business-mexico-online.com
As in anywhere in the world, the most important step for real estate investors is ensuring that the real estate they buy is being sold by the legitimate owners, that it has no liens or attachments pending, and that it is not subject to any lawsuits that in Mexico can take years to resolve. The likelihood of such risks is greater when dealing with industrial or commercial properties, but there have been some spectacular cases of established residential developments in which investors have lost their shirts because the developers did not properly transform communal ejido lands into private property. Often the lawsuit on behalf of the members of the ejido drags on for years, while the developer continues building and selling, only to lose the case later and leaving the unwitting buyers with the problem. And just like anywhere else in the world, simple fraud anywhere along the chain of title can leave buyers with big problems instead of the dream homes they looked forward to. So what can buyers—whether of a major industrial or commercial project or a residential home or condominium—do to ensure they are buying what they think they are buying and not just a headache?
In Mexico, real property transfers and liens are recorded in the Public Registry of Property in the state in which the property is located. This is where a “title search” begins. But for a variety of reasons, some information may not be registered in the Public Registry, so sometimes a little further investigation is required. Some of the steps below may seem excessive for some low-risk transactions, but we list them here so all buyers will at least be aware of potential problems.
To be blunt about it, the inefficiencies of the public registry systems in Mexico is the major reason why title insurance, like the type almost universally used in the United States, is not commonly retained in most of Mexico. Title insurance companies have to make exceptions for whatever is not readily available in the public record, and that is precisely where some of the biggest risks lie in a real estate transaction.
In some areas of Mexico, the public registry system is being computerized, which is a great advancement. But some problems persist in most areas that buyers need to be aware of:
- Missing information. It is not uncommon to be researching a property and find that some transactions are simply missing from the public registry, whether because a page or an entire book is “unavailable” (usually meaning “lost”), or because something was not properly registered or the registration was not completed.
You have to dig deeper to be sure the missing information does not contain a bombshell that will come back to haunt the buyer. In one such case involving the purchase of industrial property within an industrial park, we sent lawyers to personally interview any and all witnesses, notaries and other involved parties to try to piece together a series of transactions that were missing from a public registry in a small town in Guanajuato. That´s right, even within an established industrial park buyers should not simply trust that everything in the chain of title was done legally.
- Recording in other locations. We have seen mortgages, attachments and other liens recorded in public registries in other jurisdictions within the state, but not in the registry supposedly having jurisdiction over the particular property. Those registrations could still create a valid lien that could come back to haunt a buyer at some point.
In one purchase of a factory in Guadalajara, Jalisco, we found that some debts were appropriately registered in the Guadalajara Public Registry of Property, but we found other mortgages inscribed in the registries of other nearby municipalities.
- Lien recorded but cancellation not recorded. It is very common that when people pay off a mortgage, they keep their paperwork, but never follow-through to be sure the institution that loaned them the money issues a letter stating that the mortgage or other lien is cancelled, and that this cancellation is recorded in the public registry.
Anytime there is any type of lien on a property—whether it is a mortgage or lawsuit attachment or tax lien or any debt from whatever source—that appears in the public registry, a buyer clearly would want to have its cancellation registered as well. The possible consequence of not having a cancellation of the debt registered is that maybe it was never paid off in full, and the buyer could acquire that liability when taking title to the property.
With the bank nationalizations of 1982, then the reprivatization of banks in 1990, and subsequent economic crises that led to numerous bank mergers and acquisitions, sometimes the bank listed as the mortgage holder no longer even exists, and you have to ensure that the bank that took it over agrees to liquidate the credit listed in the Public Registry. This can be a long, painstaking process, and it is not generally recommended to close the purchase until this is resolved.
- Lawsuit not yet resolved, so nothing to record until a final adjudication is reached. There have been cases of lawsuits that are in the courts for years, and when a final adjudication is made, the property has been bought and sold several times. One of the biggest risks in this regard involves properties that were at one time ejido properties, and were converted to private property before being developed.
