sold anything there!!!
Sorry to hear that story. Those brokers that never got paid should definitely get on their case. That kind of stuff really messes up this industry.
Thanks for the tip!
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