Amended laws let foreigners buy on beach

By Tom Carter
April 1, 2007

The Mexican Constitution forbids foreign nationals from owning land within 31 miles of the coast.

However, in 1994, the government amended the constitution and created legal mechanisms allowing foreigners to safely invest in beach property.

“There are big incentives for foreigners to invest in residential property,” said Alvaro Palma, general manager of Stewart Title Guaranty of Mexico. “You need patience. You need to understand you are dealing with a different legal system, but it is safe and simple and workable.”

In short, land close to the border or near the coast is in the “restricted zone” and can be “owned” only by foreigners through a 50-year renewable bank trust called a “fideicomiso,” or by purchasing communally owned “ejido” land with the help of a Mexican national known as a “presta nombre.”

When buying property through a Mexican bank trust, the bank holds the title to the land for the buyer, who in effect has full ownership. The buyer has full use of the property, can sell or improve it, give it away or convey the property. The trust is renewable every 50 years.

“You have the same rights that you would have under fee-simple land. You can mortgage it, give it to family members, everything you can do with fee simple. It is a renewable 50-year trust, and it is absolutely safe,” said Tom Kelly, a former real estate editor for the Seattle Times and author of “Cashing in on a Second Home in Mexico.” Most real estate in the United States is fee simple, meaning the owner is the absolute owner.

Putting his money where his advice is, Mr. Kelly recently bought an ocean-view plot in the Cascadas de Manzanillo development. First American Title of Sunrise, Fla., provided the master title.

Depending on who you ask, buying “ejido” land is considerably riskier, but more Americans are taking that risk.

Ejido land is land that is communally owned in poorer Mexican agricultural and fishing communities. The ejido committee can give title to individual Mexicans, who may or may not by permitted to sell it. With proper documentation, ejido land can be sold to foreigners. This is done through a “presta nombre,” which means “borrowed name.” It uses a Mexican national, who acts as the name on the title, but retains no rights.

In 2000, some 250 U.S. “land owners” were evicted from property with a questionable title in Punta Banda, Baja. They lost the homes they had built and their investment. The development was not on ejido land, but illustrates that navigating Mexico’s property and legal system can be treacherous.

Internet Web sites on “what can go wrong” when purchasing Mexican real estate are full of warnings that when using a presta nombre, U.S. buyers are purchasing with no guarantees that their investments are protected.

That said, hundreds of foreigners do buy ejido land. Given time, money and the proper documentation, ejido can be “regularized,” or turned into fee-simple land with a clear title. When that happens, it must be held in a bank trust.

“I bought ejido land. I suppose it is possible that there could be trouble in the future,” said Gordon Preston in Chacala. “I am very comfortable with my presta nombre. I expect it will be regularized soon.”

Garcia Realty in Sayulita said that over the years it had sold more than 200 prime ejido plots and houses to foreigners using the Garcia family members as presta nombre. The presta nombre has no legal rights to the land, but Garcia Realty receives a real estate agent’s commission on each property sold.

“Our business is not just a job. Our home is here, and future generations of the Garcia family will inherit our reputation,” according the Garcia Web site, noting the family has been in Sayulita for more than 80 years. “Customer relationships, based on mutual trust and confidence, will remain our top priority.”

“When I bought, I was totally ignorant, and I could have really been ripped off,” Harvey Craig said of Garcia Realty. “I was lucky. It is important to go through a reputable and trustworthy Realtor.”

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