In the interior of mexico foreigners can own and hold title in their name. However, the mexican constitution prohibits foreigners from directly owning property (fee simple) within 50 kilometers from all coastlines and 100 kilometers from the border. Foreigners can acquire beach property through a living trustor forming a mexican corporation.

you can buy real estate

Mexico’s coastal and border property law historically remembers that california, colorado, texas, arizona, new mexico and nevada were once northern mexico. Foreigners were allowed to move in and took the land away.

All the benefits and security of ownership

The dream of millions of Americans is to own a home at the beach. The only obstacle for most folks is money. A postage size lot in Southern California, with an ocean view, costs in excess of one million dollars. In Ensenada, a beachfront home and land can be had for less than $350,000.00 – In San Felipe Mexico $450,000.00.

If the beach is not your cup of tea, you can buy a three bedroom two bath home in a middle class Ensenada or San Felipe neighborhood for $65,000.00. I have never seen a better market in twenty years of living in Baja. With zero unemployment and proximity to the border, we are attracting workers from all over Mexico and Latin America. Foreign owned manufacturing (maquiladoras) are spreading to Rosarito, Mexicali, Ensenada and Tecate as Tijuana has become industrially saturated. Tijuana is home to almost one half (1200) of the entire country’s maquiladoras.

Baja is the fastest growing state in Mexico. This is reflected in the lack of rentals available. Consequently, we have a significant increase in U.S. and Canadian citizens buying Baja properties as income-investment as opposed to vacation/retirement. The housing demand has doubled rental prices in the past five years. Historically, the problem for buyers and sellers of property has been the unavailability of credit. After the peso crash of 1995 the banks were broke and had to be bailed out by the government.

The credit situation is turning around as Mexican banks are being bought by foreign banks. Citigroup now owns Mexico’s largest bank – Banamex. Current Interest rates are significantly higher than in the U.S. with Mexican peso mortgages at 12% per annum and dollar loans (U.S. citizens) purchasing Mexican property at about 9% interest per annum. Typical loans are for 70%of value and a term of 20 years.

This is the first time in Mexico’s history that U.S. financial institutions are entering the Mexican mortgage market. This should unleash a wave of new buyers and cause home values to appreciate significantly. Especially since the median age of Baja buyers has dropped significantly. Young working adults find home ownership north of the border prohibitively expensive. Internet communications, allows work to be done from virtual offices on the beach or the desert. Seller financing is still the most common form of home financing, with interest rates and payment schedules that often compare favorably with stateside mortgage contracts.

Baja property – a safe investment?

The safe way to buy property in Baja is a process that is no different (exactly the same) as the process used to assure a safe investment in the United States:

1. Check title and certify property is free of liens at the County Department of Public Records
2. Certify that no property taxes or utility bills are owed
3. Obtain an appraisal on the property by a licensed appraiser.
4. Legally transfer title, pay the applicable taxes, and register the title change in the Department of Public Records.
5. Buy title insurance.

Foreigners, who do not speak Spanish, typically use Mexican lawyers or consultants to complete the due diligence and manage the transfer process. Banks will become involved in the purchase if you are a foreigner wishing to buy a personal residence. If the coastal property is for your personal residence (non commercial use) the law requires a trust. Commercial use by foreigners allows them to purchase property “fee simple” in a 100% foreign owned Mexican Corporation.

Mexican trusts (fideicomiso), provide all the advantages and security of ownership: sell the property to a third party, either foreigner or Mexican, and pass the property rights on to your heirs in perpetuity. You can be assured that the bank will insist on all the proper due diligence. You will not find trust departments in small town banks. In Baja California, most of the banks that have trust departments are located in Tijuana. The only other city that has a trust department is La Paz.

Real estate tips

Don’t invest in property leases. Mexican leases are only valid for ten years, unless it is ejido land (farm cooperative). Ejido leases can be written for a maximum of 30 years. There are so many good investment opportunities for purchase I see no good reason to improve somebody else’s property with your money.

Buy a home already built unless you plan to daily supervise the construction. It is difficult enough to manage a contractor in the States. Add language, cultural and business practice differences and your dream home could become a nightmare. If you do choose to build, ask for foreign client references of contractors, get three competitive bids and create a written contract with the builder you select. Get legal assistance in writing the contract. Notarios are a good option because the contract will be made part of the public record.

NOTARIOS in Mexico are keepers of the public record. Lawyers who give up private practice to assure that all documents that become “public” are done in accordance with proper legal protocol. They are the gatekeepers in the transfer of all property tittles and must sign the title transfer documents before acceptance by the Department of Public Record.

If you buy into a subdivision, don’t pay a developer the full price of your purchase until all subdivision improvements are completed. The state enforcement of obligating developer completion is weak. A civil suit for non infrastructure completion is often the only recourse.

A legally registered homeowner’s association can litigate as a group. Thus reducing the costs to individual homeowners. If a homeowner association exists or is in the process of formation make sure it is a legal entity now or in its formation. An “Associacion Civil” is a non profit corporation under Mexican law that, in a dispute, is guaranteed the same rights of a Mexican citizen. Many homeowner associations in Mexico are formed informally. But without becoming a legal entity, a home owner’s association has no clout. You can be assured that many homeowners will not pay maintenance dues and you can be stuck with a deteriorating subdivision.

Federal Zone Concession Rights – If your beach house is not 20 meters from mean high tide you are on the federal zone and you cannot be there by law without a special concession. The federal zone belongs to the Republic. If the home is on the federal zone make sure that said presence has been approved by SEMARNAP, the agency that governs the federal zone. If the property, either on the federal zone or adjoining the zone, does not have a federal zone concession, apply for it. Prevent someone other than you from buying the concession. If someone else does buy it, they could develop “your beach”.

