How to avoid Real Estate Scams in Mexico.

REAL ESTATE FRAUD SCHEMES IN MEXICO

By: Jorge E. de Hoyos Walther

jorge.dehoyos@dha.mx

Real Estate fraud, commonly known as "scams" refers to illegal activities aimed to misrepresent information on real estate property, documents, or mortgage loans as well as any transfer of money with the purpose of defrauding victims wishing to invest in a residential or commercial property.

In recent years, many foreign individuals, have decided to invest in Mexico´s Real Estate due to its appealing beaches and abundant coastal properties; however, investors should observe due care to prevent falling victim to these deceptive practices. We have noticed a significant increase in these scams, mainly in tourist or industrial destinations, such as Cancun, Los Cabos, Puerto Vallarta, Tijuana, Mexicali, Ciudad Juárez, and Mexico City among others. Investing in real estate in Mexico involves navigating a complex legal landscape.

When investing in the country, buyers need to keep in mind that foreign individuals may lease and own real estate and other properties in Mexico. However, several guidelines must be considered before buying real estate.

Foreign individuals or companies and Mexican companies that are 100% owned by foreigners may buy real estate for residential purposes provided they comply with some requirements and permits; they can also purchase land within the Mexican "restricted zone" using a Mexican Trust or “Fideicomiso”.

Oftentimes, retired Americans are the main target of real estate fraud. Typically, they fall prey to carefully crafted schemes and without proper guidance, they might be subject to a series of elaborate deceptions.

In Mexico, the most common types of scams are: a) Title fraud where an individual attempts to sell a property that does not exist or attempts to sell a property that does not belong to them. b) The repurchase of timeshares with an attractive profit margin for the time-share owner.

Real estate scammers in the country are a sophisticated group that operates in an organized manner and have their victims perfectly identified. On many occasions, they breach real estate developers’ databases, obtaining personal and/or sensitive information of the owner of the property or timeshare. By doing so, the initial contact seems legitimate.

These criminals work in various ways but there are common practices among them that potential investors need to be aware of:

• When a victim is contacted by a scammer, they offer a property and payment scheme that is very attractive from an investment perspective. Scammers might use company names similar to other serious real estate companies, a situation that can lead to confusion.

• Victims are told that they require a Mexican tax ID and that the real estate company will set up the agreement and the entire sale process, including hiring a lawyer to obtain the tax ID on their behalf. Victims are charged an upfront fee to cover the seller´s expenses and the lawyer.

• The alleged lawyers are not registered in Mexico´s Secretary of Education national registry of professionals, thus they are not certified to practice law in Mexico.

• Alleged lawyers send false official documents to the buyer that mimic real documents, these false documents are supposedly issued by the tax authorities, the Treasury, and other governmental entities.

• Payments requested after the first contact vary in nature such as taxes, parcel expenses, and Tax ID, among others.

The fraudulent scheme does not end when the victim wires funds to the scammers; these scams have become so elaborate that once victims have cut off communication with the scammers because the scams have been discovered and a reasonable amount of time has elapsed, scammers approach the victims again pretending to be the Mexican government.

In this phase of the scam, they announce to the victim that the government has created a department or office to compensate victims of real property scams as long as they provide sensitive personal information.

At this point, the procedure is very similar to the first scam, first requesting relatively little money for things such as hiring Mexican lawyers, paperwork, and taxes, but after the first few deposits or wire transfers, scammers make up fees to keep getting money from the victim in ever-increasing amounts.

The U.S. Embassy in Mexico issued an alert with the following information:

“In 2020, the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission issued a joint warning to consumers concerning fraudsters targeting owners of timeshares in Mexico. Individuals who have been victimized by this type of scam are encouraged to file a complaint with the FBI’s Internet Crime Complaint Center by visiting https://www.ic3.gov .

At times, perpetrators of timeshare fraud misuse government agency names in attempts to appear legitimate. For example, perpetrators may call victims and claim to represent the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), demanding a payment in exchange for the release of funds that the perpetrator claims OFAC has “blocked.” Today, OFAC is also issuing an alert regarding such scams, warning that individuals may falsely claim to represent OFAC in furtherance of their fraud.”

A real estate lawyer might help buyers navigate the Mexican real estate market and provide guidance as to the requirements needed to acquire property in the country, as well as to duly investigate in the Public Registry of Property that the land they wish to buy is free from liens, and belongs to the seller.

Recommendations

Transactions to acquire property should start with the seller accepting an offer from the buyer in the form of an offer to purchase which is an agreement that sets out all the terms and conditions of the purchase including the details for a money deposit, a price, deadline for the seller to accept the offer, and payment plans.

After the seller accepts the offer in writing both parties can sign a buy/sell agreement; please note that in Mexico, the transfer of real property requires a public notary and a series of formalities that do not exist in the United States. Be aware that Mexico law does not recognize “quite claim deeds.”

Buyers should consult a lawyer before signing any contracts, or transferring any money no matter how small the amount seems and as mentioned before, make sure there is a public notary involved in the acquisition process who should start the sale process by verifying the property’s legal status in the public registry.

In the firm we have a team of experts in real estate matters that include the creation of trusts, real estate companies and all types of closing services. We have assisted hundreds of foreigners in purchasing and selling tourist or industrial real estate in Mexico City, Tijuana, Rosarito, Ciudad Juarez, Chihuahua, Los Cabos, Puerto Vallarta, Chapala and Guadalajara.

If you need more information, send an e-mail to jorge.dehoyos@dha.mx

Disclaimer: This information is for general information purposes only. It is not intended to provide legal advice or opinions of any kind and may not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely upon the materials provided in this document any hypertext links, or other general information without first seeking appropriate legal or other professional advice.