Title insurance and indigenous rights

Introduction
Legal background
Ejido right of first refusal
Comment

Introduction

A wide range of issues can affect a title to property – from different types of lien, encumbrance or levy to filing errors, recordation mistakes and even forgeries. Further, a legitimate title to property can be affected by adverse claims, encroachments, undisclosed heirs, outstanding suits and taxes and other discrepancies. Procuring title insurance has therefore become common practice for both lenders and owners in real estate transactions. As title insurance is a type of indemnity insurance which covers financial loss from title defects, it protects policyholders from past events which could affect the property's transfer. However, certain aspects of real estate development which are unique to Mexico must be taken into account in this regard.

Legal background

Article 27 of the Constitution of the United Mexican States sets out provisions regarding property and the ownership thereof. Such inalienable rights concern, among other things, communal, rural and indigenous land (known as 'ejidos') which is used mainly for agrarian and agricultural purposes. In order to transfer property which is subject to an ejido or agrarian regime, the parties involved must comply with specific legislative requirements in a process known as 'disincorporation from an agrarian regime'.

Under the Agrarian Law, a general assembly of the ejido members must be held, subject to the formalities required by law, including with regard to:

• the calling of the meeting;
• the meeting's location;
• the timing of the meeting (for the transfer of property subject to an agrarian regime, attendees must be given at least one-calendar months' notice); and
• the quorum.

A general assembly will be legally installed when:

• at least three-quarters of the ejido members meet on the first call to meeting; or
• at least half of the ejido members meet on a second or subsequent call to meeting.

Further, the minutes of the meeting must be duly formalised pursuant to the applicable provisions of the Agrarian Law and a request must be made to the National Agrarian Registry for such property to be withdrawn from the agrarian regime.

Ejido right of first refusal

All ejido members have a pre-emptive right of first refusal with regard to any property which is part of the agrarian regime to which they belong. This right also extends to the following parties (in the order set out below):

• the ejido member's family members;
• persons who have worked the applicable land for more than one year;
• other ejido members;
• neighbours; and
• the so-called 'nucleus of the ejido population'.

The right of first refusal must be exercised within 30 calendar days from the issuance of the notice of the disincorporation and sale of property subject to an agrarian regime. However, the sale of such property may be voided if the notice was not properly made to all ejido members. Therefore, strictly speaking, this right is subject to no statutory limitation and can be exercised at any time by an ejido member (or any of the abovementioned individuals) who believes and argues that proper notice was not given. In such regard, title insurance would not be liable to provide coverage given the specific encumbrance created by this right of first refusal.

Comment

Title defects can be complex, time consuming and expensive for the parties involved and can ultimately result in a loss of ownership of the property. Although title insurance can greatly minimise the risk to which parties to a real estate transaction are exposed, they must consider the abovementioned matters and take the necessary precautions (including obtaining appropriate counsel) when acquiring property in Mexico.

For further information on this topic please contact Miguel Beltrán R at Santamarina y Steta by telephone (+52 55 5279 5400) or email (mbeltran@s-s.mx). The Santamarina y Steta website can be accessed at www.s-s.mx.