Apply for an FM-3 resident permit from immigration. If you have property in Mexico you are required to have said documentation. In order to defend yourself in a legal dispute or solicit permits that affect your property you must have an FM-3.

Title insurance cn be purchased any time

Affordable title insurance is a relatively new product in Mexico and worth buying at any time; either during property purchase or years after the fact. Especially after recent events in Rosarito and Ensenada: foreigners and Mexicanos were forced to re-purchase property they had already paid for years before. Some of these properties were in bank trusts”. The bank trust does not insure title protection.

You can buy the same title insurance coverage you purchased on your home in the U.S. in Mexico. According to Robert Calamari, Agent for First American Title: “We have determined that our risk, as underwriters on Mexican property, is not much greater than insuring property in the United States. Assuming the same due diligence standards in researching the property are met”.

As a consultant to foreign investors, throughout the republic of Mexico, I have managed the legal title transfer process in hundreds of real estate acquisitions. To date, not one deal that we managed from the initial contract stage to closing has gone bad. The reason – DUE DILIGENCE.

In assuring safe transfer of title, we follow the same protocol followed by U.S. title companies. Verification that the seller and title holder are one and the same, certification that the property is free of: creditor liens, mechanical liens, tax liens, and utility department liens. Most important, a 50 year study of the property’s history to assure that each transfer of title was done in accordance with federal and state laws.

During my twenty year career in Mexico, I have been asked to intervene in hundreds of deals that were going bad or had already gone bad. The reason-always: A lack of due diligence or the foreign buyer believed Mexicano-Gringo real estate mythology. The myth that foreigners can only lease property or assign it to a “presta nombre” (borrow a name), in which a foreigner buys the property in the name of a Mexican citizen. Risky business to say the least.

Affordable

Title insurance is a wise “value added decision”. Given the horror stories about Mexican real estate in the U.S. press; a future buyer will value the fact that the property is insurable against any future title problems. The value, title protection provides, is greater than the cost to be insured. The cost is 8.00 for every one thousand of property value. On a property worth $100,000.00 you will pay $800.00 to be insured.

Realiable

Title policy conditions, and payment for loss, are the same as those protecting U.S. dirt. And the contract is with a good ole Miami financial institution. The Mexican judicial system has no jurisdiction regarding payout for loss of title. The title policy is a private contract entered into by two parties in the United States. Therefore, any disputes are subject to U.S. courts to resolve.

In a recent insurance industry article, Robert Calamari wrote: “Responding to customer requests, title companies active in the commercial field have all moved forward on the international front. Some have sought to actually expand operations and establish a local presence in certain foreign jurisdictions. Others have developed an ALTA-like product that can be used in any foreign jurisdiction that meets the company’s qualifications. This type of product, as used by our company, keeps the policy solely in the U.S.. A contract of insurance between the insured and insurer. Despite the foreign territory, all litigation regarding coverage is determined in the U.S.. In courts that are familiar with title insurance law”.

About risk, Calamari explains: “Although legal systems and real estate records may be extremely stable and accurate in a given country, it is – for the most part – an unknown landscape for investors. From an entirely different perspective, we have seen lenders venture to jurisdictions they have previously not considered as “safe harbors” once they are aware that a lender’s policy is available. In addition, we have seen the borrowing rate lowered by 7 to 10 basis points when title insurance is used, as opposed to a non-insured loan”.

Baja mercantile and civil law codes recognize escrow – use it

The concept of escrow is not understood by most Mexicanos. It is not understood because it is not part of most of the 38 states’ legal codes. Mexico City, the nation’s centrist capital, is within the State of Mexico. This state does not have escrow specified in the law, therefore, not available without the aid of special bonding and security institutions. The transaction is bonded as opposed to a simple escrow in which a third, uninterested party, holds monies according to buyer and seller instructions.

In Baja California, the concept of escrow is spelled out in both mercantile and civil codes. Its legal description defines a true escrow as we know it in the States.

I am insuring property, I purchased as a foreigner, ten years ago. Why not? It is affordable and will enhance resale value. Most important: My peace of mind, what’s left of it after 20 years in this crazy land.

Mexico Taxes when purchasing a property

Taxes in Mexico

U.S. and Canadian buyers of real estate in Baja California are surprised at how high “closing costs in Mexico” are at the moment of property title transfer. The seller pays almost no taxes for the sale if it is their permanent home and can demonstrate that with utility bills in their name and identification listing the property as their domicile. If it is income property or an unimproved lot, the taxes to the seller are a 26 percent tax (impuestos sobre la renta) of the sales price or property appraisal, whichever is highest. And the buyer pays 4.3% of the sales price. Appraisals are typically one half the sales prices.
Therefore, many sales contracts are written in the Notario’s office that reflects a sales price close to the appraisal and not the actual sales price. To reduce the tax burden, buyer and seller agree to pass the purchase difference “under the table”.

The buyer’s obligation is divided as follows:

Two percent (2%) is the government’s transfer tax. One and three tenths of percent (1.3%) goes to the department of public record as a registry fee and the final (1%) one percent is paid to the Notario. Notario’s are attorneys licensed to be gatekeepers of legal title transfer. They give “faith” (sp. dar fé) that the transaction has satisfied all the legal criteria for a safe transfer of title. In the U.S., this role is played by the escrow officer of the title company insuring the title.

Notarios require the following documents to satisfy the legal requirements for title transfer:

Certifications that no liens, outstanding property taxes or water bills exist. A certification from the planning department that the survey and property appraisal are consistent with property records. In addition to the closing costs listed, the buyer is also expected to pay for a survey of the property and appraisal of value. You can expect an average cost of $500 for these engineer/appraiser services.

