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Mexican notarios are not infallable unsupervised, they can cost you your investment

by Jose Perez - June 2006

Notarios are keepers of the public record in México, an exalted legal mandate not to be confused with U.S. notaries whose powers are very limited.  Notarios are attorneys who give up private practice to oversee and approve, for entry into the public record, the following: articles of incorporation, publicly recorded contracts, wills, powers of attorney, transfer of real property title and depositions.  In addition they act as official witnesses “dar fe” (provide faith) to any and all legal transactions or official meetings affecting investment, property ownership or possession.

The requirements to become a Notario are stiff:  Three years of litigation experience, three years of working for another Notario and satisfactory completion of a written exam.  Having political clout is another important criterion for selection.  The number of “Notarias”, the term for the office, is determined by municipal census figures.  Ensenada, for example, with a population of approximately ½ million people has 5 Notarios, while Tijuana with a million eight hundred inhabitants has 15 Notarios. 

The amount of work for Notarios in Baja California seems to always exceed the number of licensed to complete said workload.  As a result Notarios are practically guaranteed a millionaire income. By law, they can charge one percent of the value for each transaction.  In the case of real estate title transfer, if you sell a lot to somebody for $10,000.00 the Notario will charge in excess of $100 (1%) for his service-typically three to five hundred dollars.  In comparison, if he oversees the transfer of a one million dollar property, he will charge $10,000.00 (1%).  Yet the amount of work and time required to record the title transfer is the same for the 10k property as it is for the one costing a million.

I call the Notario license - A LICENSE TO STEAL.  As you can imagine it is a coveted right.  But after 23 years of dealing with notarios in more than 15 of Mexico’s 38 states, I find a great deal of difference from one notario to another with respect to legal protocols.  Some are very conservative in interpreting what can and cannot be done in completing a transaction and others are extremely liberal.  Depending on the client’s specific needs we can determine which Notario is best to satisfy same.

Notario mistakes or legal interpretations can cost you money

TAXES ON TRANSFER OF PROPERTY TITLE (closing costs in Mexico)- If a property is held by the seller for more than two years and the property is the seller’s primary residence, he or she should pay 5% of the sales price.  If the property is raw land, held for less than two years or not the primary residence of the seller, the sale is taxed at 29% of capital gain. 

This can make a huge difference in the tax bite suffered.  Especially for  properties sold in Rosarito, San Felipe or Puerto Peñasco, where property values have been doubling every year for the past 3-4 years.  Most notarios are conservatively charging foreigners the 29% whether they meet the criteria for a 5% tax or not.  They argue that by their very nature, as foreigners, they are not permanent residents of Mexico-blatantly pigeon holing folks to avoid any possible consequences for not taxing at the highest rate.  There are a minority of notarios who argue that if a foreigner has a primary residence in Mexico, with an fm3 immigration permit and has light and water bills in their name, then they should be taxed at the much lower 5%.  In these situations we select the liberal notario to do the transaction-saving our clients tens or even hundreds of thousands of dollars.

FEDERAL ZONE CONCESSIONS - The federal maritime zone is 20 meters from mean high tide and cannot be developed without special concessions. The concession is an important asset protector when buying beach property.  In this past year (2005), multiple cases of foreigners, who paid handsomely for their dream home on the beach, were “robbed” of that dream.  A commercial interest, took advantage of the foreigner not having the beach concession and now they are staring at the back of a condominum instead of their beloved sunsets. 

The liberal notario will often allow a sale to be consummated without protecting the buyer’s right to a federal zone concession. In the past, the majority of notarios did not regard the federal zone concession as an asset.  It is not a legal obligation to obtain the concession.  Federal zone taxes are charged properties adjacent to the federal zone, at the same rate, whether they have the concession or not.  So, when representing buyers of beach properties, we select a conservative Notario who respects the value of a federal concession and the legal implications if it is not secured.

“BUYING” EJIDO LAND - Ejidos are farming cooperatives - a legacy of Mexico’s Revolution and socialist political roots. Soldiers who fought in the revolution were given farmland to use cooperatively.  They could live, work and donate the land to their heirs in perpetuity but could not sell these lands.  Changes in agrarian and foreign investment laws have allowed ejidatarios (ejido members) to sell these lands to foreigners.  However, only after a formal and sometimes lengthy, multiple stages, when process is completed can the transfer of title be consummated.

Liberal Notarios frequently allow a foreigner, or even Mexican national buyer, to pay the seller his asking price before the title transfer process is completed.  The liberal Notario will do this via promise of sale contracts or secession of rights agreements.  Bad idea, you need the cooperation of the seller and his family before you can be given the right to secure title. The purchase must be presented at formal meetings of the ejido and subject to a majority vote.  If the seller has been paid in full, his primary motivation for moving the title transfer process along has evaporated.  And what if something happens to him? And all too frequently these folks will sell the same property to a second buyer because the transfer of title is not official.  The liberal Notario has now put your entire investment at risk.

Notarios in Baja generally have more work than they can handle.  Long waits in their offices are the rule rather than the exception.  As a result, the amount of paperwork detail is enormous and errors are frequent: misspelled names, not providing proper translation for foreign buyers or overlooking the lack of proper immigration documentation for foreigners to legally validate a completed transaction.  In one case, my client signed the title transfer documents, placing her purchase into a bank trust that erroneously listed a person unknown to my client as a beneficiary. It took us five years, two court proceedings and $10,000 in legal fees to unscramble the mess.

Mexican law requires a married couple to declare whether their assets are separate or held communally. If they declare communal ownership, both are required to sign for the sale of their property.  A Notario in Ensenada allowed the husband to sell multiple properties without his wife’s signature.  The husband is now deceased and his widow could get a court order canceling those contracts of sale.

The moral of this story is having good counsel when transacting business at the Notario’s office.  The Notario probably won’t have the time to give your matter all the attention it deserves.

 

Mexicomatters is a foreign investment consulting firm and issuing agents for First American Title Insurance here in Baja with more than 23 years providing legal and administrative services to protect foreign investors in Mexico.  Call from the US to (619) 819 9369 or from MX (646) 176 6759 and visit our website: www.mexicomatters.net


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