Mexico’s Foreign Investment Law
In 1993, Mexico enacted the Foreign Investment Law (the FIL) liberalizing land ownership for foreigners in Mexico. The FIL (as amended) and its regulations dictate how foreign investors may acquire land in Mexico. If the real estate is not within the Restricted Zone, foreigners can obtain permission to acquire direct ownership of the property by simply notifying the SRE of their agreement to abide by the Calvo Clause. There are a few types of real estate (e.g. agricultural lands) that have specific rules, which are not covered by this article.
For real estate within the Restricted Zone used for non-residential activities (i.e. tourism, real estate development, commercial or industrial purposes), foreigners may acquire the land through a 100% foreign-owned Mexican legal entity (a Mexican corporation or limited liability company) that is authorized to have foreign ownership by the SRE and whose bylaws contain the Calvo Clause. If the land is located within the Restricted Zone and is used for residential purposes, foreigners may only acquire the rights to use and enjoy the land through a Fideicomiso, but may not acquire an outright title to it. Any disputes as to whether property lies within the Restricted Zone are reviewed and resolved by the SRE.

Residential versus Non-residential
Article 5 of the 1998 regulations to the FIL lists some activities that will be considered non-residential. These include those:
1. subject to a time share;
2. intended for some industrial, commercial or tourism activity, and which may be used simultaneously for residential purposes;
3. acquired by credit institutions, financial brokers, and credit auxiliary organizations, repossessed to recoup debts in their favor;
4. used by legal entities to fulfill social objectives that may consist in the transfer, urbanization, construction, and all other activities inherent in the development of real estate projects until they are commercialized or sold to third parties; and
5. real estate assets used for commercial, industrial, agricultural, livestock, fishing, forestry uses, and for rendering of services.

Characteristics of the Fideicomiso
As stated above, buyers purchasing real estate in the Restricted Zone for residential purposes must purchase through a Fideicomiso. As detailed in Article 381 of the General Law of Commercial Paper and Credit Operations (the “LGTOC”), the seller (the “Grantor”) transfers title to the real estate to a Mexican financial institution (the “Trustee”) in trust to be used for the purposes designated by the grantor, for the benefit of the buyer, or the person(s) or entity(ies) designated by the buyer (the “Beneficiary or Beneficiaries”). While the LGTOC provides the general legal framework, parties to any Fideicomiso agreement are free to negotiate most of the terms and conditions of the agreement.

The Grantor
The Grantor transfers title to the real estate to the Trustee to be held in trust for the benefit of the Beneficiary(ies) under the Fideicomiso agreement. The agreement should expressly state that the Fideicomiso is irrevocable and that the seller reserves no rights. Otherwise, the Grantor might retain some rights under the Fideicomiso during or upon expiration of its term.

The Trustee
The Trustee administers the Fideicomiso as fiduciary for the Beneficiaries, and is responsible for carrying out the terms of the agreement. In Mexico, only authorized Mexican financial institutions can act as Trustees. The Trustee can resign only for good cause, and then only after a Mexican judge has confirmed that good cause exists. The Trustee cannot do anything with the property other than what is allowed by the agreement. The Trustee is liable for loss or damage suffered by the Beneficiary as a result of the Trustee’s negligence.

The Buyer/Beneficiary
The buyer typically is the Beneficiary of the Trust. However, the buyer may designate other Beneficiaries. In fact, we recommend that the Fideicomiso agreement provide for substitute Beneficiaries, so that if the initial Beneficiary dies, the right to use and enjoy the real estate will pass to the substitutes without the need for probate. Those rights generally include the ability to use, rent, or improve the property, cause its sale or transfer, and, in general, undertake, with the Trustee’s participation, all the activities performed by any real estate owner.

