Sunday, April 20, 2008

Buying Ejido Lands in Loreto, Mexico

I stopped to enjoy coffee on my deck on this lazy Sunday morning and it was a beautiful sight to see the progress of Aqua Viva. Somehow without me noticing, these homes with towers sprang out of nowhere, when it seems that they were just going vertical only a few months ago. This is another example how life happens when we are too busy to notice. The sight of these large cranes towering over new construction is like a heavy metal oasis out of some Mad Max gone urban” movie. A beautiful sight to behold if you were here in the early days only 4 years ago when lines in the sand were paced out and chalked in the most rudimentary manner.

Another example of how fast things change is the progress on the new bridge just outside the gates of Nopolo. They have equipment coming and going and men working from early in the morning until late at night. They have assembled a lot of the rebar and laid footings in this past week. The weather is starting to get warm reaching high 80's during the days, and there is still a breeze in the air. April and May are my favorite months here for weather.

The US market has affected our sales in Loreto. There are still plenty of people with money interested in having second or third homes in this area; there is just not the urgency to do so. This is unfortunate, because often the best time to buy is when the market is at its lowest. There are some very motivated sellers that can not or do not want to wait out this current low trend and are willing to sell their homes for much below fair market values. How often have we said “would have, could have, should have”? I know myself … too many times!!

Many people I know are buying real estate from “friends of friends” and thinking they are getting good deals because they do not have to pay realtor commissions. There is a term here called “coyotes” which refers to people who take advantage of both the buyer and seller. For example, the seller may not know what his land is worth and need money. The “coyote” slash “friend” tells him that he can get $50,000 for the land; then turns around and sells it for $100,000; and takes $50,000 as his commission. In some cases, the buyer could have negotiated $70,000 for this land if he had done his homework. This is unethical, immoral and disturbing when you think that the seller has known and trusted this individual for years before greed was involved. The presence of coyotes is much less now than 5 years ago because people talk and everyone knows who has cheated them. Every friend that sells a piece of property is making a commission usually in the range of 5% to 15%. This is strictly for the transaction but they take no responsibility for the paperwork or land transfer.

There is little or no legislation governing real estate sales in Mexico. None of the rules, regulations, ethics standards, and disciplinary committees, provisions for disclosure or agency rules that we are accustomed to apply here. My bartender can sell real estate. He is not a bad guy and will probably not rip anyone off… it’s just that he does not know about comparable values; land entitlement and transfer; and rights of the foreign investor.

There is a new realtor organization emerging in Mexico over the last several years and it established a branch in Loreto last year. It is called AMPI - AsociaciĆ³n Mexicana de Profesionales Inmobiliarios, A.C. It is a self governing body of realtors in Mexico that understand the importance of working together and lobbying with the Mexican Government to create standards and policies that are recognized by both people working in the industry and our clients. All reputable realtors in Loreto belong to AMPI and work together cooperatively to share information and protect the buyers and sellers as best as we can. Beware, just because someone displays an AMPI sign on their window, does not necessarily make them a “member”. Ask around, it’s a small town and if people do not say something good, it is usually a sign to make another inquiry.

99% of land in this area belongs to Ejido Associations (Ranchers). In the last several years significant land reforms have been made to the Ejido so that the members can sell and transfer land outside of the Ejido Association. Constitutional Rights to new Ejido land has been eliminated, reducing the threat that newly private lands would be appropriated by the government. Limitations on ownership are greatly reduced. Foreign investment has been encouraged and foreign corporations can own Mexican agricultural land.

This is all good news and it is relatively safe to buy Ejido land PROVIDED that you understand the complex process of transferring land out of Ejido membership and into private ownership. Most Mexicans do not fully understand the legal complexities required for foreign ownership; and why would they? If a foreigner (Canadian) asked an American what they need to buy land in the USA – would most Americans know? Probably not as the American has no requirement for immigration, foreign investment, or foreign credit status. They just go buy the house. The same holds true in Mexico. As an Ejido member and as a Mexican national, there are inherent rights of protection that the government offers them. However, as a foreigner, you can not assume you have the same rights or protection. This holds true in any country.

