By David W. Connell, Abogado/Attorney
Licensed to Practice in Mexico
Watch out for the boilerplate trust agreements.
Over the years I have been
contacted by many foreigners who are frustrated with the fees they have to
pay to the bank acting as their trustee. Unfortunately, upon reviewing
their trust agreements (escrituras) I have to inform them that when their
trust was set up they agreed to pay the fees the bank charges and also
authorized the bank to be able to unilaterally modify these fees. By the
time people contact me they are already so angry with their bank they want
nothing further to do with them. In these cases the only way out is to
transfer the property to a new trust, which means paying expensive closing
costs and taxes. How do you avoid this? If you have a trust already set
up, you may want to renegotiate its terms. If you are just setting up your
trust, then you need to watch out for the boilerplate agreements.
The procedure for purchasing property in Mexico is very
foreign to what most Americans and Canadians are used to. People who are
not familiar with a real estate transaction in Mexico usually try and stay
on top of what is going on so that their purchase does not become one of
the many horror stories they have heard of. They get wrapped up in the
details of “closing” on the property and often fail to really understand
the trust agreement that they are entering into with the bank. The
foreigner gets wrapped up in checking to see if the title to the property
is clear, if the property taxes are paid, if the electrical, phone and
water bills have been paid up to date, if they have their finances in
order to make a cash purchase, what will their annual expenses be, does
the property have any structural, plumbing or electrical problems, can
title insurance be acquired and just basically trying to understand a
foreign way of transferring title to real property. On top of all this,
throw in a foreign language and you have a lot bases to cover to make sure
title gets transferred correctly into your name.
Once you get all of the above in order, you move to closing. Documents are
signed, payments are made and the parties extend congratulations on the
purchase and sale. You have just closed on your new vacation dream home or
property, congratulations! Oh but wait, what you have also just done is
agreed to the banks boilerplate agreement and this agreement was designed
by some very experiences attorneys that work for the bank. As you can
imagine, this agreement is written extremely in favor of the bank. This
bank now holds title to your property and this boilerplate agreements set
down the rules and regulations governing your relationship with your
I have worked with most of the banks that set
up trusts for acquiring property in Mexico restricted zone. Some of the
things that you will find in all of their boilerplate agreements are the
1.- The bank has the authority to
modify, whenever it deems necessary, the annual fees it charges for the
administration of your trust. Annual fees are paid either based on a
percentage of the value of the property or a fixed dollar amount. If your
annual fees are set as a percentage of the value of the property, the bank
authorizes itself to re-appraise your property whenever it see fit and
adjust your annual fees accordingly. I recommend that you make sure your
trust does not use the percentage method to determine the annual
Make sure your annual administration is set in dollars and that it can
only increase if 1) You are in agreement, or 2) In accordance with
inflation of the United States of America. Many times banks will want to
set the fees in dollars and then establish that they can increase in
accordance with inflation of Mexico. Do not let them get away with this.
If you are using dollars, the inflation should be set to United States
inflation. If they want to use the inflation of Mexico, well than they
should set the annual administration fees in pesos. Most banks will not
want to set fees in pesos because if the pesos devaluates, which it often
does, they lose big.
2.- The bank can charges late interest or fines for not paying your
administration fees on time. I have seen agreements that charge late
interest as high as 3% a month, that is 36% a year!!! What is worse is the
bank has no obligation to notify you when payments are due and where they
should be paid. Often times you will go to your bank to make your
administration payment and the teller or bank manager has no idea what you
want to pay or how to do it. This means that you spend your vacation time
in banks and on the phone. To avoid this make sure the account information
where you have to deposit the fees is clear. Also make sure you know the
dates when you have to make payments and most important, make sure that
the bank charges NO LATE INTEREST OR FINES unless they notify you fees are
overdue and where you can deposit them in order to avoid interest and
3.-The bank will set fees for signing powers of attorney and the sale of
the property. These fees usually seem responsible, however what many
people don’t see is that the bank has the authority to charge more for
what they consider “unusual circumstances”. From my experience it seems
that the bank finds “unusual circumstances” in just about every sale of
property or power of attorney they have to sign. An example of this was a
power of attorney a client of mine recently needed to defend himself
against a legal claim made by the environmental protection agency. The
trust document said that the bank could charge $ 300 dollars for granting
powers of attorney. The bank charged $ 650 dollars and stated that there
were “unusual circumstance”. If my client did not pay the $ 650 dollars
the bank would not sign the power of attorney and he would loose the legal
battle with the environmental protection agency by default. You need to
make sure the amounts the bank can charge for signing powers of attorney
or the sale of the property are clearly established.