Fideicomiso Agreement, Registration, and Costs
As stated, the parties can negotiate most of the terms and conditions of the Fideicomiso agreement. The Trustee must obtain a permit from the SRE to acquire the real estate in trust if the Beneficiaries are foreigners. The Fideicomiso agreement must be executed before a Mexican notary, who will register it in the Public Registry of Property. While the costs of establishing a Fideicomiso and closing on the acquisition vary depending on the value of the property, the Trustee, and the location of the real estate, costs range from 5% to 10% of the purchase price. Typical costs include the fee to obtain a certificate of no liens, appraisal fee, notary fees, and real estate transfer tax which, depending on the State, ranges from 2% to 4% of the appraised value of the property. The Trustee also charges annual fees, which may range from $300 to $2,000, and additional fees in the event of a later transfer.

Steps to Closing
Other than the fact that the buyer is purchasing through a Fideicomiso, the purchase transaction is essentially the same as any other real estate transaction in Mexico. The buyer must make sure that:
1. the seller holds valid, unencumbered title to the real estate;
2. there are no taxes due on, or liens attached to, the property;
3. the terms of the sale are evidenced by a written purchase contract or promissory contract if money is paid in advance of closing;
4. the Fideicomiso agreement correctly describes the terms negotiated with the seller and the bank;
5. the buyer obtains a certificate of no liens;
6. the buyer obtains title insurance (such insurance may be obtained from Stewart Title Guaranty Company, First American Title Insurance, Chicago Title, to name a few); ‘
7. the buyer obtains an appraisal of the real estate;
8. the SRE issues a permit for the Fideicomiso;
9. the Fideicomiso Agreement, which is incorporated into the escritura or deed, provides appropriate protections to the buyer; and
10. the escritura/deed is registered in the Public Registry of Property.
Term/Termination of the Fideicomiso
The maximum initial term of a Fideicomiso is 50 years, which may be extended upon application to the SRE. Upon the termination of the Fideicomiso (and provided that the Grantor reserved no rights under the agreement), the real estate will be transferred to the person designated by the Beneficiary, provided that person is qualified to acquire the title (e.g., that the transferee is not a foreign national or entity that cannot acquire real estate in the Restricted Zone).

Closing
While purchasing real estate through a Fideicomiso may seem complicated, the process should not be an impediment to purchasing your dream beach house. Fideicomisos have been tried and tested over time. There is an enormous amount of foreign investment flowing into Mexico now through foreign residential real estate purchases in the Restricted Zone. The Mexican government does not want to lose this source of foreign investments. In fact, it is likely that the process will get easier in the future.
In the meantime, as long as you are patient and obtain competent counsel, you should have confidence in the Fideicomiso structure.

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Building? Initial Paperwork and Procedures

Once you’ve purchased the land on which you’ll be building, and you have an architectural project and initial quote, then you need to obtain the following:
First you need a Building Permit. To obtain it, you need to show the design blueprints for the ground floor and other levels, transverse views and façade, structural blueprints containing all pertinent calculations, signed by the responsible authorized Expert (Perito), a copy of the title deed for the property, registration into the Public Property Registry carried out by a Notary Public, copy of the application with Official Number and Alignment and a position diagram showing its location on the street and pertinent side streets. The Permit Office will calculate the surface area to be built upon. The payment made is based on a fixed price per square meter of construction. You may begin construction once the application has been submitted even though the permit has not yet been granted. If for some reason the permit is not granted, then construction must be halted until it can be achieved. Otherwise you will incur in penalty fees and/or the closure of the site with subsequent fees and consequences. Normally, the procedure takes between 15 and 30 days, depending on the complexity of the project.

To begin building, you must first request a water source and drainage. This should be applied for at the local water and drainage offices. Connections could take more or less time depending on existing infrastructure disposable in the area. At the same time, you should request electricity for the property, at the CFE, the Federal Electricity Commission. You can apply for either 110 or 220 V, as the case may be.

Generally, you would build a storeroom for materials and to house the night watchman. It’s usually made of wood and cardboard, easily built and eventually discarded.

The land should be cleared of all plants and weeds. The upper layer, called the plant layer, must be removed because it contains organic matter. It’s usually about 8 in. deep. Once the property is cleared, then the surface should be filled, compacted, and leveled or terraces or levels should be made when necessary. In some cases, retaining walls are needed and should be built to delimit the leveled areas. Depending on the size, this job can be done either manually or mechanically. The filling process should be in layers with wetting in between to obtain the degree of compaction and hardness required. Mechanical testing is carried out on the soil to determine its condition and not run any stability-related risks.