The ejido is a legal figure directly from the land reform movement of the Mexican Revolution. Ejidos are communal lands owned by the federal government and worked by members of the ejido community. Because ejido property is owned by the federal government, until it is properly converted into private property, it cannot be transferred (other than it´s “use” or usufruct under the ejido legal structure) or used as a guaranty (lien) or attached by court judgment.
In order to properly convert ejido property to private property, specific legal procedures are required. A full description of those procedures would be long and are not the subject of this report, but suffice it to say that if the procedures are not followed to the letter, a lawsuit could be filed seeking to overturn the privatization. If such a suit is successful, the property would return to the ejido community.
So what a buyer has to do is determine through a title search whether the property or development was ever an ejido. If it was, it would be recommended to search the Agricultural Registry (Registro Agrario) to see if all the proper steps were followed. Additionally any lawsuit regarding an ejido would be inscribed in the Agricultural Registry by the Agricultural Federal Attorney´s Office (Procuraduría Agraria). The problem would come if a prospective buyer only checked the Public Registry of Property, any ejido-related problem would not show up.
One important step for residential properties as well as commercial or industrial properties is to conduct a physical survey of the property to be sure the property boundaries are where you think they are and that no construction crosses those boundaries. We have seen instances in which architects have actually built private homes entirely on the wrong property—and I mean entirely on the wrong lot, not just encroaching another property, but not even close to the correct lot. Surprisingly, we have seen this several times in the last few years, so as unlikely as it seems, and inevitably the architect disappears with the money and there is no one to even sue. So just to be on the safe side, conducting a physical survey of the property is highly recommended to be sure there are no encroachments in any direction.
If you are buying raw land with the idea that maybe in the future you might build, once you take possession, it is a good idea to fence off the property as soon as possible to prevent neighbors from building encroaching structures on your property, and to keep squatters off.
All properties should conduct a search in the local property tax registry (Catastro) to ensure the exact location of the property, tax registry number, size of the property, current registered owners and other information. This information should match the information on the seller´s deed (escritura pública). Some old deeds, however, will only list physical barriers that may not even exist today, or may say the property “boundries with the property owned by Pedro Vargas González [or whatever name]” without any measures or measurable references. So double-checking with Catastro can be important. In many jurisditions Catastro is computerized and in some cities notaries, real estate lawyers or even real estate sales offices may have their own computerized access to Catastro information regarding properties in their area.
In certain historic areas, special construction or remodeling restrictions are imposed on historic buildings. This is common in historic districts of many cities, where the National Institute of Anthropology (known by its acronym in Spanish, INA) must approve certain remodeling and construction projects. Just to name one such city, in the Centro Histórico of the city of Querétaro, for example, you cannot get a construction license from municipal authorities until the INA has approved the project.
In any constructed property you should check to ensure that all building permits were properly issued by municipal or state authorities, but in these historic districts you need to determine whether a special INA approval was necessary, and if so, was obtained for any remodeling project.
Regarding subdivisions or planned developments, you should see the development plan (plan de desarrollo) was approved by local authorities.
You should also be familiar with the internal regulations of the development (reglamento interno), which should be found in the public registry of property as deed restrictions.
And finally, you need to know what zoning is permitted on the property, and determine if what you think you are buying is really permitted under local laws. In many cases the zoning (called uso de suelo in Spanish) in residential areas may be obvious, but for commercial and industrial areas it is not uncommon for businesses to be operating illegally under the wrong zoning. In some cases a business operating under the wrong zoning may qualify to be grandfathered in because it predated the change or implementation of the zoning laws. This has to be investigated before closing the deal.
Obviously, many of the steps listed above would be prohibitively costly for someone looking to invest in a condominium or home in Mexico. These sorts of due-diligence steps would be much more cost-effective in the acquisition of industrial or commercial properties. But the risks exist even for residential properties and the individual buyer should at least be aware of the potential risks so that he or she can determine how much risk to assume.
No comments:
Post a Comment