Buying a Home in Mexico Can Be a Dream Come True--or a Nightmare : Real estate: New rules make it easier for foreigners to own property. But some find the cultural and legal differences hard to take.

As in most Mexican villages, the town square here is the center of community life.

What makes this village different is that the greetings and banter at “the garden,” the local name for the square, are often as likely to be in English as in Spanish.

San Miguel de Allende hosts one of a dozen or more large American communities that dot Mexico. Lured by beachfront property or mountain views combined with a low cost of living, hundreds of thousands of U.S. citizens have bought vacation or retirement homes in Mexico.

Recent regulatory changes that make it easier for foreigners to own property in Mexico promise to attract even more Americans.

However, prospective buyers should beware: While many of their countrymen watch sunsets from the terraces of their Mexican homes, others carry picket signs in front of Mexican consulates protesting deals that they consider deceptive.

Seymour Fisher, who has owned a vacation home here for the past seven years, is shocked at the suggestion that buying property in Mexico could be a problem. He bought his house on a hill overlooking the village--sight unseen--and has never regretted the decision.

“For a prudent person, applying a little bit of common sense, it’s a piece of cake,” said the 35-year-old New Yorker.

Investors in Condominios Costa Caribena, an unfinished condominium project in the Caribbean resort of Cancun, disagree.

About 400 investors, mostly Americans, put up a total of $15 million for shares in the project. Four years later, the Spanish developer has left the country and the hurricane-damaged project sits boarded up.

In August, investors picketed Mexican consulates in the United States to pressure the Mexican government into helping them work out an arrangement with Fonatur, the government’s tourism promotion agency.

The Costa Caribena project is only the latest in a series of problems that foreigners have had in their attempts to own vacation or retirement homes in Mexico. One of the first major cases was the late-1960s scam at San Antonio Shores (later renamed San Antonio del Mar), about 15 miles south of Tijuana.

An American-Mexican team of developers there offered 99-year leases on property to foreign investors who put down significant amounts of money. But the leases weren’t legal. For one thing, the property was part of a Mexican communal farm, which could not legally dispose of the land.

Under Mexico’s 1857 constitution, foreigners may not own land within 50 miles of the border or 30 miles of the coast. That provision is a legacy of the American settlers who moved into northern Mexico and then declared their independence--as citizens of Texas.

Later regulations further restricted land ownership, and the only foreigners who could buy even inland property were those who were legal residents of Mexico. To get around the law, foreigners intent on owning Mexican property would put the land in the name of a Mexican, leaving themselves open to fraud and other abuses.

After investors picketed for months in front of the defunct San Antonio del Mar development and Mexican consulates in the United States, the Mexican government offered a solution: Recognizing that many of the problems were created by attempts to circumvent Mexico’s strict laws on property ownership, the government created legal ways for foreigners to acquire land.

Since 1971, foreigners have been allowed to create trusts, administered by a Mexican bank, with themselves as beneficiaries. The trusts own the land, and the foreigners use it. This is the basis on which the San Antonio del Mar case was eventually settled in late 1975 by the Baja California government.

Regulations that went into effect only this summer allow beneficiaries to renew the trusts indefinitely. The same regulations allow all foreigners to buy residential property directly in parts of Mexico not on the coasts or borders. But the trust mechanism is still used for coastal and border property.

Even when no trust is involved, however, longtime foreign residents recommend talking to a local lawyer, especially when new developments are involved. Conflicting land title claims are fairly common in Mexico, and local lawyers are likely to know about them.

They also recommend living in Mexico for a month or two before buying. After all, no government can regulate away the cultural obstacles that face foreigners who retire or spend long vacations in Mexico.

“A lot depends on how well you adapt to strange surroundings and deal with a different culture,” said Thad Major, a 58-year-old bilingual teacher who has owned a home here since 1970 and retired to the area three years ago.

He and his wife, Olivia, have been waiting four years for a telephone. And, at the time he was interviewed recently, Major had been looking for green tomatoes in the markets for two days and was resigned to looking for them for three more.

“I’ll eventually find them,” he said. “But if you can’t deal with that (sort of thing), don’t come.”

Attitude and flexibility are the most important factors in determining whether Americans will enjoy retiring or owning vacation homes in Mexico, he said. The Majors based their estimate of the odds for success on their own experience:

During the three years since they moved to San Miguel de Allende from Oklahoma, the Majors have been host to four other American couples who subsequently decided to retire in Mexico.

One couple stayed a few months and returned to the United States, the husband impatient with the slow pace of village life.

Another started to build their dream home, but after six months of little progress, they gave up and bought a house. They still live in Mexico, as do the other two couples who stayed with the Majors while they house-hunted.

That’s three out of four.

Fisher said adjustment can be difficult in San Miguel de Allende because it is remote, a four-hour train ride from Mexico City. The airport at Leon--more than an hour away--began receiving international flights only recently.

Proximity to the border is one of the major reasons that Ann and Phil Sloss chose Rosarito Beach, about an hour south of Tijuana, for their retirement home six years ago.

Here, they can afford a beachfront home big enough and close enough to California to allow weekend visits from their seven children and their families.

In addition, several developments in the 77-mile stretch from Tijuana to Ensenada offer mortgages, which are almost unheard-of in other parts of Mexico, where people must pay cash for houses. Two of the developers have even registered with the California Real Estate Department, meeting strict disclosure standards that provide potential buyers with important information about their purchases.

By the late 1980s, the Baja California state government estimated, 40,000 foreigners owned vacation or retirement homes in the state. That survey, the most recent available, found that U.S. retirees were living on as little as $500 a month.

However, Baja California homeowners suggest tripling that figure. The tourist boom has significantly increased the cost of living and vacationing there.

Land prices have quadrupled in the past eight years. All along the Baja coast, mobile home parks are being replaced by condominiums with prices up to $250,000 each. Lobster dinners now cost $30 a person or more.

While still generally lower than in California, prices in Baja are high enough to make retirement and vacation homes in other beach communities, such as Guaymas and Puerto Vallarta, more attractive.

It also has added to the allure of inland communities. An estimated 30,000 Americans live at least part of the year in the villages near Lake Chapala, about an hour’s drive from Guadalajara, which has an international airport, a well-known medical school and a large expatriate community of its own.

In the lakeside communities, two-bedroom houses still sell for as little as $55,000, although a home with a view of the lake will easily cost twice that. San Miguel de Allende also offers a broad price range, from $40,000 for a cottage near the community “garden” to well over $350,000 for houses on the hills overlooking the town.

Longtime residents are willing to offer advice that they say will save a lot of disappointments:

“Look for good construction,” Fisher said. “Check the wiring and plumbing.” Residents of the Los Castillos development south of Rosarito Beach were horrified to learn that their beachfront homes, built in the early 1970s, were made of cement mixed with beach sand. The salt in the sand is causing the houses to crumble, residents said.

Find out if there is a telephone. Waiting lists are long, and the bribes it takes to be placed at the head of the waiting list can run $2,000 or more.

Be prepared for delays. Mujica considered herself lucky that her San Miguel de Allende home was finished only four months behind schedule.

Buy a house that is already built, unless you know the developer or can supervise day-to-day construction. The worst vacation-home horror stories involve projects that were never finished.

“Talk to an English-speaking lawyer,” Major said. That is the only way for potential home buyers to know what rights they have and do not have.

That may seem nothing more than common sense. However, as one Sacramento man who owns a condominium near the ill-fated Costa Caribena development said, “Under the influence of the hot sun and a few margaritas, people come down to Mexico and do things they would never do at home.”