Once that’s been completed, then the property is delineated, usually in chalk or lime, showing the lines that will define the building, and the location of the joints and foundation. These are dug out and compacted once again so as to contain the mortar infrastructure, some 2 in. thick. The hole must be wider than the joints and foundation so as to allow for the wooden framework. The mortar infrastructure will receive the rod iron framework for the base and joints of the foundation. The specifications should be contained in the structural and foundation blueprints: diameter, aperture, splices, joints and steel ties. This structure is raised to a height that allows the concrete to penetrate to the depth indicated in the blueprints. A common mistake is to leave them at the base. There are specialized bases or you can simply use stone.

Once the structure is made, then you proceed with the wooden boxes that will define the width and height of the bases and joints. The wooden framework is larger than the structure itself so the latter will be completely covered by the concrete poured over it.

The concrete pouring can be contracted out to concrete suppliers to get the best homogeneity or it can be done in smaller amounts. For the latter, you need small revolvers or cement mixers running on electricity or gasoline. The proper ratio of cement to gravel to sand must be strictly maintained to obtain consistent quality in the concrete produced. The quality will affect its hardness and resistance. There are tables that can be used to ensure the proper proportions.

So by now, I’ve taken you to the point where you have the necessary documentation and the foundations required.
–
By Miguel Angel Vazquez

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Within the Bay of Banderas, (from Cabo Corrientes to Punta de Mita) we still have a great percentage of this type of land possession. New developments are being built on regularized Ejido land and many more hotels, houses, condominiums and even golf courses are being planned for development. Part of the Bay economy is flourishing thanks to the regulation changes made to the Farm Act which allows the sale of Ejido Rights and/or transformation from Ejido Land to private property.

Foreigners cannot acquire rights to Ejido land
As you may know, due to article 27 of the Mexican Constitution, a foreigner cannot acquire direct ownership of land in the restricted zone. Private property needs to be placed in a bank trust in order for a foreigner to own rights to real estate in México. This is how non-Mexicans can purchase property in Puerto Vallarta, all other Mexican beach destinations and the country’s frontiers.

“La Nueva Ley Agraria”, The New Farm Act (NFA) of 1992, establishes that the “ejidatarios” Ejido members can sell their land rights to other members or to other individuals already living in the Ejido community “avecindados”, but they must be Mexicans. In other words, the Farm Act does not allow foreigners or even companies to acquire rights of Ejido property. The act does establish that the Ejido community can participate, in the form of a formal mercantile corporation, in the development of projects that will benefit the community.

In my opinion, it is encouraging that the government has implemented several programs to transform Ejido Land to private property, especially since many Ejido sales -to foreigners- are made on a daily basis, most commonly in the southern and northern parts of the Bay.

Times have changed and we can no longer have absurd restrictions such as the “Restricted Zone” which only prevents investment from coming into the country.

Later on I will describe the “Regularización” process” which is transforming Ejido Land to Private Property”.

HISTORY
Our independence from Spain did not change the way most Mexicans lived and worked the land. In 1810, the principal financial promoters of independence, were a few wealthy Mexican families who conditioned the support for such a movement to keeping most of their rights, including large extensions of land. This event led to the creation of “latifundios” (large extensions of land owned by one person). This situation was one of the factors that later led to the “Revolución”, Civil War of 1910-1919.

One Revolution motto was “Tierra y Libertad” , Land and Freedom.

According to Dr. Isaias Rivera, The concept of Ejido comes from Spain, where the “Spanish Ejido” was the land, outside the town, used for recreation for the community, and “Dahesa” was the land, also located outside the town, and used by farmers to feed their cattle. Both were for collective use and were not subject to privatization. The idea was adopted in México by President Alvaro Obregon (1920-1924) who supported this concept in his Ley de Ejidos, the Ejido Act.

The first Mexican Farm Act was the Ley Agraria of January 6th 1915. In 1934, the act was made a constitutional guarantee.

