PUERTO PEÑASCO (ROCKY POINT) FIASCO
At the
end of this dusty dirt road, half-built casitas bake in the sun a few miles
from the beaches of Puerto Peñasco, Mexico, better known as Rocky Point. Paint
peels from two of the vacant models, surrounded by nothing but sand dunes.
Across from the casitas, a weather-worn billboard advertises the luxurious amenities of a planned Mexican country club and golf resort. It’s one of the few remnants of the seductive deals that enticed hundreds of Arizonans to invest millions in these now-defunct Mexican condos, casitas and hotels.
Seven years ago, throngs of Mexican politicians, developers and American investors stood on this same spot celebrating the groundbreaking of the casitas, which were to be part of North Beach – then touted as Rocky Point’s largest master-planned development.
Seniors
Howard and Madeline Israel sipped margaritas and dreamed of watching sunsets
from the patio of what would be their private seaside casita.
The Israels and other investors were told models would be completed in a few months and that the condos would be move-in ready by the end of the year.
Seven years later there’s been virtually no progress on the projects at North Beach, and investors who put down large cash deposits have yet to see any kind of a refund.
Beyond North Beach, condo projects in central Rocky Point and well-known Sandy Beach are also being stalled by the economic downturn, with many investors unable to get refunds on their deposits. Other Rocky Point property owners are battling Mexican developers who have threatened to bulldoze their beachfront homes and use the land for high-rise projects.
The real estate debacle in Rocky Point is severe, experts say, damaging buyer confidence and having the potential to severely compromise any future growth plans in Arizona’s beach town.
The Israels and other investors were told models would be completed in a few months and that the condos would be move-in ready by the end of the year.
Seven years later there’s been virtually no progress on the projects at North Beach, and investors who put down large cash deposits have yet to see any kind of a refund.
Beyond North Beach, condo projects in central Rocky Point and well-known Sandy Beach are also being stalled by the economic downturn, with many investors unable to get refunds on their deposits. Other Rocky Point property owners are battling Mexican developers who have threatened to bulldoze their beachfront homes and use the land for high-rise projects.
The real estate debacle in Rocky Point is severe, experts say, damaging buyer confidence and having the potential to severely compromise any future growth plans in Arizona’s beach town.
According
to Mexican tourism officials, more than $550 million in foreign investments are
made in Sonora, Mexico each year, most coming from Arizonans.
Since 1993, investments have been fueled mainly by the Foreign Investment Act, which permitted Americans to own property in Mexico through what is the equivalent of a bank trust.
Since 1993, investments have been fueled mainly by the Foreign Investment Act, which permitted Americans to own property in Mexico through what is the equivalent of a bank trust.
Thousands
of American buyers have used this system of ownership without any problem. The
trust allows American buyers to purchase property under a renewable 50-year
lease held in trust by Mexican banks.
In fact, the bank-trust system transformed Puerto Peñasco from a sleepy fishing village to one of fastest-growing resort and tourist destinations in all of Mexico.
Beginning in 1998, Americans flocked to the pristine beaches to put down deposits and full cash payments on planned projects; all were convinced they were getting in on the ground floor of a spectacular real estate opportunity.
All told, North Beach developers collected an estimated $2.5 million in down payments from over four hundred American buyers. Seven years later, virtually nothing has been built, and no one knows exactly where the money has gone.
The developer could not be reached for comment.
Not all of complaints from Rocky Point homeowners are related to unfinished projects. Glendale residents Buz and Cherie Turner had lived in an upscale beachfront home in Rocky Point at a development known as Playa Dorada since 1992, when the sellers threatened to take back their land.
In fact, the bank-trust system transformed Puerto Peñasco from a sleepy fishing village to one of fastest-growing resort and tourist destinations in all of Mexico.
Beginning in 1998, Americans flocked to the pristine beaches to put down deposits and full cash payments on planned projects; all were convinced they were getting in on the ground floor of a spectacular real estate opportunity.
All told, North Beach developers collected an estimated $2.5 million in down payments from over four hundred American buyers. Seven years later, virtually nothing has been built, and no one knows exactly where the money has gone.
The developer could not be reached for comment.
Not all of complaints from Rocky Point homeowners are related to unfinished projects. Glendale residents Buz and Cherie Turner had lived in an upscale beachfront home in Rocky Point at a development known as Playa Dorada since 1992, when the sellers threatened to take back their land.
Most
homes in Playa Dorada were sold in the early ‘90s before the bank-trust system
was established, so residents signed up for 99-year leases and were told they
would later be converted to bank trusts.
