New legislation enacted in August 2019 gives the Mexican state wide-ranging powers to seize physical property in the event that it’s suspected to be —or suspected ever was— linked to illicit or criminal activity.
Known in Spanish as Ley Nacional de Extinción de Dominio, the law enables a judge to immediately order the seizure of a property that is suspected to be part of a corrupt or illegal transfer chain (for example, if previous owners used illicit means to acquire it or build it) and/or if it’s suspected the property is being actively used for criminal purposes.
The law is causing some controversy especially in relation to a present owner’s risk of loss due to an illicit transaction history that the owner could not have known about. Under this law, a property may be immediately seized without trial if the authorities present a petition to a judge and that judge deems that there are grounds to suspect the authorities have a case. The state may subsequently dispose of the property even before a trial has taken place.
If you buy a property in Mexico and, even years later, it’s discovered that the property was transacted illegally you could forfeit the asset and have no recourse to insurance coverages which would become null-and-void in this circumstance.
As the law is new (and untested) there are no substantive case studies to reference regarding the appeal process. In any event, legal costs to defend the asset would be substantial even if a subsequent trial ruled in the owner’s favor.
The law covers titled land, titled physical property (residential and commercial) and ejidos (communal land); as well as any assets situated on or linked to the property including valuables, goods, bank accounts, etc.
Definitions of ‘illicit uses’ of the property include —but are not limited to— organized crime, kidnapping or people trafficking, concealment, storage of stolen or illegal goods (e.g. cars, fuel, drugs), extortion, and money-laundering.
The wrong tenants can cause you to lose your Mexican home
This law also places the burden of responsibility of current use of the property directly on the owner. If you rent your house out and the tenants use it for illegal purposes, then the state can seize the property from you with a writ from a judge. In circumstances where your rented property is used by the tenants for illegal purposes it may prove impossible to get your home back or get compensated after the fact.
When you rent out your Mexican home you should be absolutely sure that detailed referencing and due diligence has been undertaken on potential tenants and that the people who apply and sign the rental contract are the same people who move in. The contract should contain carefully-worded legal clauses which specifically prohibit illicit use of the home. Speak to your real estate agent or a lawyer or Notary Public to ensure your contract is current in respect of this new legal code.
The information contained in this article is published in good faith and not intended to constitute personal, professional, legal, financial or investment advice, nor replace the services of professional advisors.
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