Mexico Real Estate Law
Live Your Dreams without
Risking Your Financial Assets
In Mexico the real estate industry is unregulated. Real estate agents are not licensed. Anyone can open a real estate office and sell real.
When you are interested in investing in the Riviera Maya or Costa Maya, one of the first decisions you will have to make is the decision who to trust. Without any personal or professional contacts within the local business community, you'll tend to rely on information that you hear from other newly arrived foreigners. They may or may not be accurate in their understanding of the law and its current application.
The other most readily available source of information to you is the real estate agent. Many real estate agents are highly ethical, knowledgeable and experienced professionals. Others, sadly, are not. These agents have been known to provide inaccurate information just to make the sale.
Compounding the problem is that the law in Mexico is in a constant state of flux in response to national and international politics and policies, and particularly as a result of relationships with the United States. This can, and frequently does, affect the manner that the laws are applied to any group of foreign nationals.
One also cannot fail to understand the crucially important historical context of the land ownership laws in Mexico. To see your land purchase transaction in a vacuum is to fail to understand the constantly changing policies that should be shaping your decision making process.
Things You May Find Surprising
About the Real Estate Legal Process in Mexico
There are No Standardized
Real Estate Forms
Far more of these contracts are unenforceable than are enforceable.
In a typical transaction, the real estate agent shows the property to the purchaser explains the legal process and land ownership laws to the client. Because the real estate industry has no standards, the agent may, or may not, actually understand the laws and the documents that they provide the purchaser.
Should the purchaser decide to buy the land, the agent will provide a "Purchase Offer" or letter agreement which has been pre-written, usually by the real estate agent. The buyer will be expected to make a sizable deposit at the time they sign this letter.
The real estate agent will also most likely be the person who introduces you to the attorney who will close the transaction. Because the agent, attorney and seller usually work closely together on a daily basis, the foreign purchaser must recognize the reality of their relationship and understand that they are outside the relationship.
We, at Folsom, have seen many, many of these contracts that are written in a fashion that could never be enforced in a court of law, that do not adequately address the return of the purchaser's fund, or that contain clauses that with enormous consequences for the client.
For example, in a contract written by a Cancun real estate agent, the agent included a clause that required the purchaser to pay the real estate agent's commission fee of 6% of the total sales price, before the agent even made the offer to purchase! Since the custom is for the seller to pay the agent, it is highly likely that the agent had already increased the price of the property, over what the seller was asking, to include the agent's commission, thus ensuring double payment of the real estate agent.
Choosing an Agent
In Mexico the real estate industry is unregulated. Real estate agents are not licensed, are not regulated, and are not monitored. Anyone can sell real estate and anyone can open a real estate office.
Although there are many professional, well-educated and well-intentioned, real estate agents in the Mexican real estate market, because the real estate industry is so very lucrative, hundreds of people are flocking to the industry without any real understanding of the business, of proper business protocol, or ethical standards. Many good articles have been published on the internet about the hazards of purchasing real estate in an area where the industry is unregulated.
We, at Folsom, would encourage you to research those articles before coming to Mexico if you are considering making a real estate purchase. It will be your responsibility to determine which, of the many real estate agents that are available to you, falls into the first category of professionalism, and which merely want to make the sale.
Interview Potential Agents
This may or may not be easy to determine. We would encourage you to interview a potential agent rather than choosing the agent based on a particular property that he or she may have. When interviewing the agent ask how long they have been in the business and what type of education or training they have.
Although being new to the industry should not in and of itself disqualify an agent, you should verify his or her statements of law. For example, many agents are taught to tell their clients that the best way to hold Mexican property is in corporate form. If you talk with the agent about that statement, chances are good that you will find they can't fully discuss the matter because they simply do not understand it.
Don't Let Anyone Isolate You
Be aware of whether the agent is trying to isolate you from outside sources of information. If the agent does not encourage you to talk to your Mexico attorney of choice, or to obtain other verification of their statements of market value and law, we would encourage you to continue looking for the correct agent.
You are not the Real Estate Agent's Client
Generally speaking, the agent has an agreement with the seller or developer and will be paid by that person when the transaction closes.
There are thousands of beautiful properties along the Riviera Maya, and all over Mexico. Don't make the mistake of entering into an Offer to Purchase for the first property that you see without first determining whether it is a sound legal transaction.
You will find that in Mexico there are no typical real estate transactions. As a U.S. citizen, you are accustomed to land transactions that are heavily regulated. This means that standard form contracts have been scrutinized by state and local governments and pre-approved by the courts and therefore may be relied upon and presumed sound. When you do business in Mexico you my be expecting the same security, but unless you have your own legal representation, nothing could be farther from the truth.
Pick Your Best Representation
Choosing Your Mexico Attorney
Unlike in the United States, in Mexico it is not common to see independent attorneys representing both sides in a sales transaction. That doesn't mean that you are forced to enter into your transaction without being represented by someone on your side, but it does mean that most people will assume that is what you will do.
Because the attorney for the transaction is, more times than not, chosen by the seller or real estate agent, the foreign purchaser must take precautions to ensure that their interests are being protected by the attorney. It is obvious that the choice of Mexican attorney could not be more crucial. Folsom represented a U.S. purchaser of beach property south of Playa del Carmen where upon review of the deed, it was discovered that the attorney who drafted the deed named himself as the successor to the property after the death of the purchaser!