The Act was reformed many times but in 1992, the government realized that what had worked eight decades ago was no longer feasible since the Ejido members were leasing their farmland, they were selling their properties, and signing contracts that were illegal. Those contracts created many legal problems for farmers. That year, Mexican legislators approved the Nueva Ley Agraria, New Farm Act.

According to the NFA and article 27 paragraph VII of the Mexican Constitution, Ejido is a Juridical person. It is set up so that it can represent itself (Board) and has its own patrimony (Land).

In order to make it somewhat more understandable, I will compare Ejido to “a corporation”. The Ejido supreme authority is the General Assembly; also like a corporation, there is a Board of Directors “Comisariado Ejidal” and a Vigilant Committee “Consejo de Vigilancia”.

The General assembly approves the Ejido By-Laws; accepts or authorizes new Ejido members, elects the board of directors and the Vigilant Committee, approves business contracts with third parties, authorizes termination of the Ejido regime, etc.,

The board of directors is in charge of administration of the Ejido and also represents the Community in the judicial and fee-collecting matters, inter alia.

According to the new act, the Ejido land is divided as follows:
I.- Land for human settlement.
II.- Common land.
III.- Farmland.

The land for human settlement is the most important part of the Ejido community. It is the demographic concentration of the community homes, streets, parks, public services, etc. It also includes schools, and land for sports, industry and cultural activities.

The General Ejido Assembly, with the cooperation of the municipal authorities and following the norms established by the Secretary of development and public services, will define, locate, divide and record the land for human settlement.

When an Ejido is formed, its members will have the right to acquire for free, a Solar, which is a lot within the Ejido land that is or can be private property.

The size of the solar will be established by the Ejido General Assembly. The National Farm Registry Registro Nacional Agrario will provide title for the solares. The owners can sell, rent, lease, donate or dispose of their solares almost without any limitations.

The Ejido community and Ejido members can make contracts providing for the use of the common land or farmland, respectively. The contracts will last no longer than 30 years. The use of the land -not the land- can even be used as a collateral for bank loans.

When an Ejido community is illegally dispossessed of its land or water (rivers, lakes, etc) it can appeal to the Procuraduria Agraria or Tribunal Agrario Court for farmers, to reclaim what was illegally taken.

Common Land is also protected against liens, illegal sales, and illegal acquisitions. The general assembly can provide the use of the land and resources (water, wood, minerals) to associations and corporations, when it is beneficial to most Ejido members or the entire community.

The Ejidatarios, as I mentioned before, can provide the use of their farmland to other people. They can even sell their Ejido rights to other members or avecindados.

The sales contract must be in writing and signed in front of 2 witness. A notice shall be sent to the National Farm Registry, which will issue the new Ejido certificates. The Ejido board of directors shall sign and register the transaction. The spouse and children of the Ejido member are entitled to a portion of the benefits, and if they are not legally notified of the sale, the sales contract could be annulled.

The Ejido General Assembly, in order to avoid irregular occupation of the land shall define a settlement plan.

REGULARIZACIÓN
There are two ways to make Ejido land Private property, PROCEDE and CORETT.

1.- PROCEDE (Programa de Certificación de Derechos Ejidales y Titulación de Solares) is described in the new farm law of 1992. It’s purpose is to prevent irregular settlements in Ejido Land. Article 47 of the regulation of the New Farm Act states that the Ejido General Assembly is responsible for defining the use of the common land, authorize the change of the farm land to settlement land and authorize the Ejido members to acquire full ownership of their farm land.

PROCEDE involves the work of approximately 6 Secretariats. It is approximately a 10 step program.

2.- CORETT. In 1993, the government proposed a second plan called CORETT, (Comisión para la Regularización de la Tenecia de la Tierra), Committee for the transformation of Ejido land to Private Property. Since the plan seemed to work, it was fully implemented in 1995. The purpose of this plan is to regulate all the illegal settlements made before the new law. This applies only to settlement and farmland within or adjacent to a city. The plan provides full ownership of the land to a person.