I recently had some Loreto Bay friends come and tell me they wanted to purchase some Ejido land with no road access or utilities. I knew the area and title status of this particular Ejido Association. The land was relatively inexpensive and I advised them that I felt it was a good opportunity for a 10 year buy and hold investment. I explained the pros and cons of the transaction and offered BajaBOSS services to ensure they actually got title to the property in 6 to 8 months. However, if they chose to pay their new “friends” directly and come to me after the fact, I would have to charge them triple to clean up the mess.

They did come to me after they were escorted to the Notario’s office and paid him $300 USD for what their friends told them was a Power of Attorney, since it was in Spanish, and then handed over the money to the seller in exchange for the original Certificate, which they were told was the Title. I asked them “why didn’t you call me” and they said they felt that they were pressured and had no choice. You always have a choice. Anywhere, Anytime.

The facts are that no one really did anything wrong. We followed up with the documents, and the Notario was paid to protocolize the signatures and agreement between the Seller and Foreigner, which he did. The Seller signed and gave dominion power to the Buyer over all right, title and interest to the land. The friends exchanged money for the original Certificate, and since they were Mexican they assumed this was all that was required and the Buyer could take care of the rest.

However, since the Buyer is a foreigner, he has no rights under Ejido law, and even with the Seller granting him dominion power to the land, he can do nothing with it until it comes out of Ejido. No one has the rights other than another Ejido member to apply for title and they can not do so without the dominion power. So, the Buyer has the original Certificado Parcelaro, which is NOT title, in the name of the Seller and can do nothing to transfer it on his own. The seller now has the money, and as time goes on, will have less and less incentive to apply to Mexico City for the Title.

We offered to remedy the situation immediately, since it is fresh in everyone’s mind and no real harm has been done as everyone had good intentions. However, the buyer is choosing to let it slide and deal with it later. Oh well. Perhaps, when it comes time to correct the problem and obtain title, our fee again will increase threefold. It’s similar to when you hire a good plumber to do the job in the beginning, you pay extra for value. However, if you try to go cheap or do it yourself without qualification, you end up paying a whole lot more later to fix the mess.

Not all situations are like this as there are a few good people in Loreto who know how to handle the Ejido transfer process. However, we are watching carefully for those properties that have been purchased several years ago for very small amounts and those buyers still do not have any rights to the land. This is what will be very interesting. They can not make cries of unjust government or swindlers because Cavet Emptor Buyer Beware applies universally.

Buying titled land in town or part of a development community like Loreto Bay, is very safe and all due diligence is done by the Notario Publico and Bank Trusts at the time of transfer. I do not mean to scare anyone, just offering a little advice. If it sounds too good to be true, sometimes it is. Just get good advice before you hand over the money. In Mexico there is little documentation and contracts surrounding land purchases. Deals are done by handshake and 90% of the time both parties are honorable. It is what it is. If you would like BajaBOSS to review your documentation, we will do so for a nominal fee and let you know if it is satisfactory or if you should do something to protect your rights to the Ejido land that you think you own.

DORADO PROPERTIES LORETO is focusing on the large parcels and working directly with the developers interested in building housing, retail, community, or high end projects. These deals take a lot of time, requires a lot of patience and working with group decisions sometimes scattered across several countries, but we persevere. Qualifying the buyer, understanding their objectives and outcomes, knowing your product and all the legal complications associated with title and development in this area, and having the staying power to not only finish the deal, but assist them to the next stage of development and sales, is the task we have at hand. It’s a very good thing that we have years of experience in this area already, otherwise, the challenge would be near impossible to start from scratch. There are many people in the Wild Wild West who talk the talk, but few who walk the walk. Sometimes it just takes time to recognize the difference.

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