4.- The bank has the authority to determine what fees will be charged for
any other types of activities they have to be involved in, such as
reviewing documents, authorizing federal zone permits, authorizing
mortgages, etc. Do not give this power to the bank. Set a fixed price for
reviewing and signing documents other than powers of attorney or the sale
of the property. I usually establish a charge of $ 300 dollars.
5.- The bank can refrain from signing documents if fees and fines or late
interest are not paid. This type of disposition goes completely against
the concept of having a fiduciary or trustee responsibility, however it is
in just about every boilerplate agreement and the bank always uses this
type of policy. This type of disposition should only be allowed regarding
the sale of the property held in trust, other than that, it should be
taken out of the agreement.
When you close on a property you do so before a notary. The notary charges
fees to set up the trust and have it registered. In almost all cases the
notary will use a boilerplate agreement given to him by the bank acting as
trustee and his fees do not include negotiating with the bank the
necessary modifications to the banks boilerplate agreement. To make
modification to the boilerplate, you either need to do it yourself or hire
someone to do it for you. Spending a little before you sign the agreement
will save you a lot in the future. You may also want to ask the notary
what extra fees he will charge you to handle this negotiation (he may not
even charge you). Make sure you get in writing the modifications that will
If you have already signed the trust agreement before a notary and are
unhappy about what the bank is charging, you need to determine whether
negotiating modifications to the existing agreement are feasible. You need
to either personally contact the bank or have an attorney contact the bank
and determine what needs to be done to modify the agreement. You also need
to determine if the cost of the negotiation and modifications will be more
than they are worth in the long run. I recommend that you pay an attorney
or someone familiar with trusts to contact the bank and determine, 1) The
possibility of modifying the trust and 2) An accurate estimate of costs to
make the modifications. Make sure you get the estimate in writing and that
it covers all costs and fees. Modifications to existing trusts are
difficult but not impossible. These modifications need to be dealt with on
an individual basis and only after having read and understood the terms of
the existing agreement.
The bank has a fiduciary responsibility with
you and they charge for these services. Do not let them give you a
boilerplate agreement which authorizes them to determine, at their own
free will what these fees will be. If you have already signed an agreement
which does allow them to charge whatever they see fit, you may want to
negotiate a modification and put a stop to increasing fees.
right reserved 2002
CAN I BUY “EJIDO” LAND?
By David W. Connell
Tel. In Zihuatanejo
(755) 554-7957 or 554-2035
A very large part of Mexican real
estate is classified as ejido land. Ejido land is not private property and
cannot be bought and sold as if it were. However, since the constitutional
reforms of 1992 ejido land now can be converted into private property and
sold to third parties, including foreigners. The present article will
briefly describe what an ejido is and how ejido land is classified as well
as talk about the ways in which ejido land can be converted into private
WHAT IS AN EJIDO?
In general terms, an ejido is a collective group of people that live and
work on a determined piece of property as a community. While the concept
of the ejido in Mexico is prehispanic, most of the fundamental ideas and
concepts that created what an ejido is today stem from the theories of
democratic communism. Understanding this is very important when dealing
with ejidos. Most people reading this article have grown up in a society
based on democratic capitalism in which the individual and not the
community determines what he or she is going to do. In a communistic
society the community determines what it is going to do, including
agreeing upon how the land they hold is to be used.
Taking into consideration the above, it is not
hard to imagine the confusions that could exist when discussing ownership
of ejido land. Most foreigners associate the word “ownership” with words
such as “fee simple”, “private property” “Adam Smith”, while the
ejidatarios idea would be more on the lines of “community rights”, “right
to use and enjoy”, “governmental concession”.
Until ejido land is converted to private property, foreigners cannot
acquire “ownership” of ejido land in accordance with their understanding
of the word “ownership”.
1.- Ejido land cannot be sold to non-ejido members until it is converted
into private property. There are exceptions where non-ejido members can
acquire “posessionary” rights to ejido land, however the rules governing
posessionary rights are not very secure, especially for foreigners.
2.- Foreigners cannot legally become ejidatarios.
3.- What an ejidatario understands as ownership is often times different
than your understanding of ownership.
CAN EJIDO LAND BE CONVERTED INTO PRIVATE PROPERTY?
There are two principal ways in which ejido land can be
converted into private property and they are as follows:
1.- By filing a suit based on prescriptive rights (adverse possession).
This suit will only be productive when the person wanting to acquire title
to ejido land can prove that he or she has possessed the land in good
faith for 5 years or in bad faith for 10 years. Many professionals argue
that this rule does not apply to foreigners. This article does not focus
on converting ejido land into private property in this manner, however it
should not be dismissed as a viable option.
