BACKGROUND

     International real estate trade is and has been a real challenge for hundreds of years. In the case in Sonora, for foreigners this trade, represents at the same time, having to face and sort risks and obstacles of all types; therefore, it is necessary to consult specialist on Real Estate Law. The purpose of the present practical guide is to provide elements that can help foreign investors to eliminate or reduce as much as possible, risks implied by said international real estate traffic.

It is important to underscore that there in specific terminology in these types of operations; therefore, it is important for foreign investors to know those terms and prevent possible conflicts of interpretation.

Due to the complexity of an international-type real estate transaction, it is necessary to use written agreements which, in one way or another, reflect uniformity in the agreement’s essential elements. Thus, an essential element of this guide is including the main agreements used in real estate transactions in Sonora to which foreigners are a party.

Now, as regards the subject, contrary to the United States of Americas a basically “common law” country, Mexico is a country that follows the civil system. In the Mexican legal system, the Constitution in the foundation of the system and the most important principles related to property tights are included in the Civil Codes of the States and in this particular case, the Civil Code of the State of Sonora.

From the Constitutional viewpoint, as regards real estate ownership rights, the most important article is article 27, fundamental basis for said right.

Initially, said Article sets forth the following: “Article 27.- The ownership of land and water located within the limits of the national territory originally corresponds to the Nation, that has had and has the right to transmit the ownership there of to private parties, thus constituting private property”.

Article 27 continues setting forth: “The capacity to acquire the ownership of the Nation’s land and water shall be governed by the following prescriptions:
1.- Only Mexicans nationals by birth or naturalization and Mexican corporations have the right to acquire the ownership of land, water and their appurtenances or to obtain concessions to develop mines, waters or combustibles materials in the Mexican Republic. The State may grant the same right to aliens, provided the agree before the Department of Foreign Affairs to be considered as Mexican nationals, with respect to such property and accordingly, not to invoke the protection of their Governments in respect to the same, under penalty that in case of breach of their agreement of forfeiture to the Nation of property acquire by virtue thereof. Within a zone of one hundred kilometers along the frontiers, and of fifty kilometers along the sea coast, no alien shall under any conditions acquire direct ownership of land and waters.

Pursuant to what has been set forth in the foregoing article, said article establishes the limitations for a foreign individual or corporation to acquire ownership rights on real estate located in what has been termed the “restricted zone”, that is, the one-hundred kilometer long strip along borders and fifty-kilometer long strip along coastlines referred to above, that is object of regulations set forth in the Law for Foreign Investment in effect, and that defines in greater detail, the way in which foreign nationals can acquire personal or real rights on real estate located in the restricted zone, which basically consists in that, in that zone, foreign nationals that intend acquiring rights on residential-type real estate, shall do so through a trust. Outside this restricted zone, foreign nationals may acquire the ownership of real estate.

Continuing with the subject, an essential requirement for foreign nationals to acquire property rights is for said property to be considered “private property”.

As of the time when the Political Constitution of 1917 of the Mexican Unites States became effective, we can consider that are three types of ownership in Mexico:
First: Private Property: that arises when a property is attributed or corresponds to a person, whether an individual or corporation, pursuant to public law, as acknowledged in the first paragraph of article 27 of the Constitution, subject to the modalities dictated by republic interest.
Second: Public Property: It is attributed to the State, since it is a entity with its own legal capacity and which is exercised through its different bodies and authorities, as regards the Federal, State and Local governments.
Third: Social Property: It is the property basically attributed to agrarian communities, as legal persons of societal rights, in case of the “ejidos”, population nuclei with community population and land located within the different colonization districts.

These three types of property are regulated by and extensive and complex organic law and regulations resulting from article 27 of the Constitution or the state constitutions, as for instance, the Law of Agrarian Reform, the Law of Human Settlements, the General Law of National Property, that refers to the federal maritime-land zone, the Law of Foreign Investment and the Organic Law of the Federal Public Administration, there being the possibility that presently, this societal type of property, which in the case of Sonora comprises a large area of the land located on beaches, that tends to be used for tourist purposes, may be converted into private property, once all the requirements set forth in the Agrarian Law its regulations in force, have been satisfied.

Within this plan, it is important to establish that within or without the restricted area, foreign nationals shall require the Department of Foreign Affairs to authorize the corresponding acquisition, whether through the execution of a waiver agreement for the acquisition of real estate outside the restricted area, or the issuance of a permit to acquire trust rights on real estate located within the restricted zone.

These documents are important, especially in the case of the trust, because they shall be the bases of the beneficiary rights and obligations, including the way how he real estate for residential purposes shall be used as well as the possibilities to lease, improve and eventually transfer it; hence, the importance of this permit to which we refer.

Following this plan, the Federal Constitution sets the following forth in the aforementioned article 27: “To issued the measures necessary to order human settlements and to establish the appropriate provisions, uses, reserves and destinations of lands, water and forests, in order to execute public works and to plan and regulate the establishment, conservation, improvement and growth of population centers”. As of 1976, based on this constitutional foundation, at the state level, different laws on settlements or urban development, containing the bases for the approval of state or local urban development programs, as well as the bases for the approval of real estate developments have been approved at the level. In the case of Sonora, the State reserves the authority to approve tourist, industrial or rural-type developments.

The Constitution and state laws in the State of Sonora are also of importance, because the Civil Code specifically sets forth that foreign nationals shall subjects to the state laws, especially in the case of real estate.

As far as the municipal or local level in concerned, it is important to pinpoint the Construction Regulations for each municipally. In this particular case, foreign nationals tend to confuse CC&R (COVENANTS, CONDITIONS AND RESTRICTIONS) with conditions and regulations of the development or the condominium that should basically be included in: The text of the agreement on which the subdivision approved by the government is based and which is published thereafter in the Official Bulletin, to become part of the document of the unilateral statement will and the Condominium Regulations or the Time Share System Regulations, as well as the corresponding trust agreement, in which the bases for the rights and obligations of foreign nationals who acquire rights are set forth; all of which, furthermore, should be registered in the Public Registry of Property.

It is important to state that by virtue of the differences in the legal systems, in Mexico, the participation of a national Notary Public is mandatory for the types of ownership rights transfers, especially in the case where one of the contracting parties is a foreign national, as well as the participation of Fiduciary Institutions.

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