Dangers of Not Having Your Mexican Property Trust or Title

by Christopher McDonagh
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Buyers of Mexican real estate often pay all or a significant part of the purchase price before receiving properly registered legal title or Mexican bank trust (fideicomiso) rights to the property. Many buyers mistakenly believe they are protected because they have a signed (but unregistered) “purchase contract” or “promise of trust agreement.” However, even if buyer and seller have a binding purchase contract (and even if the purchase price has been paid), there could be situations where the buyer’s unregistered legal rights can face significant challenges by third party claims to the property. In the worst case, the rights of a third party with a prior registered real property right (derecho real) could prevail over the buyer’s rights. In that case, the buyer could lose all legal rights to the property, and could also lose all the money invested, except to the extent the buyer can recover such amounts from the seller. A less drastic, but still costly, possibility is that the buyer’s legal rights would prevail, but the buyer might have to spend significant time and money in litigation. In many cases, these potential problems can be avoided by conducting proper due diligence, promptly formalizing and registering buyer’s property rights at closing (or as soon thereafter as possible) in the public registry, and obtaining title insurance.

Given the current economic situation, the risks are increasing, and include foreclosure by sellers’ lenders, seller’s bankruptcies, and litigation regarding title disputes or disputes among the seller's investors or creditors. Of concern now are Mexican developers or sellers whose projects have stalled due to lack of financing, or who are (or might become) bankrupt or have liens on the property that might be foreclosed.

We have had some success in such circumstances in obtaining the release of the buyer’s property from the lien of a seller’s lender and completing the transfer of registered ownership to the buyer’s trust.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Christopher McDonagh, Raven, Clancy & McDonagh, P.C. | Attorney Advertising

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