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Real Estate & the Law in
Mexico
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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
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