Notarios should not be confused with notaries in the states. Notarios are lawyers with at least three years of litigation experience and three years of work assisting a licensed Notario. They must also pass a very tough written examination and agree to give up their litigation practice before given the right to offer their services as Notarios. Notarios can also act as escrow officers in Baja California, escrow is described in both civil and mercantile law in this state. Holding deposits and or payment checks until property search criteria have been met.

I recommend escrow to my clients but Notarios and realtors do not. Realtors often act as the escrow agent. Therefore, they will not recommend a true escrow because they want to use the clients money for the duration of what is typically a two to three month process. However, when there are title irregularities that need be solved, the wait can be a year.

A year is a long time in terms of risk; nasty problems are sometimes the result. Notarios don’t recommend escrow because Mexicanos are not familiar with the escrow process. In Mexico, the buyer accepts a deposit and the balance is due at the time of title transfer.

Unlike property sales taxes, annual property taxes are a real bargain in Mexico. Improved property is actually taxed less than vacant land. The mexican government maintains a philosophy of keeping yearly “prediales” (property taxes) at a low rate to encourage home ownership and improvements that will be taxed at the time of sale. For a $250,000.00 home, annual taxes will typically not exceed $150.00 per year. The low property taxes in Mexico more than compensate for the $500.00 annual bank fee foreigners must pay to maintain a beneficiary family trust on coastal property.
Notarios in Mexico typically become wealthy people by charging 1% of the value for each transaction. Notarios approve: wills, contracts, articles of incorporation, take depositions and approve the transfer of real property. Their income is insured by the fact that the number of notarios is controlled by population census figures. Ensenada has a population of 400,000, including 400 lawyers, and only five notarios.

Mexico capital gain taxes

Notarios in Mexico vary in their interpretation of property transfer requirements and costs. A majority of notarios in Baja California are very conservative in establishing taxes due at the time of sale. They will charge a foreign seller the maximum capital gains tax. Twenty six persent (26%) of profitability. Yet they will only charge a Mexican seller 5% of the sales amount. If a property was purchased for $100,000.00 and sold for $200,000.00 the capital gains tax paid by the foreigner would be $26,000 as opposed to $5,000 (five percent of the sales price).

The argument for charging capital gains is based on a tax law that states that if the property you are selling is not your primary residence then you are subject to the 26% capital gains tax whether the seller is a foreigner or a Mexicano. Conservative notarios believe that a U.S. citizen is a temporary resident by definition. Notarios who are less conservative argue that a foreigner can have his primary residence in Mexico; as long as he or she proves primary residency with an FM-3 immigration document and a light bill or telephone bill of the residence in their name. Our clients pay the 5% at the time of sale as long as it truly was their primary residence.

If a property owner, either a foreigner or Mexican citizen, does not use the property as a primary residence, the sale is subject to the 26% capital gains tax.

In establishing fees for service, notarios are expected to charge 1% of the value of the transaction. Property purchases of “big ticket” homes can accrue Notario fees that are ridiculous. On the sale of a one million dollar property the “standard” notario fee would be $10,000.00. Despite the fact that a transfer of title for a lot selling for a few thousand dollars requires the same amount of time and expertise as a million dollar transaction.
Notarios fail to mention that these fees are in fact negotiable. Our firm saves many clients tens of thousands of dollars by negotiating the notario fee and arguing for a five percent as opposed to a thirty five percent on capital gains.

Despite notarios who bless the title as “clean” and bank trusts for foreign ownership, title is not guaranteed by either entities. Title insurance is the only answer to assuring a safe investment in Mexico. We offer title indemnification on Mexican property insured by First American Title Company. First American escrow services included.

Rosarito Beach, Tijuana and Ensenada Corridor. Baja California, Mexico – October 2005

Baja California ocean front realtors report a boom in property sales to U.S. investors. The reasons: economics (better bang for your buck), tranquility and a better less restricted life style. Changes in Mexico’s foreign investment laws and the institutionalization of properties by U.S. title Insurance companies (First American and Stewart), provides a new confidence among foreign investors. The same title insurance companies, protecting your home in the U.S. protect your home in Mexico.

All this investor’s interest in Baja has spawned a series of seminars that are intended to inform and educate the foreign investor in Baja Mexico on how to do it safely and to secure their investment with title insurance.

On October seventh, eighth and ninth of this year, Baja realtors and developers are presenting a Baja real estate expo. Buyers will find an array of safe investments in Tijuana, Rosarito and Ensenada. Billed as a Baja California Meeting Point (BCMP) the expo is utilizing the slogan “Investing In Baja’s Oceanfront”. The event’s sponsors include realtors, title companies, The Secretary of Tourism of Baja California and the municipal governments of Tijuana, Rosarito and Ensenada.

The objective of this expo is to promote ocean access or ocean front properties for sale in Baja California, located on the “Gold Coast” corridor between Tijuana and Ensenada Mexico.

Rosarito will be the host city for “Baja California Meeting Point” on the eighth and ninth at the Rosarito Beach Hotel. This two day conference and expo is directed at the individual Baja home or lot buyer.

On the seventh, Tijuana will be the host for the Baja California Meeting Point “Investing In Baja’s oceanfront”. This one day is set aside for the macro investor interested in developing: subdivisions, golf coursess, marinas, theme parks, resorts and airports.

Just remember, the last rule of thumb is buy title insurance. It is very affordable and will help you sleep better. If you are interested in Baja real estate you can call us for a free consultation on your investment options.

Mexico Financing

Because of the historic instability of the Mexican peso, mexican real estate mortgages, in the past, have been prohibitively expensive and volatile. Adjustable rate mortgages in Mexico were the only option. And without rate caps, the borrower had little protection against excessive interest rate adjustments.

In 1994, when the peso lost 50% of value, interest rates went through the roof. Developers were hardest hit. Unable to pay the interest increases on construction loans, a huge number of developers and projects folded.

