Mexico Risky for American ‘Landowners’
Monica Erickson and her family have owned land north of Mazatlan on Mexico’s Pacific coast for 30 years--or have they?
Although they say they have the deed to 1,600 acres of property, the Mexican government is now telling them the document is worthless, that the property in fact belongs to an ejido, or a communal landholder group.
Erickson, a Los Angeles financial analyst, has had little success trying to sort out the mess: She gets conflicting advice from her attorney in Mexico and, unlike in cases involving U.S. real estate disputes, cannot turn to a county recorder, title insurance or subdivision maps to clarify the issues. Those resources do not exist in Mexico, at least not in the sense they do in the United States.
“It’s been a total nightmare, trying to get anything done or get straight answers,” said Erickson, whose father bought the property in 1972.
Her attorney, Mario Valdez of Mazatlan, said the property is ripe for a takeover because it is not being developed. That lack of development, to Erickson’s surprise, makes it vulnerable to confiscation under Mexican agrarian law.
Her predicament illustrates the problems many U.S. residents face in Mexico, troubles that are increasing with the rising number of Americans residing there. They now number as many as 600,000, according to the U.S. Embassy in Mexico City. Of those, about 70,000 are thought to live in Baja California.
The cases also point up the shortcomings and lack of openness in Mexico’s legal system, a huge underlying problem for Mexico that scares off foreign investment in all sectors of the economy.
The potential for trouble was brought home this week by the looming evictions of up to 200 U.S. residents from a beachfront subdivision on the Punta Banda peninsula, just south of Ensenada in Baja California. The American residents, many of them retirees, thought they had taken all the right precautions. But now they could each end up losing hundreds of thousands of dollars’ worth of property and, in some cases, their life savings and only homes.
By most accounts, instances in which U.S. property owners in Mexico are defrauded or lose their property because of carelessness, overzealousness or lack of common sense are relatively few. But property disputes happen frequently enough--and recourse is sufficiently limited--that U.S. attorneys representing clients in issues south of the border stress “let the buyer beware.”
Title problems are especially rife in developments built on ejido lands or, in Erickson’s case, property being claimed by an ejido. These communal landholder groups, set up a century ago to foster land redistribution to peasants and Indians, are beset by legal challenges--from within by their own members and from outside by original landowners whose property has been confiscated and given to the ejidos.
“The Ensenada case is not isolated. There are often title problems down there,” said Scott Turner, an attorney with Cox, Castle & Nicholson in Irvine and a former California Department of Real Estate official. “Americans who buy property in Mexico are accustomed to U.S. consumer protections and don’t understand the risks there.”
Jorge A. Vargas, a professor at the University of San Diego School of Law, said Americans often are lulled into a false sense of security by the proximity of Mexican property in Baja California to the United States and, sometimes, by a willful obliviousness to the risks of investing in any foreign country.
“We go there and see a beachfront house for $50,000 and think, ‘Let’s buy it,’ despite the obstacles, the deficiencies and one of the most obsolete systems of recording and registering real estate there is,” Vargas said.
The first thing foreigners need to know is that they are forbidden by the Mexican Constitution from owning land outright within 20 miles of the ocean or 35 miles from the U.S. border; they can only lease such land.
There are no restrictions on foreign purchase of land in the Mexican interior, but other dangers lurk throughout the country.
Mexico lacks the equivalent of a county recorder’s office, the central clearing site for real estate title information in the United States and where ownership is registered and all liens and outside claims must be publicly listed. Subdivision maps, which in California are strictly regulated by state law and which lay out precise property boundaries, are the exception, not the rule, in Mexico.
Title insurance, which in the United States protects property owners against outside title claims, exists only in certain areas of Mexico and typically does not apply in cases of government confiscations or those involving ejido lands.
“The ejidos have problems of all kinds, so the title companies stay away from them,” Turner said.
Ron Greek, an Irvine-based investor in a 60-unit residential development in Cabo San Lucas called Villa Serena, said his development has not encountered any problems, even though it was built on ejido land.
“We have had no challenges and we are doing fine,” said Greek, who recommended doing property transactions when possible through a fideicomiso, or bank trust.
But even buyers who seemingly take all possible precautions can end up heartbroken, like Sharon McCall.
In 1988, McCall bought a house in the ill-fated Punta Banda development as a retirement home for her father. She closed the deal through a fideicomiso, in which Bancomer, Mexico’s second-largest bank, held the title in trust after signing the documents and issuing a mortgage loan.
Only later did McCall and other Punta Banda residents learn that the ejido that was leasing the land to the Punta Banda developer was itself involved in litigation with the owners from whom the land had been originally taken in 1973 to set up the ejido. Finally, in 1995, Mexican courts ruled the ejido’s claim invalid, setting in motion the eviction notices that came down this week.
McCall and 11 other property owners in the development sued Bancomer, which in 1998 agreed to a $1-million settlement. Sources say that barely covered legal fees and recovered only a fraction of their real estate losses. She remains bitter about the experience, a feeling exacerbated by the realization that the U.S. government is powerless to intervene.
“To those thinking about buying property [in Mexico], I would say without hesitation, rent. Because then you can pick up and leave. Never, ever invest,” McCall said.
Other U.S. residents also find out first-hand about the lack of use and planning restrictions in Mexico, which can seriously diminish the value of their investment, if not wipe it out entirely.
John Lange of Los Angeles and about 100 other Americans who own homes worth up to $1 million each in the Cabo Bello development north of Cabo San Lucas were dismayed last year to find a high-density, multifamily apartment project going up next door, despite assurances that the area was designated strictly for “resort development.”
Even where deals by Americans have been trouble-free, the Punta Banda case and other controversies have further stigmatized Mexican real estate investment.
“It’s the reincarnation of the [old] fears that people had about doing business in Mexico that seemed to have dissipated, but which are now coming back,” said Greek, the Irvine investor. “Reinstated in everyone’s mind is, what you have may not be what you think you have.”
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FIGHTING ON
An enclave of U.S. retirees clings to hopes of hanging onto their Baja California homes. A3