Due to the very competitive nature of the real estate market along the Riviera Maya, there is a growing tendency among real estate offices and title insurance companies to offer, "one-stop shopping", meaning that they provide the legal work necessary to transfer title. While this may or may not be the right decision for you, we would encourage you to make that decision from a position of knowledge and understanding and not just accept a recommendation.
In Mexico, Attorneys and Real Estate Professionals are Not Held to the Same Standards that We Have in the U.S.
Here, once you sign a document, whether it is a tax form or land deed prepared by hired professionals, you are responsible for its content.
There is no legal accountability here and unethical professionals frequently hide behind the knowledge that if something goes wrong, there will be no repercussions for them.
Land transactions, particularly in the south of Quintana Roo, are ripe with intentional fraud and unintentional misrepresentation. The areas south of Tulum around Mahahual and the Sian Ka'an Biosphere are known to have some of the most highly litigated title problems in the country. This is due to various reasons: the historical land recordation system, the close connection to ejido and national lands, the unregulated land transaction industry, and to the naivety of the real estate purchaser in a fever pitch market. To repeat, your choice of attorney could not be more crucial.
Hire a Mexico Attorney
4 Questions You Need To Ask
Before Hiring Your Mexico Attorney
You need to know what it is that they are going to do for the price that is quoted.
- Are they going to get an independent investigation of the transaction and a thorough legal analysis of all relevant aspects of your purchase?
- Are they going to get independent verification of clean title and other relevant governmental documents?
- Are they going to fix any problems that may exist in the paperwork?
- Do they maintain contact with the court system and other relevant governmental agencies so that they understand the current applications of, and changes to, the law?
U.S. Mexico Attorney
Don't Risk Ten Dollars
Just to Save a Dime
You need an attorney who will bring accountability to an otherwise unaccountable process.
Too much is at stake. If you are not able to afford to determine whether your land purchase transaction is a sound one, then perhaps you should continue to shop for a property that allows you absolute certainty that the legal transaction is secure.
There are so many wonderful properties available, if you are not sure that the legal transaction is up to your standards, do not go through with the purchase. You will find another incredible property. The best purchase is the one with the sound legal transaction.
One way to begin a search for Mexican counsel is to contact the local Consular Agent in the jurisdiction where the transaction is taking place. A list of all consular Agents and their respective jurisdictions can be obtained through the U.S. Embassy in Mexico City
The local consular agency should provide a referral list of attorneys in the area. However, care should be taken to determine whether the local consular agent has actual knowledge of the caliber of work preformed by the attorney. Inquiry should be made whether there is any criteria for an attorney to be listed with the consular agency.
It is important not to retain counsel just because he or she speaks English. Too frequently, foreigners select an incompetent or unethical professional just because he or she is the first contact in Mexico who speaks English. In fact, many Mexican attorneys and real estate agents speak English.
It is advisable to obtain several references from people with whom the attorney has worked in the past. When interviewing attorneys and their references, be sure to weigh their responses carefully and consider cultural differences. For example, beware of professionals who appear to be anticipating the "right" answer, or telling the client what he/she wants to hear. It is best to find an attorney who is willing to admit that they don't know all the answers and will have to research an unfamiliar question. This is the professional who is willing to be totally honest with you. Additional questions to keep in mind are as follows:
Do you know the attorneys personally? How did you end up in their office? Do you have references? Can you speak to them? Do you understand Spanish/do they speak English? If they are speaking to you in English, are you very sure they understand what you are telling or asking them? Did they listen to you and fully understand your questions and answer them completely? Did they take the time to explain the documents needed for the transaction? Did they explain the typical clauses of the contracts? Did they explain the entire procedure? Did they give you a detailed list of the closing costs? Are you paying any of the transfer taxes? Did they explain the long-term effects of reporting a sale price in the contract that is less than the price actually paid? Did they explain possible tax saving mechanisms? Do you know what must be done to finalize the transfer? Did you discuss the possible options for taking title to the property? Did you discuss inclusion of succession language? These are merely a few of the more obvious considerations that come to mind when one chooses an attorney in a different country.
Not All Property Can Be Sold
We, at Folsom, work closely with nationally and locally recognized experts of ejido law. Our local affiliates are professionals who have worked, for over ten years, within the individual ejido groups which comprise a staggering amount of the Yucatan Peninsula.
Ejido property is land that belongs to the federal government that has been granted to indigenous people for use. Because it is a government grant, it cannot be sold.
Certain sectors of ejido property have been designated by law as reserved for growth. If the ejido has undergone proper procedure, those areas can be privatized and sold with good, clean title.
This privatization process is currently underway in many parts of Quintana Roo and particularly on the Riviera Maya. It is, however, and historically has been, one of the areas most subject to abuse causing clouds on many, many titles along the southern parts of the Carribean coast.
Mexican law governing ejido and national lands is one of the most specialized areas of law. Few Mexican professionals understand it and it is frequently confused with the notarial system, which has no jurisdiction over it. Any purchase of ejido properties or land that was once ejido or national lands must be carefully scrutinized by an expert in ejido and national properties.
Call Us For a Consultation
Call us before you need us.