Mexico’s largest developer SIDEC went out of business with hundreds of millions of dollars invested in unfinished subdivisions and resorts. The amount of unpaid real estate loans created a backlog on foreclosures that took years to resolve. Because of unpaid debt, Mexico government had to bail out the banks or face a major financial collapse of mexico.

A better day for financing property purchase has dawned in Mexico. Improved governmental accounting practices, a more transparent federal budgeting process and stricter lending policies, have all helped the peso become a stable currency.

Today, Mexican banks offer twenty year fixed rate mortgages at 90% of value with an interest rate of 12% in pesos. This may sound expensive to U.S. borrowers, but to millions of Mexicans this is a historic “first time” affordable rate. A fixed rate that will not drive them to the poor house in case of peso devaluation.

Foreign Mortgage Capital enters Mexico

The privatization of Mexico’s government owned banks began in the 1980′s under president Salinas de Gortari. Privatization and more liberal foreign investment laws, passed in the mid 1990´s, has led to international ownership of Mexico ‘s major banks. Banamex, the largest Mexican bank was bought by Citicorp; Bancomer, the second largest was bought by Spain ‘s Bilbao Viscaya.

Money lenders

This trend to foreign ownership of Mexican banks, the stable peso and the introduction of title insurance has spawned new confidence in providing affordable long term loans in mexico. Companies like G.E. Capital, Wall Street Associates and Allied Mortgage are threatening to enter the Mexican home loan competition and “talk on the street” is that we may see loans in the 7.5-9% range in the next few months.

Affordable title insurance in mexico at $8.00 for every one thousand invested has made a huge difference in lender confidence. A one half million dollar beach house will cost you a one time insurance payment of $4,000. Foreign buyers in Mexico have learned that they can legally hold beach property in a living trust and now have the added investment security of title insurance with a state side title company (First American, Fidelity, Stewart).

North American: lenders, title companies, and brand name realty franchises are all crossing into Mexico to exploit the advancing tide of U.S. investors. Gringos and Canadians who are completing the dream of a home on the beach or acreage for a horse ranch in Mexico. For most, these are cost prohibitive dreams in their own countries. And now with financing, a more realizable dream than ever.

Some seller’s fFinancing is available on the properties listed here in

www.ensenadarealtors.com and www.ensenada-realestate.com

REAL ESTATE LOANS FOR FOREIGNERS IN MEXICO
(updated march 2007)

A new day has donned for real estate financing in Mexico.  Because of title insurance and friendlier foreign investment laws, Mexican property can be used to collateralize your real estate purchase.

Call us for a broker recomendation to meet your specific needs 619-819-9369

ensenada

Ensenada in the 1960′s and 1970′s was the fastest growing real estate market for Southern California buyers who wanted a vacation or retirement home in Northern Baja .

Beginning in the 1980′s, Rosarito began listening to foreign buyer needs and developing projects that upscale U.S. buyers wanted. North Americans and Canadians requested gated communities with infrastructure guaranteed or already completed. In addition, homeowner association control to insure: garbage collection, common area maintenance, architectural review and security from burglaries.

In the last five to ten years, San Felipe and Rosarito realty companies have successfully exploited the overpriced real estate market in Southern California . Equity in So. California Homes purchased in the last five or more years, has resulted in many homeowners having enough equity to refinance the price of a Baja “second home”. At San Felipe’s El Dorado Ranch, the developer estimates that 46% of their sales are the result of refinancing primary residences in the states.

Also, in the last five years, baby boomers in Baja California enjoyed an additional five billion dollars of discretionary income. This economic growth, coupled with U.S. real estate appreciation, has resulted in a whopping 21% of foreign owners purchasing their Mexican homes via refinancing of stateside properties.

Ensenada real estate has lagged way behind Rosarito real estate and San Felipe real estate in the development of gated communities. At last count we have only three such communities. However, new days are comming to Ensenada: A new mayor (Cesar Mancillas), whose 3 year term started this year(2005), a new planning department and developers now anxious to satisfy the foreign home buyer in Ensenada. Mayor, Cesar Mancillas announced a goal of completing 10,000 housing units this year with features to satisfy the U.S. consumer.

A factor propelling the Ensenada boom is that beach or ocean view properties in Rosarito or Rosarito beach (on average) now exceed $350,000.00. Comparable home prices in Ensenada are thirty to fifty percent less.

Consequently, the major real estate franchises in Rosarito and San Felipe are now opening or planning to open offices this year in Ensenada .

Coldwell Banker, Remax and Realty Executives (2nd office) are opening new offices in Ensenada. Realty Executives and Century Twenty One have a brief but unspectacular history of developing the Ensenada foreign buyer market, primarily due to a lack of inventory, and now Remax Ensenada is entering with some projects and developments.

bus to ensenada

On a recent bus tour, sponsored by Coldwell Banker, two busloads of So. Cal buyers (112 prospects) were transported across the border to review Rosarito housing developments. The agents were surprised to discover that one half of the “buyers” stated they were interested in seeing Ensenada properties. According to Kerry Sims, manager of Baja Relocation: “This is a recent phenomenon, buyers in the past said they wanted to go no further than Bajamar (a gated community 20 minutes North of Ensenada)”.

Construction and home financing is entering a new era for foreigners and Mexicanos alike. In the past, buyers were forced to pay cash or pay expensive seller financing. Since most of the major Mexican banks have been bought by foreigners, credit has loosened considerably. Citicorp, for example, bought the largest Mexican financial institution – BANAMEX.

Mortgage rates from Mexican banks in pesos has dropped to 12% per annum. Given the historical erosion of the peso, in relation to the dollar, many developers claim that (over time) that will be the equivalent of a 5% loan if it were set in dollars.