Then, in 1999, nearby land disputes emerged and developers threatened to swallow up their properties to make space for a new development. Fearing they might lose rights to their Mexican properties, the residents desperately sought legal help.
That’s when residents say Mexican attorney Raul O’Farrill got involved. The residents were told O’Farrill was an impartial mediator between North Beach and Playa Dorada and that he would assist the residents in securing bank trusts. With O’Farrill’s impressive list of credentials, the Playa Dorada residents say they had no reason not to trust him.
Not only was O’Farrill a licensed Mexican attorney, he was also a member of the Arizona-Mexico Commission and was designated by the Arizona Supreme Court as “foreign legal counsel,” authorizing him to practice law in Arizona.
What the Turners and other residents say they didn’t know at the time was that O’Farrill also had a financial interest in the proposed development. And though there is no disclosure laws in Mexico, documents show O’Farrill had a percentage partnership in the development, but representatives for O’Farrill say he did not become financially involved until after serving as an intermediary. O’Farrill declined to be interviewed for this story.
The housing market downturn in Arizona has had a severe impact on Mexican real estate, experts say.
Many buyers who have been waiting years for their condos to be completed are now being denied refunds, despite contracts that promised firm delivery dates.
Some buyers in the Las Palomas condominium and golf resort on Sandy Beach, for instance, say they are unable get their 30-percent down payments back, despite a right-to-cancel clause in their contracts.
That’s because the Mexican government has approved what is called a “Force Majeure” for many of the developers, which frees them from timeline obligations. Force Majeure clauses are typically used in extraordinary circumstances, such as war, worker strikes or an act of God.
The above mentioned stories, are not exclusive to the Rocky Point area, they seem to repeat in other Mexican tourist destinations areas as well. Including our Cancun-Playa del Carmen-Riviera Maya Area. But because some are presently still being litigated (going through judicial proceedings), we cannot discuss them at the present time.
Then, in 1999, nearby land disputes emerged and developers threatened to swallow up their properties to make space for a new development. Fearing they might lose rights to their Mexican properties, the residents desperately sought legal help.
That’s when residents say Mexican attorney Raul O’Farrill got involved. The residents were told O’Farrill was an impartial mediator between North Beach and Playa Dorada and that he would assist the residents in securing bank trusts. With O’Farrill’s impressive list of credentials, the Playa Dorada residents say they had no reason not to trust him.
Not only was O’Farrill a licensed Mexican attorney, he was also a member of the Arizona-Mexico Commission and was designated by the Arizona Supreme Court as “foreign legal counsel,” authorizing him to practice law in Arizona.
What the Turners and other residents say they didn’t know at the time was that O’Farrill also had a financial interest in the proposed development. And though there is no disclosure laws in Mexico, documents show O’Farrill had a percentage partnership in the development, but representatives for O’Farrill say he did not become financially involved until after serving as an intermediary. O’Farrill declined to be interviewed for this story.
The housing market downturn in Arizona has had a severe impact on Mexican real estate, experts say.
Many buyers who have been waiting years for their condos to be completed are now being denied refunds, despite contracts that promised firm delivery dates.
Some buyers in the Las Palomas condominium and golf resort on Sandy Beach, for instance, say they are unable get their 30-percent down payments back, despite a right-to-cancel clause in their contracts.
That’s because the Mexican government has approved what is called a “Force Majeure” for many of the developers, which frees them from timeline obligations. Force Majeure clauses are typically used in extraordinary circumstances, such as war, worker strikes or an act of God.
The above mentioned stories, are not exclusive to the Rocky Point area, they seem to repeat in other Mexican tourist destinations areas as well. Including our Cancun-Playa del Carmen-Riviera Maya Area. But because some are presently still being litigated (going through judicial proceedings), we cannot discuss them at the present time.
The Bottom
line here is the need to know the DO’s and DON’Ts when purchasing real estate
in Mexico.
First
rule of buying property in Mexico is, DO NOT ASSUME ANYTHING! Purchasing property
in Mexico is not the same as in other parts of the world.
Therefore you must:
-
Do inquire about legal aspects in the purchase
of properties in Mexico by foreign buyers.- Do not use just any realtor, since real estate agents are not regulated in Mexico, therefore their level of professionalism might be questionable.
- Do request to work with someone that is familiar with Mexican Law, but most importantly knows or understands the business since he would have to explain to you the processes, requirements, and compromises you will enter into when acquiring your property.