The basic duties of CORETT are:

1.- Regulate the ownership of the land in the Ejido town.
2.- Promote the incorporation of the regulated land to the cities.
3.- Issue public deed and ownership titles.
4.- Prepare the expropriation request of the Ejido and communal property, etc.,
They will always hear any recommendations or opinions given by the town authorities.

CORETT will request the following documents when an Ejido land possessor wants to regulate his property:

1.- Original of Ejido rights certificate,
2.- Certified copy of birth certificate.
3.- Electricity, water or property tax payment receipt, and
4.- Copy of the Ejido description of the lot.

CORETT VALLARTA has regulated almost 60% of the Ejido property in the Vallarta Area.

In order for CORETT to start working on the regulation of the land, a formal request has to be made by the Ejido board of directors, such request needs to be approved by the General Ejido Assembly following the rules in article 24 of the Farm Act. CORETT will study the request to regulate the land and propose how the regulation can be accomplished. If the proposed request is accepted, another Secretariat will then request expropriation of the Ejido Land and make a symbolic sale to the actual possessors.

At this time, CORETT can issue a deed to a lot of no more than 5000 square meters. The minimum size of a lot is 90 square meters. If the lot is larger or smaller than the above, the city should authorize such deed.

This is a general and informative background as to how the Ejido is organized. My purpose is to give all people who have an interest in Ejido Land a wider understanding of this unique, important and complex real estate regime.

Lic. Alejandro Niño Merino
Member of the Mexican Real Estate Professionals Association, AMPI-VALLARTA.

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The Latin Notary System was set up so that notaries could offer security and legal validity and function as legal advisers. The members of the Latin Notary System are lawyers who have been granted the power to act as qualified witnesses to the degree that when they exercise these powers the state grants legal certainty to all actions carried out in their presence. These actions are valid in any court or legal process. A notary’s primary mission is to avoid legal conflicts resulting in long and tedious legal proceedings (similar to preventive medicine specialists whose mission is try to avoid disease).

Latin notary services are in no way equivalent to the system established in the United States, Great Britain or Canada. Those systems are not set up to foresee or avoid future legal problems. The sole function of the English “Notary Public” is to certify that a certain “John Doe” signed a document. There is no profession in the United States or Canada that could be considered equivalent to the Latin-American Notary. The only conflict prevention assurance that can be obtained in those countries is through the signatures of each party’s lawyer on a specific document. The only function these two professions share is that they can certify a declaration and a signature. The American Notary carries no responsibility as to the content of a document, since they do not write them. They are not lawyers and so cannot function as legal advisors. A Notary Public in the U.S. or Canada may not have any legal background since their sole function is just to certify that the person appearing before them is in fact the person who signs the document.

The Latin Notary System is established in all or almost all continental European countries (Spain, France, Switzerland, Germany, Italy, Belgium, etc.), some Asian countries such as China, Japan and Singapore, all Latin American countries and the Province of Quebec in Canada. It is in the process of being accredited in certain American states such as Louisiana and Florida. There are a total of seventy-seven countries affiliated to the International Union of Notaries, based in Rome, Italy.

German Goldman S.
Principal Notary
NOTARIA DIEZ DEMARCACION UNO
Boulevard de Nayarit 70-Desps. 4 y 5. Villa 5
Nuevo Vallarta, B.B. Nay. MEXICO (63732)
Tels: 011 52 322 2970022

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The relevance inherent in the development of Mexican coastlines is undeniable. There have been huge investments impacting the country’s economy and the creation of thousands of jobs. These are just two of the most important effects produced by real estate developments, marinas, hotels, condominiums and luxury homes on the coast.

Therefore, it is essential that investors understand the laws that govern these coastal areas. They are essential, because the legal consequences stemming from such laws will have a direct impact on any real estate purchase or sale and will affect any piece of property from the planning phase onward. An informed legal outlook will allow the investor to exert his/her rights as foreseen by law, but a faulty outlook will produce sanctions, penalty fees, closures and even criminal lawsuits.

