Puerto Vallarta Real Estate Articles

The sale of properties between persons and companies can be of several types: purchase and sale (the most usual), donation, inheritance, or an award from a lawful auction of properties held under a guaranty mortgage.

Procedures over these properties are subject to recording before a Notary Public. In order for a transaction to be valid, there must be a public deed issued before an officer, called a Notary Public.

A Notary is a lawyer who is given the authority to attest documents, and before whom operations regarding properties can be validly carried out. Additionally, other acts are carried out before a Notary, such as last wills, incorporation of companies, the conferring of powers of attorney or company representation, etc.

To be a Notary, one must be a lawyer and hold an authorization (patent), granted to a specific number of persons by the Government of each of the States of the Mexican Republic. Local or state laws specific to their power and responsibility govern notaries.

The Notary Public holds a patent issued by the State Government, which allows him to act. Notaries are advisors to the parties in the operations authorized under their signature, and they draw-up the corresponding documents. These documents must be recorded in a special book, which is authorized for such purpose, called a protocol. One of the most important jobs of a Notary is to sign documents and affix his seal of authorization. Documents issued before a Notary Public are public documents that are valid (since no-one can object to their validity), and can be officially certified when registered in Public Registers such as that of Property (real estate), or Commerce (corporations).

Once the Notary has determined that the person who is going to transfer a property is the rightful owner or the owner's representative with sufficient rights to do so, he asks the Public Property Register to advise him as to the status of the property from their records. This report will tell him who owns the property, the location, surface area and boundaries of the property, and whether it is subject to any encumbrances, such as mortgage or seizure, or any limitation of ownership (as, for example, an easement).

By law, Notaries are responsible for and in charge of paying taxes and recording real estate transactions. Notaries must calculate taxes and collect these amounts in order to pay the respective tax offices.

Any owner who sells or transfers a property by any means is bound by law to warranty the title and right of possession. If for any reason the acquirer of the property loses his ownership, whoever sold or transferred the property to him must pay the price, legal expenses and, in the case of bad faith, damages. The law provides that warranty of title and right of possession is held by everyone who transfers (disposes of) an asset.

A mortgage on property is governed under State Civil Codes. It is defined as "collateral established on property not delivered to the creditor, and which entitles the latter, in the event of failure to comply with the guaranteed obligation, to be paid with the value of the property, in the degree of preference established by law.” When property is conveyed to another person (by purchase/sale, inheritance or auction under seizure), the property remains subject to the established mortgage.

The establishment of a mortgage must take place by means of a public deed issued before a Notary. Only the owner of the property, or someone, who holds power of representation of the owner for this purpose, can establish the mortgage. The mortgage must indicate the creditor in whose favor it is granted, the obligation guaranteed, the amount in which the mortgage is granted, and the interest and term.

Mortgages must be recorded in the Public Property Register where the mortgaged property is located, as a public deed under which they are established. Once the mortgagor has complied with the guaranteed obligation or paid the credit, the creditor will cancel the mortgage under a public deed issued before a Notary. The notarial document of cancellation is recorded in the Public Property Register.

Other means exist under the Civil Code, aside from the mortgage, to guarantee rights in connection with property. These are treated as forms of a purchase/sale.

a) Purchase/sale by installments is where the buyer pays the agreed upon sales price in periodic installments. A clause within the mortgage will state that failure on the part of the buyer to make one or several payments will result in the purchase/sale being rescinded or canceled. This so-called "rescission" clause must be recorded in the Public Property Register to make anyone interested in buying this property aware that an amount is owed on the price and failure to pay could result in cancellation of the sale. In these cases the buyer, even while owing part of the price, already owns the property.

b) The other form regulated by the Civil Code is the so-called "purchase/sale with reservation of dominion". The seller does not transfer ownership, even though he delivers the property to the buyer. In these cases, the buyer is not the owner and cannot sell, mortgage or carry out any operation as owner until he has paid the seller the total purchase price. This type of purchase/sale is recorded in the Public Property Register, also.

In the two preceding cases, once the buyer pays the whole price, a public deed is issued before a Notary Public to cancel, in the first case the so-called "rescinding" clause and, in the second, the reservation of dominion, in the Public Property Register.

Trusts

Trusts are governed by the General Law on Credit Instruments and Operations and the Credit Operations Law, which are federal laws applicable to all of Mexico. This legal instrument has its origins in the Anglo-Saxon trust.

Under a trust, a person called the trust founder appropriates certain assets for a lawful purpose into a trust institution. The person receiving the profit or benefit from this operation is called the trust beneficiary. In Mexico only credit institutions (banks) can be trustees. However, the trust founder and the trust beneficiary can be the same person.

There is a very common guaranty trust in which the trust founder, as debtor, allots a certain asset to become a guaranty to a trustee, to the benefit of the creditor, who is the trust beneficiary. In this type of guaranty trust, if the debtor defaults, the trustee (bank) sells the asset given in guaranty and pays the creditor, by means of a procedure agreed to under the trust itself.

A trust can also be used for the administration of assets entrusted to the trustee, in order for the latter to deliver the profits to the trust beneficiary. For example, some shares of a stock company are placed in trust in order for the bank (trustee) to exercise the rights, collect dividends, etc. This trust is also common in wills. Upon the death of the trust founder, amounts of money are established which become proceeds that are delivered periodically to minor children.

A trust is used in many types of real estate transactions. An owner my encumber land on which a group of houses or condominium is built. The owner instructs the trustee to sell each of the houses or condominiums individually out of the trust.

Under transfer of ownership trusts, the owner of the asset is the trust institution and the trust beneficiary is only entitled to instruct the trustee to take certain actions within the purpose of the trust. The trust beneficiary may transfer the asset to himself or to a third party. He may also mortgage the property or change the property use, such as to a condominium.

A property trust is the trust in which foreigners may acquire the rights to enjoy and use properties in the so-called restricted area: beaches and borders. These rights acquired by a foreigner are very broad. Properties within this trust can be used for tourist, residential, industrial or dwelling purposes. Provisions governing these operations are contained in the Foreign Investments Law and Regulations.

The rights of the trust beneficiary can be transmitted by title of purchase/sale, donation, or inheritance, etc.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer conduct his own due diligence and review. Information for this article has also been provided by Ricardo Barraza y Asociados and Maria O’Connor.