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Paradise Lost : Americans Sue Mexico Bank Over Land Deal

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TIMES STAFF WRITER

Don and Carole Moore of Poway, Calif., just wanted a place in the Mexican sun, and thought they had found it when they laid eyes on a beautiful beachfront lot 10 miles south of here. So they forked over $250,000 in cash for a dream house and looked forward to a retirement punctuated by surf and sea gulls.

But things have gone horribly wrong for the Moores and 150 other Americans--most from Southern California--who invested in the Baja Beach and Tennis Club, a residential-resort enclave built by Ensenada developer Carlos Teran del Rio.

Trouble was, Teran didn’t own the land he built on. Legal title to the two-mile sand spit jutting out into a scenic estuary had been in dispute since 1973. Finally in June, a Mexicali tribunal sided with the original owners. Now the Americans face possible eviction from their homes and complete loss of their combined $20-million investment.

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Mexican officials last week confirmed local media reports that Teran was arrested and detained briefly in August on fraud charges. (He did not return phone calls to his Ensenada residence.) But that offers little comfort to Don Moore, who stands to lose his nest egg.

“How do I feel? Stupid,” said Moore, 73, a former General Dynamics space engineer who bought into the development in 1989. “And just fed up with thinking about this day and night for all these years.”

They wouldn’t be the first Americans to lose their shirts in Mexican real estate, but the victims in this latest cautionary tale may be the first to seek redress from Bancomer, Mexico’s second-largest bank. The Moores and 11 others have sued Bancomer, claiming fraud, misrepresentation and deceptive practices by the parent firm.

Bancomer, through its Los Angeles office, acted as trustee for the now-worthless 30-year ground leases acquired by the homeowners, according to investors attorney Hardy Thomas of Los Angeles. He said the bank “did know or should have known” that the property was in litigation, adding that it was obligated to inform the Moores and the other investors of the potential problem.

The bank contests the lawsuit and said in papers filed in Los Angeles County Superior Court that homeowners were not damaged by “any act or omission” by the bank. Bancomer attorney Charles E. Patterson of Los Angeles declined to comment. The bank is seeking to have the case thrown out of Los Angeles, arguing that jurisdiction belongs to Mexico.

Experts in Mexican law say the role of banks acting as trustees for ground leases is murky at best--like much of real estate law south of the border--and that they may carry less fiduciary responsibility than when foreigners buy Mexican land outright.

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In any event, the plight of these Baja investors is hardly unique. Large numbers of Americans have lost money in Mexican houses, condominiums and time-shares because of unscrupulous or fraudulent Mexican developers and American marketers. Investors can also blame their own carelessness and naive visions of what owning property in Mexico is all about.

“Thousands of people have been affected by these disasters,” said Jorge Vargas, a University of San Diego law professor who teaches Mexican law. “We are used to doing things in a certain way, and when we go to Mexico we discover a completely different world.”

Over the last 15 years, hordes of Americans have bought what they thought were pieces of paradise in Cancun, Puerto Vallarta, Baja, Acapulco and other tourist spots, drawn by an affordable lifestyle and low prices for beachfront property.

But investors who run into problems soon find out that the safeguards that help resolve real estate disputes on the U.S. side of the border, such as title insurance and county recorder’s offices, are virtually absent in Mexico. Their only recourse is often the labyrinthine Mexican judicial system, where foreigners are at a big disadvantage. The U.S. Embassy is usually powerless to intervene.

“In Mexico, they really don’t have recording statutes or a good way of learning what the status of title is on land,” said John C. Condas, an Irvine real estate attorney and a lecturer at the USC School of Business Administration. “Until the underlying system of real estate law is modernized and Americanized, there are going to be problems.”

Many property owners who claim they were bilked have formed associations to apply pressure on both sides of the border. About 275 investors in the never-completed Dunas condominium project in Cancun petitioned former Mexican President Carlos Salinas de Gortari, U.S. Sen. Paul Simon (D-Ill.) and Mexico’s ambassador to the United States for help in prodding the developer--all to no avail.

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“Our members lost $12 million because the development was stopped by the government. The builder was using shoddy materials and building on property that didn’t belong to him,” said Dorothy Bringe, a Chicago investor. “That was in 1987. At this point we don’t even want the property. We want our money.”

Many of the Mexican developers market in the United States, and Bancomer has advertised its services as a trustee in U.S. magazines. But the advertisements can lull investors into a false sense of security, said Ruben Smith, a Newport Beach attorney who specializes in Mexican law.

“Since 1992, Mexican developments marketing here have not even had to register their properties with the state Department of Real Estate, which adds an element of risk,” Smith said. Previously, registration with the state forced the Mexican developers to make certain financial disclosures that were helpful to investors, he said.

Foreigners are forbidden to buy Mexican land within 50 miles of the ocean, so the Mexican government in 1972 set up the fideicomisos system whereby foreigners could lease land close to the ocean for up to 30 years and then build. The system requires the involvement of a fiduciary institution such as a bank, which acts as a go-between to hold the land lease in trust.

The Moores and several others said they understood that Bancomer was involved in the fideicomiso and felt secure about the transactions.

“We had heard the horror stories. No way would we have gotten involved without a respected institution like Bancomer handling the transaction,” Moore said.

But attorney Smith said that in his experience, the banks involved in fideicomisos “don’t guarantee anything. They don’t go out and investigate the title. They don’t give you any kind of title insurance or do any type of due diligence. The fact that a bank trust is involved should not give anyone the comfort that there is no problem.”

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Experts advise foreign investors to do their own investigation of Mexican property before making the investment plunge by contacting the notario publico , or public notary, of the Mexican locality in question. In Mexico, public notaries are attorneys who investigate land title and draw up deeds to property. And they are the ones to turn to in determining whether land is in dispute.

U.S. investors who don’t speak Spanish well enough to deal with public notaries should hire a Mexican attorney through a referral from an American lawyer, Smith said.

But it’s too late for Baja Beach and Tennis Club investors to take those precautions. Since the June decision came down from the Mexicali tribunal, they have been informed by the property’s true landowners that they expect unspecified financial settlement from homeowners to remain on the property.

Eviction is likely for those who say they won’t pay, and even those who could afford to say they are likely to refuse because of ongoing maintenance and other problems with the housing development.

Nelly Mendoza of Ensenada, whose family was one of seven Mexican litigants who regained rights to the property, declined to say what payments they would demand.

“I’m not allowed to say anything to that effect. That’s for my attorney. But I can say that finally justice has come to Mexico after 23 years. We never thought we could get the land back. I know these people were taken by fraud, but it isn’t my responsibility.”

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Ken Hoff, a retired Alhambra schoolteacher who invested $65,000 cash in a house on land that belongs to Mendoza, does not yet know how much more he would have to pay to keep his house.

Embittered, he no longer wants to live out his days here.

“I want to get this resolved and move on to something else,” he said.

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