U.S. title insurance companies, First American, Stewart and Fidelity are now providing affordable title insurance on Mexican properties.

Their new confidence in Mexico was spawned by changes in the foreign investment law; allowing coastal property trusts in perpetuity for foreigners.

Title insurance Mexico has provided the security to motivate foreign financing companies to enter the Baja market using Mexican property as collateral. Financing for two subdivisions in Ensenada were recently approved by Home Capital Funding of San Diego. Also accepting loan applications, for Ensenada developments, are Wall Street Associates and Lender’s Depot.

Given the economic forces spurring Mexican Real Estate sales and internet driven virtual offices that allow business to be conducted from anywhere, the Ensenada boom is a sure bet to accelerate. What are you waiting for? Your dream of a Baja home can come true before retirement. Our advice: don’t wait much longer. If Rosarito is any precedent, Ensenada home prices will probably double in the next three to five years.

The untold secrets where 200 U.S. investors lost $80 million

In a Public Television discussion, former CIA and FBI operatives commented on America’s spy scandals in Punta Banda. The narrator asked a question that I always wanted answered. Why do we need spies anyway? The general response, from the panel, was everybody has secrets. if you know the other guy’s secrets you have an advantage over that individual or country.

This begs the question: why not stop having secrets? Yeah, I know, we have to be realistic. There are some bad boys in the world who want to do us harm etc. etc. etc.. Too bad that man has not evolved beyond these self-fulfilling prophecies that viciously cycle us into counterproductive, aggressive and defensive campaigns.

These spy guys spent their careers with cameras in their bow ties. How could they hold my serious attention? Their discussion about the importance of state secrets sent my mind leaping to Punta Banda and the secrets that betrayed gullible investors.

I had always assumed that all the folks, who lost their homes in Punta Banda, knew at the time of purchase, that the title was in dispute. I believed that because it was common knowledge in Ensenada that the Baja Beach and Tennis Club and the Ejido (farming cooperative that squatted on the land) were being sued by individuals with legally registered title documents. We, in the Spanish speaking business community were amazed that the gringos were buying disputed land in Punta Banda. I told every gringo I could to stay away.

Many bought despite my warnings. Many more, isolated because of language and driving straight from Orange County to the Baja Beach and Tennis Club, did not get “the word”. They did not hang out in Ensenada or converse with Ensenadenses (sp.) about Punta Banda.

The local property owners on the peninsula also had an information booth at Villarino Camp near the turn off to the Beach Club. The sole purpose of this booth was to educate the gringos about the punta banda fraud that was being perpetuated.

All the maps and registries of the owners suing Baja Beach and the Ejido were available for review. Gringos tend to hang out with gringos and obviously the locals did a lousy job of promoting their information. A fact of cultural separation.

The other reason I assumed that all were aware of the litigation is that the law suits were filed in the mid 1980”s. In the late 1980′s, I addressed 150 members of the homeowner’s association regarding the suit. Those that bought, after my presentation, did not get the word or a copy of the meeting minutes that went to all the homeowners within that time frame.

Unfortunately the suit was against the developer and the Ejido, not against the individual homeowners who received no legal notification of same. Lawyers for the homeowners have argued that third party notification should have been respected. It is clearly specified in the Baja California civil code that third parties affected in a law suit be notified. This argument, unfortunately has not prevailed in the courts.

Last year I began receiving e mails and phone calls from Punta Banda victims who have convinced me they did not know about the litigation when they purchased in the early 1990′s. That means that for more than five years the developer kept the secret despite his claims to the contrary. The U.S. sales team kept the secret, the U.S. builder of the homes kept the secret, the U.S. owned real estate office (established for resales) and the homeowner’s association leadership – THEY ALL KEPT THE SECRET.

What was the motivation? Greed maybe? Concern about damaging resale values? I don’t know, but I do know the developer was not the only person who kept the dirty little secret. One of the victims on Punta Banda, who claims she never knew, was a good friend and neighbor of a highly respected retired, Chicano, Los Angeles attorney, 100% fluent in Spanish, who read the demand and response documents.

I spoke with the attorney about the legal problems. He told me he was convinced, after studying both sides to the suit, that the risk to losing his home in Punta Banda was minimal. Why didn’t he share the existence of the suit with his good friend and neighbor?

Rationalization was the driving force in keeping the secret. It was “in everybody’s best interest” to keep it quiet. Too much talk could create a panic and destroy the project’s future. The attorney, like everyone else, lost his home.

The ugliest secret, is the damage the developer did to the environment. It was a time in Mexico when you could do anything you wanted with enough money to bribe officials. The developer was able to rape the landscape while officials and investors ignored horrible environmental devastation in Ensenada Bay.

He bulldozed precious sand dunes in a “protected” bird nesting sanctuary. These dunes formed food chain imperative lagoons. Habitats for critters vital to maintaining a variety of birds and sea life in the precious and delicate Ensenada Bay and wetlands.

His filling and changing the topography of wetlands destroyed the estuary ghost shrimp specie that formerly thrived in the Punta Estero waterways. Shrimp fisherman both locals and tourists had savored this delicacy for hundreds of years without destroying the population. Mr. Terán and company obliterated the population in less than one year of bulldozing and filling of wetlands

It was later learned that no permits were ever issued to develop the estuary. When PANISTA Governor Ernesto Ruffo took office, as the first opposition party governor to be elected in the nation, the project’s encroachment on the estuary was halted. Officials were finally ordered to do their job. Unfortunately too late to save the lagoons, dunes and habitat that were destroyed forever.