The legal institutions of “prescriptive rights”
or “adverse possession” are the methods of acquiring complete ownership
rights to property, against the owner and other third parties, through
possession of the property for an uninterrupted period of time. This time
will be interrupted if the possession of the property is left or if the
legal owner or a third party makes legal claims to the land. This method
cannot be used if a contract exists between the owner and the person in
possession of the property. Under the new Agrarian Law “prescriptive
rights” can be used to acquire ownership to property. The “good faith”, 5
year possession rule, in general terms, means that you have to possess the
property for 5 years, be recognized locally as the owner, pay your
property taxes and not know who the true owner is. The “bad faith” 10 year
possession rule, in general terms, means that you have to possess the
property for 10 years and you may or may not know who the owner is.
2.- By having the ejido agree to “certify” the rights of each person who
owns or possesses land in the ejido and then convert the certificates
to private property titles. In order to accomplish this the ejido
must agree to enter and complete the following two procedures:
A.- PROCEDE.- PROCEDE or “Program of
Certification of Ejido Rights” is a government procedure by means of which
the government, upon the approval of the ejido, certifies the agrarian
rights to land within the ejido. This is not an obligatory procedure
and will only begin when the majority of the ejido agrees to enter into
the procedure and the ejido does not have any legal conflicts that
prohibit it from entering into the program.
Some of the more common types of conflicts that
inhibit an ejido from entering PROCEDE include: conflicting ejido
boundaries, internal conflicts, pending litigation and determination of
actual number of ejido members.
Once the ejido has agreed to enter into PROCEDE,
the government at no expense to the ejido, will study the documents of the
ejido and begin the often time long procedure of surveying the entire
ejido. The surveying procedure often takes a long time due to the fact
that each individual lot, parcel and common use land needs to be surveyed.
These surveys are based on radiolocation points and GPS and the maps are
registered with the corresponding governmental agencies.
Once the entire ejido is measured, an ejido
meeting or “Asamblea” is called to assign each parcel and lot to the
person the ejido recognizes as the owner. If there are areas in the ejido
in conflict or that have not yet been assigned to a specific person, the
ejido can agree to leave such area to be assigned at a later date. Once
the land of the ejido has been assigned, the government will issue the
certificates or titles that correspond to the land in questions.
Certificates and titles are not synonyms and different rules apply to each
one. One thing that must be understood is the fact that in accordance with
laws governing ejidos there are three basic types of ejido land. These
three types are land are classified as follows:
1.- “Solores” or lots and which
are converted to private property through the PROCEDE procedure and do not
require the “Dominio Pleno” procedure to be converted into private
2.- “Parcelas” or parcels.
Through PROCEDE parcels are given “certificados
parcelarios” or parcel certificates and which are governed by
agrarian or ejido law until converted to private property titles through
the “Dominio Pleno” procedure.
3.- “Uso Comun” or common use land. Common use
land cannot be converted directly into private property titles but can be
converted into either “Solares” or “Parcels”.
As soon as the government has issued the majority of the ejido
titles or certificates the second procedure which is called “Dominio Pleno”
can begin and by means of which each individual ejidatario can convert his
parcel certificate into a private property title.
B.- Domino Pleno.-
The Dominion Pleno procedure is much less
involved than the PROCEDE procedure. Once the ejido legally can enter into
Dominio Pleno, an ejido meeting has to be called and the members of the
ejido have to agree that each individual ejido member can, from the date
of the agreement, convert their parcel certificates into private property.
This does not mean that from this moment on all the land in the ejido is
now private property. The only thing that the approval of Dominio Pleno
means is that each individual ejido member, whenever he or she feels it is
convenient, can convert his or her parcel certificate into a private
Once the parcel certificate is converted to a
private property title and dully registered, the ejido member can sell to
persons outside of the ejido, including foreigners, observing certain
third party legal rights.
Please understand, even though the
Dominio Pleno procedure is much less involved than the PROCEDE procedure,
there are many formalities that must be observed. If these formalities are
not observed the transfer of the corresponding property title could be
declared null and void.
The fact that vast tracts of ejido land can now
be converted into private property, coupled with the fact that recent
reforms in Mexican legislation now allow foreigners to secure tile to land
much easier add up to huge investment possibilities for people looking for
security through real estate investment with the probability of large
returns. Please contact me if you have any questions regarding the above
or are interested in acquiring ejido property.
right reserved 1998
David William Connell, Abogado
If you have questions on any of these items and want to discuss them
with a U.S. attorney and CPA who is familiar with Mexican real estate law
call Don D. Nelson at (949) 481-4094 or email at
Nelson will work with Mr. Connell to help you find answers and resolve