Second
rule of buying property in Mexico is, when buying with a mortgage, NOT ALL
MORTGAGE BROKERS ARE THE SAME! Initially
there were several lenders doing mortgages in Mexico. Today, there is only one, Scotiabank
Mexico. So, whatever mortgage offerings
you hear, or are being offered, they are all coming from mortgage brokers and will
end up with Scotiabank Mexico, once is all said and done, and most importantly
funded. We have been working with
Socitabank as an independent Mortgage Broker since the beginning of their Home
Vacation Mortgage Program, back in 2006-2007 Bank Cycle year.
The
Third Rule: Ensure yourself that you will be getting a Bank Trust at the
closing of your property.
The
Importance of a Bank Trust:
For
those who wish to acquire property for residential usage, and who have a valid
entry visa, current law requires that title to the property be transferred to a
Mexican bank, as trustee, in the establishment of an individual land trust. The
bank handles all of the paperwork including filing for all of the necessary
permits with the Ministries of the Interior and Foreign Affairs. In general,
the bank has the responsibility to the government to ensure precise fulfillment
of the Trust agreement, assuming full technical, legal, and administrative
supervision in protecting the interests of the beneficiary (purchaser).
Contact
us for more info with regards to the Trust.
SO WHAT
TO DO IN ORDER TO PROTECT YOUR INTERESTS?
All real
estate transactions in Mexico are processed through the office of a
"Notario" (a Notary). A Notary
is a qualified government appointed lawyer who acts on behalf of the government
to ensure the proper transfer of all real estate transactions. Among this official's many important duties
is registry with the appropriate government agencies of the deed for transfer
of rights of the beneficiary. This is the single most important step in
protecting a foreigners investment in Mexico, since it remains the ultimate
proof if ownership if a property ever becomes a question.
To
ensure proper registry of the property to the new owner, an official appraisal
of the property, notarized bank instructions, a property tax certificate, and
no-liens certificate must be obtained. Sellers Capital Gains Tax and Buyer's
Acquisition Tax must be paid and the deed transferring rights to the buyer must
be registered and stamped by both the tax office (Treasury) and the Public
Registry. If this process is not completed the buyer is not fully protected.
So the
final question is: Do many foreigners currently own coastal property in Mexico?
And the
answer is, Yes. Today thousands of foreign owners enjoy an ocean side resort
property; and many have benefited from the appreciation of their property.
The
information herein provided is not to discourage you from acquiring a property
in Mexico, but to make you are aware of the risks involved when not dealing
with the right parties in and during your purchasing of our property in
Paradise.
So, Good
Luck, Buena Suerte, Bonne Chance, in your next real estate investment in
Mexico.
QUESTIONS
AND ANSWERS
I've
always heard that foreigners can't buy coastal property in Mexico, is that
true?
No. While
it was once true, times have changed. Prior to 1973, foreigners were not
allowed to hold legal title or exercise direct rights to real property in an
area within 64 miles of Mexico's borders and 32 miles of its coasts. But laws
passed in 1973 and 1993 have made it possible for foreigners, foreign firms and
Mexican firms with foreign participation to acquire interests in coastal real
estate through a bank trust (Fideicomiso).
Q: Who is
involved in this bank trust?
Three
parties. The seller of the property is the Trustor. The bank is the Trustee.
(Fiduciario), and the buyer, or Beneficiary (Fideicomisario).
Q: How
does the trust function?
Title to
the property is transferred to a trust with a Mexican bank acting as Trustee.
The Trust Agreement is formalized by the issuance of a permit from the Mexican
Ministry of Foreign Affairs. The lot or home buyer is designated as Beneficiary
in the Trust and the beneficiary rights are recorded in the public record by a
Notary Public.
Q: What
are my rights as a buyer?
The trust
is a legal substitute for fee simple ownership, but in this case, the Trustee
is the legal holder of the property. As Beneficiary, you have the right to sell
your property without restriction. You may also transfer your rights to a third
party, or pass it on to named heirs.
Q: Is the
trust renewable?
Yes.
According to the Foreign Investment Law passed in 1993, trusts can be renewed
for an indefinite number of successive 50 year periods. In effect they run in
perpetuity.
Q: If at
a later date, I decide to sell my property can anyone buy it?
Yes. If
the buyer is also a foreigner, you simply assign beneficial rights. If the new
buyer is a Mexican National, you can instruct the bank to endorse the title in
favor of the buyer.
Q: If the
buyers is a foreigner, is his interest limited to the balance of my 50 year
trust?
No. Upon
application, a foreigner automatically receives his own renewal 50 year permit.
This, however, is not mandatory.
Q: Do
many foreigners currently own coastal property in Mexico?
Yes.
Today thousands of foreign owners enjoy their ocean side resort property; many
have benefited from the appreciation of their property.
No comments:
Post a Comment