This miserable secret was also kept by many of the early buyers at Baja Beach. I asked Lee Zaremba, a spokesman for the homeowner’s association, what he thought about the destruction of the environment. He had regaled me with stories about playing in the estuary, as a small boy, when it was absolutely pristine. His response was typical and yes – logical: “They are going to do this development with or without me. I love this area and always have, I want to spend the rest of my life enjoying it the best I can”. It hasn’t been too many grins for Lee and I’m sorry for him, his family and neighbors.

Secrets – They pit nation against nation. Secrets in a marriage cause divorce and emotional scarring of children. Insider secrets often cause some investors to gain from the losses of others. Unfortunately, many folks banked their life’s savings on a mean spirited, avaricious and greedy secret called Punta Banda. Shame on you, if you helped keep the secret.

Baja Surf Beach

Remote Baja fishing villages in baja, are offering outrageously great real estate bargains for those who have proven themselves to be “good people”.

Anywhere from 90 to 250 kilometers of tire busting bad roads separate these villages from the narrow paved highway that runs from Tijuana to Los Cabos. There is an old Baja saying: “Bad roads, good people, good roads, bad people”. Many pioneering surfers and fisherman (“del norte”) have frequented these remote fishing camps (some as early as the fifties, but most since the seventies) and proven themselves to be “good people” among the natives”.

They have made lifelong friends of fishermen whose parents or grandparents homesteaded these lands, and established baja fishing cooperatives in the first half of the 20 th century. These friendships are now paying dividends in buying newly regulated government land at ridiculously low prices.

The scenario goes like this: Fishermen established camps that grew into 200 to 500 person fishing cooperatives. The Mexican government granted them regional fishing and diving concessions for exploiting specific types of fisheries.

These cooperative camps were on land owned by the government, since no other ownership existed. The cooperatives paid no property taxes and received no government support for infrastructure. They generate their own electricity and many have desalinization plants. Fresh water in Baja is always scarce.

Now the municipalities want to provide services to these villages and of course collect property taxes. The government is providing deeds to the homesteaded properties at no cost, other than small processing fees. The government is also offering the lands surrounding these inhabited parcels at very low prices. In Punta Abre Ojos beach lots were sold for as little as six thousand dollars.

The campos are always on high ground, away from storms that blast beach properties. Only “gringo locos” want to live on the beach. But the Mexicano homestead beneficiary is solely eligible to buy these beach lots in baja directly from the government (foreign buyers excluded). As a result, many local fishermen have gone to their gringo surfer or fishing friends with an offer to be their “presta nombre” (borrow a name). An expression to denote a foreigner using a Mexican national to buy property reserved for citizens.

Once the Mexicano receives title he can legally sell the newly “regularized” land to a foreigner, utilizing a mexican bank trust. Mexican property trusts for foreigners provide all the benefits of ownership.

In Punta Abre Ojos, a great surfing, windsurfing and fishing location, many locals sold to their gringo friends without making a dime on the deal. These are noble and simple folk who place friendship ahead of economic gain.

In San Juanico ( Scorpion Bay ), rated as being among the top ten surf spots in the world, hundreds of surfers are buying acre to two acre lots on the ocean for $50,000.00. The sellers are the newly privatized ejidos (farming cooperative). Punta Chivato, on the Sea of Cortez , north of Mulege (fishing-windsurfing), ditto the above accept that prices are much higher in Chivato.

The problem with purchasing large parcels on coastal Mexicano land is that it is illegal for foreigners to do so. The regulations of exterior relations, who issues bank trust permits to foreigners, is not allowing property bank trusts for more than 2000 square meters, a little less than one half acre. These living trusts provide foreigners with all the security and rights of ownership in perpetuity. You can sell the land, rent it or pass it on to your heirs. Many foreigners are ““buying” properties without benefit of legal registries. A very bad and risky decision. Another example of leaving brains at the border.

Large parcels of land can be owned by foreigners in a Mexican corporation that is wholly foreign owned with the intention of doing business. The costs to do so are about the same as a bank trust but a professional consultant or attorney should be consulted in order to transfer property legally and safely into a foreign owned Mexican corporation We always advise our clients to seek title insurance in order to safeguard their investment. First America, Fidelity and Stewart Title companies are very active and anxious to sell you title insurance in Mexico . It is a “sleep soundly at night” at affordable rates: Eight dollars per one thousand invested. Therefore, a $200,000. property would cost a one time title insurance fee of $1600.

San Felipe, Baja California

Five thousand Rancho El Dorado lessees received an early Christmas gift from Pat Butler in San Felipe, Baja California’s largest developer. The foreign retiree/vacationers would have lost their leases, and the homes thereon, in the year 2020 if not for Mr. Butler’s ethics and generosity. A large percentage of these beautifully built straw bale homes are valued in six figures.

Mr. Butler bought the development rights and leases for El Dorado Ranch (San Felipe) from the National Pen Company. They had an agreement with the largest farming cooperative (sp. Ejido) in Baja California; it is also the nation’s second largest ejido. This acquisition has made U.S. – Mexico investment history. Closing a deal with 214 ejido families to purchase an enormous property is a first for a U.S. developer. The land now belongs, and is duly registered, to Butler’s Mexican corporation, Ranchos Epoca de Oro.

El Dorado Ranch can now sell these lots and the remaining property to foreigners in the form of a living trust or mexicans. The Mexican constitution does not permit foreigners to own coastal land “fee simple”. However, the bank trust provides all the benefits of ownership in exchange for a fiduciary fee of $350-500 per year. El Dorado properties are also insured by Stewart Title.

Lease renewal

We received numerous calls and e mails from client lessees at Rancho El Dorado. Worried and confused by the change in their baja property investment status. The following were the concerns expressed.