HOW IS THE MEXICAN COAST ORGANIZED AND WHAT ARE ITS MAIN ACTIVITIES?
There are 17 coastal states and 167 counties that border the sea. There is a population of about 15 million inhabitants. There are about 8,600 miles of Mexican coastline where developments, hotels, condominiums, villas, marinas are built and operating. Additionally, there are many more in the planning phase. Most of the activities are related to marine sports, especially in tourist ports. However, there are also areas where the maritime industry, like shrimp fisheries, flourish. There are also conservation areas to protect wild life.

SO, WHAT IS THE MARITIME FEDERAL ZONE?
This area is considered public domain owned by the federal government. It includes any islands and a 65-foot strip of passable, continuous, dry land. When beaches are present, this measurement begins at the highest registered high tide mark. In terms of rivers, the federal zone is measured from the mouth to 300 feet upriver. Lagoons (permanent water deposits connected to the ocean), and estuaries (bodies of water permanently fed by the sea) are also considered federal zones 20 meters from greatest reservoir registered or from the high tide mark.

The federal maritime zone is federal public domain because it is considered to be “within the area of national property which the government controls according to public law, so that its use and enjoyment can be regulated, and its conservation and rational use can be ensured” (according to Administrative Law by Rafael I. Martinez Morales, p.82). The idea of encompassing federal maritime zones within public domain property is to protect them and maintain the ecology. This idea is shared by Professors Delgadillo and Lucero in their Administrative Law Compendium, where they state that, “this idea adopts a conservationist position considering that the ecological aspect is not expressly recognized. However, all protectionist or guardianship of such persists through time within the legislation.” It seems like society, although largely unaware of such, has tried to preserve areas of historical importance by sheer self-conservation instinct.

Lic. Alejandro Flores Von Borstel
Basilio Badillo 417 Col. Emiliano Zapata
Tel. (322) 223 0708

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NAME-LENDERS AND THE SUPPOSEDLY IRREVOCABLE POWER-OF-ATTORNEY

I’m frequently uncovering powers of attorney given by national citizens in favor of foreigners so the proxies can buy or sell real estate. Thankfully, however, this practice has decreased substantially. Today’s commentary will focus on foreign proxies, although this topic is also applicable to national ones as well.

In the case of foreign proxies, the power of attorney is granted through “name-lenders”, Mexican people who are trusted enough by the foreigner to put their name on their property. This supposedly allows the foreigners to feel certain that their interests are protected properly. However, there is nothing farther from the truth, even though they have probably been advised by my fellow notaries (at least by the one that formalized the action) or by a real estate agent anxious to close a deal and get the commission. Truthfully, these fraudulent activities are instruments used to hide acts or contracts that may or may not be valid, to carry out the purchase or sale of real estate in restricted areas or areas protected by community property laws (ejidos), or actions that seek to avoid the fulfillment of fiscal responsibilities or formalize the action by way of a trust. Let me underline this concept: these actions are illegal and there are diverse penalties that will come to bear as a consequence to such.

Such power-of-attorney documents contain an almost holy legend that loosely translates to: “are of irrevocable nature since they are granted for the fulfillment of bilateral obligations or contracts”. What they don’t specify however, is the obligation or contract to which they refer, since if they did, the illicit nature of the granting of such a power would be obvious. So, since they are subject to that condition without explaining its nature, the irrevocability as such becomes very doubtful.

In my personal opinion, these powers can be revoked by the grantor whenever and however he/she wants it done. Let me explain:

The power-of-attorney contract necessarily implies a degree of trust between the grantor and the attorney and according to our legal codes, these powers can be revoked whenever the grantor so decides. As an exception to the rule, the irrevocable nature of such is only maintained when they are carried out to fulfill an obligation as stated above.

Aside from the danger represented by the revocable nature of these powers, I’ll be talking later on about the consequences to the proxy/purchasers in the case the “name-lender” should pass away or be subject to any sort of seizure of property due to debts.

So my advice is to think twice before using this “name-lender” concept that has become such an institution on the Nayarit and Jalisco coast.

German Goldman S.
Principal Notary
NOTARIA DIEZ DEMARCACION UNO
Boulevard de Nayarit 70-Desps. 4 y 5. Villa 5
Nuevo Vallarta, B.B. Nay. MEXICO (63732)
Tels: 011 52 322 2970022

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