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How to Avoid Real Estate Scams in Mexico

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Avoid real estate scams in Mexico
Credit: Suze777 | Thinkstock

Today, I would like to discuss how to avoid real estate scams in Mexico, a concerning issue for all expats. We all know the saying that you should avoid things that look too good to be true. And we all like to think we can spot a scam. But frankly, it’s not always easy.

Fraudsters are always coming up with ways to win our trust and take our money. One way they do this is to offer the chance to get very good returns from some form of investment. Sometimes they also try to use real law firms to make their schemes seem trustworthy and safe.

The vast majority of solicitors act with honesty and integrity. However, a small number get involved in investment schemes they do not understand, or, on rare occasions, knowingly get involved in a dubious scheme. These schemes might be highly risky, never be able to pay the returns they promised or might be frauds. Some people have lost their life savings or pensions, which is an increasing problem.

In the last nine months, we have taken action against some real estate firms in cases where people have lost their money. These are not necessarily frauds, but we are concerned that real estate firms have not looked after their clients’ interests properly. We try to take prompt action to protect the public, often long before a court decides whether or not a fraud has taken place.

What is the problem?

There are many types of so-called “investment” schemes that turn out to be real estate scams in Mexico. There is in fact often no real investment, but fraudsters use the word to attract their victims. At the very least, these schemes can be high risk. These schemes can involve anything from trading in non-existent “bank instrument” markets to buying into high return real estate investments. But there are established markets for these and no magical way for ordinary investors to make very high profits.

Recently we have seen many involving property or land. While they may involve a lease, in fact they depend on the success of the underlying business, and the property itself is of little value, particularly if the business fails. They often are presented as a routine process of selling and buying property – known as the conveyancing – but the schemes are dubious or risky.

What to watch out for

Here are some examples of current schemes, but you need to be aware that these are constantly changing.

  • Unusual developments, such as buying individual hotel rooms or individual self-storage units. Those marketing these schemes will continue to look for similar things to offer, so be careful of anything that looks a bit odd. Investors can often pay several thousands of dollars for conveyancing, even though it is not needed, while the investments are often high risk.
  • Landbanking is buying small plots of land at inflated prices because it is claimed that the value will rise hugely if planning permission is granted. In cases we have seen, permission was never likely to have been given.
  • New build property developments are scams where people are invited to pay in full, or most of the costs, for holiday homes before they are built. Of course, people do buy and sell holiday homes, but the schemes to watch out for are often in areas where it is difficult or even impossible to either check if the development is real, or recover your money. There are clear risks in buying a property that has not yet been built and buyers would be best advised to ensure that they have their own independent legal and business advice.

Remember that, just like you, the people behind these real estate scams in Mexico read our warnings. They are constantly changing their schemes to try to stay one step ahead. For example, we warned about schemes offering unrealistically high returns. In response, some scammers reduced what they said their schemes will return, so that they still look attractive, but not high enough to instantly arouse suspicion.

The vast majority of attorneys and law firms in Mexico act with integrity and avoid such schemes.

Yet the trustworthy reputation of law firms can make dubious schemes seem more genuine, so fraudsters will involve a law firm to add credibility. In some cases, the fraudsters will say that experienced real estate attorneys are involved to make the scheme seem even more trustworthy.

There also is often a claim that there is an extra “guarantee.” People are told that their money is covered by some sort of insurance. If a scheme is legitimate, but high risk, your own real estate attorney should be letting you know in no uncertain terms. Yet, in some cases, there can be problems because the law firm is working for the scheme, not for you.

You need to be aware that a firm that is acting for the scheme will not be looking after your interests, although it must still act honestly. You should use your own trusted law firm or other advisers and be wary of using a firm arranged by those running the scheme.

Here are a few questions to ask:

  • Who is the law firm working for? Most often not for you. Instead they are working for the company trying to persuade you to hand over your money.
  • Is the investment company using a law firm in its marketing? An investment company does not need to promote its products by involving a law firm. A law firm does not mean security. In fact, it may be a warning sign if used as a selling point.
  • Are you being asked for a large deposit? A deposit in a property transaction would normally be no higher than around 10 percent. In dubious schemes we have seen so-called deposits ranging from 30 to 80 percent. This is not a deposit, but a high-risk payment of the price in advance.

Tips on how to avoid a scam

  • It’s common sense, but still worth saying: Do not invest in schemes that are “too good to be true.”
  • Always get your own independent advice from a law firm or other trusted professional.
  • Make sure your own adviser looks carefully at the documents. Schemes often promise a lot and look as though they could work in theory, but detail in the small print means they probably won’t in reality.
  • Do your homework. Research the scheme and look at official sources. Look for warnings or decisions from financial regulators. You can usually find details on their websites.
  • Do not be pushed to get involved quickly. it is very common for the fraudsters to say you have to act urgently. If they say that, you should be very suspicious.
  • If the proposed investment is in something unusual, ask yourself why? Remember, the suggested asset will be worthless if it is a scam, or if the company managing it is not well run and closes.

The best protection from real estate scams in Mexico is to be aware of the risks and take sensible steps to protect yourself. Remember, if it’s too good to be true, stop and think about it before you risk your money.

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