1. I was promised a lease renewal at the end of the lease period at no cost,. Now they want to charge me.
2. They want me to pay them (El Dorado) the property taxes. Why can’t I pay taxes directly to the government?
3. El Dorado is going to control the master bank trust, the paying of taxes, security-maintenance and services of the subdivision. What is to prevent them from charging me excessively for these services in the future?…
4. Why are we changing to a new 50 year lease? Why can’t I continue with the 20 year lease at no annual charge?. Confusion regarding the trust – It is not a lease: 50 years and renewable in perpetuity. Property transfers to your heirs at the time of death.
5. El Dorado is rushing me to judgment. If I do not pay the $3,750 in November, my costs to establish a trust will rise to six thousand dollars.

Pat Butler has always been accessible to MEXICO MATTERS..and our inquiries were immediately responded to with copies of contracts for purchase of a bank trust.

To say we were more than happy to assure investors would be a gross understatement. Not only is the property legally ready for transfer of title, the costs to do so are half the average costs for establishing a bank trust. For $3,700 investors are converting a lease, terminating in seventeen years, to a secure property trust. El Dorado Ranch had the legal right to let the leases expire. In seventeen years, El Dorado would be the lucky new owners of thousands of luxury homes paid for by the lessees.

The cost increase for not signing the property transfer documents in November is understandable to our consulting group. Mobilizing and coordinating expensive legal talent for the transfer of title is a costly process. Transportation costs, hourly legal fees for fiduciaries and notarios plus administrative staff time doubles with each re-scheduling of property transfer signing dates. I

In answer to the concern about El Dorado controlling a master trust, the reason is simple and in the best interests of the investors. If all 5000 were to contract for individual trusts their costs would exceed six thousand dollars per property: engineering fees, legal fees, bank fees and foreign investment registries. As Mr. Butler expressed to us “There are not enough notarios (attorneys who are keepers of the public record) in Mexicali to process 5000 trusts in a reasonable time frame. It would take years to complete the transfers”.

El Dorado will not deny an individual property owner from securing their own individual trust, they have that option. Aside from the additional time, trouble and costs there are no benefits to an individual trust. Under the master trust, a trust beneficiary may sell the property to another foreigner and a new trust is established for the buyer. The new trust will no longer be part of the existing master trust. If the buyer is a Mexican national the property will be registered directly to the Mexicano and the property trust of the seller dissolved. .

The concern that El; Dorado Ranch will raise homeowner fees and dues excessively is a risk homeowners have in any “gated community. The evidence indicates that Rancho El Dorado has not charged excessively to date; -why would that change? As for property taxes, El Dorado will demonstrate to property owners that these taxes have in fact been paid to the government. Property taxes are very low in Mexico and should not be a major burden to investors.

Frankly, we as foreign investment consultants, are quite amazed that Mr. Butler is being so generous in “rolling over” these leases without realizing some financial gain for El Dorado. The $3,700 costs are just that. Costs to pay the bank, the notario and government fees. The conversion to lease usually involves a significant payment to the owner lessor. In a similar situation, in Cabo San Lucas, lease to purchase is costing investors fifty to one hundred thousand dollars for the privilege.

We want to thank and congratulate Mr. Butler and El Dorado Ranch. They deserve the success they have achieved. As one, very happy, El Dorado resident explained it “Mr. Butler has made a heavy investment in infrastructure and services. It is a much more comfortable place to live as a result. Also important, resales around my home are proof that my property has doubled in value.”

Most media reports about foreigners and Mexican real estate are horror stories. Foreign real estate investment in Mexico is still suffering from the fraud of Punta Banda where 200 families were evicted from their luxury beach homes in Ensenada. El Dorado is such a positive story that it will likely receive little or no media attention North of the border

Story of Punta Banda Ensenada Baja California – Reflections on punta banda, who screw who?.

Since the Punta Banda debacle, just south of Ensenada, in which numerous Americans were evicted from their luxury beach homes, my U.S. friends and family members ask: “Did you lose your property in Punta Banda?” Hell no, is my response. Do you think I have been spending the last seventeen years of buying and selling property for foreigners in Mexico to lose my own property due to legal problems?

I really get annoyed at the question that implies I might be stupid enough to buy property whose title is not legally secure. It is not just ego that causes my annoyance. I have never had much credibility with my family anyway. What is most annoying is the assumption that buying any property in Mexico is risky.

waste of money

Most of the Punta Banda buyers knew the property was in litigation when they bought it. When I relay that fact to skeptics, they look at me incredulously. Not convinced that it was a case of “leaving your brains at the border”. I vainly attempt to convince Mexico detractors that property laws do exist in this country. Laws that will protect your investment if you follow them.

In 1986, I addressed 150 members of the homeowners association that were evicted. My presentation was intent on convincing them that their law suit was doomed. I had done the due diligence on this property in 1984 and realized that the duly registered and legal owners of the property were their adversaries in the law suit.

The farming cooperative (ejidos), representing themselves as the legal owners, aligned themselves with the developer. Unfortunately these ejido members were really squatters. My advice was to negotiate a settlement with the legal title holders. However, their lawyer’s convinced them to litigate. Their lawyers earned large fees in taking the case “all the way” to the Mexican Supreme Court.

When I tout Mexican Real Estate to my friends their facial expressions reflect a look that says: “Sure, Jose, I remember your Berkeley lifestyle in the 60′s, your brain is fried”. I persist in explaining that I have successfully purchased properties throughout Baja California and Baja California Sur for more than 200 different foreign families or foreign owned Mexican corporations. Yes you can own your beach home risk free with a bank trust or a Mexican corporation. Despite my proof sources most U.S. citizens hold fast to a “I don’t trust Mexico” position.

The negative media barrage about Punta Banda, and other negative press, has damaged my consulting practice, foreign investment and tourism in Mexico. Unfortunate that a greedy developer, dirt poor peasants and buyers wanting to believe what was too good to be true, caused so much distrust for Mexican foreign investment. Avarice had a lot more to do with this tragedy than corruption in Mexico. The con man always uses greed to get your money. These upper middle class folks from Orange County could not believe what a “steal” these beach properties were at 45 to 175 thousand dollars, depending upon when they purchased.

