Real Estate & the Law in Mexico
 

by David W. Connell
March 2004

If you have ever thought of investing or have invested in Mexican real estate you have probably heard the word “presta nombre” used. But what is a “presta nombre”? Most people that I have talked to or worked with that have used a “presta nombre” describe it to me as “the man (or woman) whose name my property is in”. In short, it consists of buying a property and putting it in someone else’s name. But why would anyone want to do this? And the bigger questions, is this legal?

In order to understand why anyone would use a presta nombre, we first have to take into consideration some legal aspects of property in Mexico. The Mexican Constitution establishes two general rules regarding property in Mexico that gave origin to the use of a “presta nombre” to buy land. These general rules are:

1.- No foreigner will be able to DIRECTLY own property in the restricted zone which is 50 kilometers from the beach and 100 kilometers from any border. Yes, this is what the Constitution says and there are no if’s, and’s or but’s about it. You as a foreigner cannot own land in the restricted zone so you were told that the easy way around this is to use a Mexican national’s name to hold title. If you do use the presta nombre and put the property in a Mexican nationals name and made some agreement with him or her that they are just holding the title for you, you have not only done something illegal, you have also violated a Constitutional prohibition.

Foreigners can acquire INDIRECT title to property though a trust (fideicomiso) or Mexican corporation but these take time and money to set up and many times the foreigner is convinced to “Don’t worry” and use a presta nombre. So when the presta nombre is used the foreigner is not just violating the law, he is in clear and unmistakable violation of the Constitution. Now taking that into consideration, what do you think your chances would be of ever getting any Mexican official or judge to ever rule on your side in a dispute over this land? If you put land in someone else’s name you need to be ready to walk away from it no matter how well you know the person.

2.- Ejido property cannot be sold to non-members of the ejido. To be an ejido member you have to be Mexican but do not get confused, not all Mexican’s are ejido members so the same rule of not being able to buy ejido land also applies to Mexicans that are not members of the ejido in question. (These are the general rules and do not take into consideration possesionary rights or when an ejido has acquired full ownership or “dominio” of their lands). Some of the most beautiful land in Mexico is held by ejidos, and many of these ejidos have not acquired full ownership of there land. A lot of these ejidos do not want to acquire full ownership of their land because the finality of it would be the disappearance of the ejido. This in mind, many foreigners come to Mexico and see this beautiful land on the beach with no one around and say to their new local friend “Can I buy some of this?”. The answer to this is almost always “yes” but you have to put it in my name (smile). If you buy it you have just done one of two things: a) Something illegal or b) Just gifted your “new friend” a nice piece of property.

These are principal reason why foreigners use “presta nombres” but there are other uses such as tax evasion, fraud and intent to evade criminal or civil procedures, all of which are extremely illegal. I have never seen a case where the use of a “presta nombre” was legal.

The use of “presta nombres” has been around for many years and many people have benefited from these relationships. I am aware of this but I am also aware of the fact that too many people currently investing in Mexico think that the “presta nombre” in not only a legal manner of acquiring rights to property but also the most commonly used method. I have seen businesses offer on signs and in web pages “We provide full presta nombre services”. They might as well also say that they provide full money laundering and tax evasion services. The fact of the matter is that using a “presta nombre” to acquire rights to property that you are prohibited from acquiring is considered a “simulation of acts” to circumvent prohibited activities.

What is worse is that as of a few years ago Mexico also reformed the criminal law regarding simulation of acts (which includes using a presta nombre) and now not only considers this a violation of law but also a crime. No, I have not seen anyone go to jail yet for using a presta nombre to buy property. But could someone go to jail for using a presta nombre? In my opinion yes, and yes I have already seen it used as a heavy-handed negotiation approach to get a foreigner to “back off” any rights he may think he has to a certain property.

Many people who have come to me with problems with their presta nombres have asked me to take legal action against them based on the written agreements the presta nombre defaulted on. Unfortunately I have to tell them that all presta nombre agreements are NULL AND VOID because there intent is illegal. Legally speaking they are not worth the paper they are written on. If you bring one into court you will have to declare that you used a Mexican nationals name to buy a property that the Constitution of Mexico prohibits you from purchasing. I have never seen or heard of a foreigner wining a case using a presta nombre agreement as the basis for his legal action.

In any investment you must be prudent. Understanding what you are doing is a prudent measure. This article, while many will say I have successfully scared the hell out of a lot of people, is intended to inform you. Using a presta nombre is not a legal method of acquiring rights to property in Mexico. I know many people will continue to use presta nombres and I also know that many people will never have a problem using a presta nombre. But from what I have seen about 70% of all presta nombre arrangements do not fully live up to what was agreed on verbally or in document. Most of these problems are resolved with money, however about 30% of them turn ugly and the foreigner loses big time, leaves Mexico and blames his loss on corruption. As you have seen having a written presta nombre agreement does not help you. In Mexico, as is in most countries, any agreement which has as its intent an illegal act is NULL AND VOID.

So what can you do to avoid doing something illegal? If you are buying titled land use a trust or corporation. Yes it will cost you about $ 2,000 - $ 4,000 dollars more than using a presta nombre but it is well worth it. If you do use a presta nombre it will almost be a for sure thing that when you want to sell the property your presta nombre will charge you more than this to sign it out of his or her name.

If you want to buy ejido property that is still untitled, well legally it cannot be sold to you. However you can tie the property up with legally binding agreements that allows you to exclusively use the land until the ejido acquires title to it and then transfers it to you.

There are legal ways to protect your right to property in Mexico and the cost of doing it right the first time is a drop in the bucket compared to what you will most likely have to pay by using a presta nombre.
 




David W. Connell is a US citizen, licensed to practice law in Mexico. Connell & Associates have offices in Mexico City, Puerto Vallarta and Zihuatanejo with associate offices in various states. You can contact Mr. Connell directly at inquire@mexicolaw.com.mx or visit the web page at www.mexicolaw.com.mx