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December 2000 - The following information is provided as a general and informative background to business practices in Mexico, and should not be considered legal advice or your sole source of information. Wherever possible you are encouraged to utilize the services of a professional, such as listed below.
Do you really have title to your property?
by Dennis John Peyton
Over the years I have had several clients who have come to me with documents which they thought entitled them to property in Mexico, only to find out that the documents were invalid. Many people believe that if the title documents are notarized before a public notary in Mexico then they have nothing to worry about. Unfortunately this is not true.
Assignment of Trust
- One of the most common problems I have seen in the restricted zone, involves the assignment of real estate trust rights without the consent of the trustee/bank. This type of agreement is used when the property you are buying is already held in trust. It is an assignment of rights because what you are actually purchasing are the beneficial rights the seller has in the real estate trust which holds title to the property. What usually happens is the seller, who has property in a real estate trust "fideicomiso", sells his or her rights to the buyer without first getting consent form the bank. The buyer and the seller merely go before a public notary and execute the assignment of trust rights but neglect to inform the bank.
In order for the assignment to be legal it must be carried out before a public notary or a public broker and abide by the terms and conditions of the trust agreement. The bank/trusstee will also need to notify the Ministry of Foreign Affairs so that assignment may be authorized. Almost without exception, the real estate trust agreement will require that the trust beneficiary get prior consent before he or she can assign the trust rights to the buyer. Moreover, the bank will also normally charge a fee to carry out the assignment and notify the Mexican authorities.
The fact that assignment has been executed before a public notary in Mexico does not necessarily mean that the transaction if valid. If the transaction was carried out correctly the notary should make sure that all the provisions of the trust agreement were met, and the assignment of trust rights does not violate any of the provision of the trust agreement. Since the bank is actually owns the property, and is party to the trust agreement, it is imperative that the notary makes sure that there are no outstanding obligations with the bank before executing the assignment.
Unfortunately, there have been numerous cases where notaries carried out trust assignments without even consulting the bank/trustee. This usually results in the bank refusing to recognize the buyer as the beneficiary of the trust. This is because the bank is required to notify the Mexican government when the trust's beneficiary is changed, and must pay a fine if this is not done within the allotted time. I have personally seen and in every one the buyer didn't realize what had happened until years after the transaction was carried out. This can create serious problems, especially when the seller cannot be located.
What To Do
- Therefore, the first thing you need to do when purchasing a property which is held in trust is ask the seller for a copy of his or her trust agreement. Since you are buying the rights contained in this agreement you should review it to see if it meets the general standards for trust agreements. If there are changes to be made this is the time to request them.
- Be sure that the bank/trustee fees are reasonable. In some cases the fees were set years ago and are very reasonable. On the other hand, trusts established in the late 1980's sometimes got a little heavy handed with the fees because of the government bank monopoly which existed throughout that decade. Check around to get an idea of what the current fees are and ask to have yours adjusted accordingly.
- Both the beneficiary and the substitute beneficiary will need to be changed. Don't forget the substitute beneficiary because if it is left blank you will have to pay more to have it done later.
- The parties to the assignment of rights contract will either be the seller/beneficiary and the buyer or the bank/trustee and the buyer. Under no circumstances should you as the buyer accept an assignment of trust rights without the written consent of the bank/trustee.
- Over the years there have been many assignment contracts executed without the knowledge or consent of the bank/trustee, even some that have been recorded and filed with the Public Registry. But remember, you as the buyer will have to deal with the bank in the future.
- Once the seller has been paid he or she may not be able to be found. Therefore it is in your interests to make sure that the bank/trustee is fully aware of assignment of trust rights.
- There are all kinds of arguments regarding the need to inform the bank regarding the assignment of trust rights. Some believe it is not necessary due to the fact that the assignment concerns personal property rights, rather than real property rights, and therefore the transaction may be executed in a private agreement. Do not be persuaded by these arguments. Your main concern should be to comply with the conditions set forth in the trust permit and the trust agreement. More importantly, you certainly do not want to fight with the bank/trustee to have your rights recognized, or find out after the transaction that the seller still owed bank trust fees!
- To avoid all of these situations it is advisable to make sure the assignment of rights agreement includes the consent of the bank/trustee and authorization from the Ministry of Foreign Affairs. By doing so you can rest assured that you will be registered as the new beneficiary of the trust and that all trust fees are current.
- If the seller has chosen to the have the bank/trustee represent him or her in the assignment, the bank's trust representative will execute the contract with you before a public notary or a public broker. On the other hand, if the seller is going to execute the assignment agreement, consent from the bank/trustee should be granted through a letter of instruction sent to the notary or the public broker.
- The contents of the assignment should be fairly similar to the trust agreement. After all, all of the rights you are buying are contained in that agreement, and the assignment only recognizes the transfer. Once the assignment agreement has been recorded before a notary and registered, contact your bank/trustee to confirm that they have opened your file and that your name has replaced the seller's name.
This information is based on Mr. Peyton's Book "How to buy real estate in Mexico" second edition, published in December of 2000 and available from Law Mexico Publishing
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