They created a buying and new home construction frenzy propelled by the developers U.S. marketing team who spoke no Spanish and knew nothing about Mexico, let alone real estate property law. That is correct, gringos sold gringos, Mexican sales people were not welcome on the sales team. In addition to new lot sales, U.S. citizens ran the two major construction companies, who built the majority of beach homes. A Punta Banda real estate office was opened to handle resales as gringos began buying multiple lots for speculation and building condos for rental income purposes. You guessed it, the realtor handling resales and property management was a U.S. realtor. Did Mexico screw these buyers or did their countrymen?

Now you know the whole story. So come on down and take advantage of great beach property bargains. If you are planning in retire in Punta Banda or you found a house in Punta Banda for Sale and want to know if is it safe?, we will tell you how to do it safely. If you don’t believe us ask Chicago Title, Steward Title, First America Title, they can provide your title insurance.

What can go wrong? The answer – everything. However, with competent counsel, a real estate sale in Mexico can be as safe as one in the United States. Understanding Mexican property law can safeguard the investment.

The primary cause of Mexican real estate transactions going bad is that the legal process is not followed or all of the steps in the process not adhered to. This “loose” approach to property title transfer is not exclusive to foreign buyers. Mexicanos also get stung by private contracts that go wrong when property is purchased in a careless fashion.

The best way to assure title and your purchase of a Mexico Coastal property is to enlist the aid of a Mexican bank to establish a Bank Trust. The Mexican constitution limits the form of foreign coastal property ownership. Foreigners must purchase coastal property via a bank trust.

The bank trust (sp. fideicomiso) is similar to a living trust in the United States. Property transfers from the Mexican seller to the bank who places the property in trust. The buyer is the primary beneficiary of the trust and lists the heirs who continue the trust after the primary beneficiary’s death. Heirs name their heirs and the trust remains in perpetuity with each new generation naming their heirs. Trust renewals are required every fifty years.

MAJOR PROPERTY PURCHASE BLUNDERS

presta nombre

The most extreme example of foreigners recklessly investing, without legal protection, is the “PRESTA NOMBRE“, translated – borrow a name. A Mexican “fronts” for the foreigner and holds the title in his name to avoid the laws of foreign real estate ownership. Prior to the 1973 formation of the fideicomiso (bank trust) this was a common method for foreigner’s to posess coastal or border properties in Mexico other than leasing property.

The risk is incredibly high in this situation, even with documents that guarantee the foreigner recompense for property titled to a Presta Nombre. The parties in a Presta Nombre are breaking the law. Committing fraud against the state. Therefore, unprotected from non compliance to an agreement intended to subvert Mexico’s foreign investment laws. Many beautiful homes, hotels, commercial and industrial properties were acquired by Mexican families as a result of a Presta Nombre backfire.

The “amigo” who agrees to hold a Presta Nombre sometimes aint and ends up the benefactor of an illegal act. In other instances the amigo truly is your amigo but he dies and his kids are not interested in your amigoship. Or the third uncontrollable risk: your amigo’s bank takes the property for his defaulting on a loan.

I have seen all of the above happen, and more, in Presta Nombre arrangements. Thank god and ex presidents of Mexico Echeverria and Salinas that it is no longer necessary to use a Presta Nombre for property acquisition in Mexico.

PROPERTY LEASES IN MEXICO

leases in mexico

Thousands of Baja California property owners have invested in home construction, some in the tens of thousands of dollars, while others in the hundreds of thousands, in what they think is a legally binding 30 year lease. Mexican law clearly stipulates that residential leases are valid for ten years and no more. The exception are 30 year Ejido leases, discussed below. If it is not stipulated otherwise in the lease contract, improvements to the property belong to the lessor at the end of ten years. Property improvements are also the lessors in U.S. leases unless otherwise stipulated.

The typical leases I see of 10 years with renewals are usually not written to defraud the foreign investor. Mexican property owners, as well as their foreign lessees, believe that ten year lease contracts with renewal options are valid and most are renewed by honorable lessors. However, the lessors death, credit problems or sale to a third party does not obligate the new owner(s) to honor the unenforceable renewal options.

Most Mexican landowners and Ejidos (Farming Cooperatives) who lease land to foreigners are simple, noble people. Rural folks who care about their reputations in a small community they will never leave. They believe in keeping their word, including promised lease renewals. However, problems often arise on the anniversary of the first ten years.

The law dictates that a ten year renewal must be treated as a new lease. Therefore, the lessor can set the new lease price at any figure he deems fair. What the landlord thinks is fair is often disagreeable to the lessee, but too bad. The lessee need not hire a lawyer who says he can litigate a better lease renewal. I have seen this happen repeatedly: five thousand dollars later (that always seems to be the magic figure), and repeated unreturned phone calls, the lessee is $5,000 poorer. Worse, he must now negotiate with an angry landlord whom he threatened with litigation.

I have seen a dozen cases that followed the preceding scenario. I have negotiated for over a thousand gringos in Baja California with homes, on somebody else’s land, starting at $40,000 in improvements to the most expensive home at about one million dollars. Typically, the lessee ends up paying about the same amount requested by the landlord with or without hiring a lawyer..

Recent liberalization and privatization of Ejido lands (farming co-ops) has permitted Ejidos to sell their lands to foreigners in trust or enter into joint ventures with investors for acricultural, indurstrial, vacation or retirement home use. Ejido leases can be written for 30 years. But why lease? The purchasing of property in a trust or 100% foreign owned Mexican corporation, eliminates the need to improve land belonging to someone else.