Russ Young wanted his own slice of paradise. In 1983, he found it: a small parcel of land in what was then the quaint enclave of Campo Torres, on the Pacific Coast about 20 miles south of the U.S.-Mexico border.
Young and his wife bought the land from another American, who assured them that the sale was a legitimate transfer of land. Because the house stood on federally owned property, the seller said, the Youngs would simply need a federal concession – a special document that would allow them to use the land. As part of the deal, the seller passed on his copy of that concession document to the Youngs and they began building their dream beach house.
But almost a quarter century later a knock on the beach house door brought the Young’s fantasy crashing down. Officials from the Mexican federal government had come to inspect their documentation to check that they were on the land legally. Russ Young had been working for years to try and get the Mexican government to recognize the legality of his concession, to no avail. The officials informed the Youngs that they had no right to be on the property and, last April, gave them 15 days to apply for a legitimate concession.
The original concession that the Youngs bought was deemed invalid, as a concession cannot be obtained by a foreigner. Therefore the Youngs had effectively paid for a document that was worthless and for land that they were not legally entitled to own.
The same story has been playing out up and down the misty, ramshackle coast of Baja Norte.
As California’s real estate fever has spilled across the border, the metal skeletons of new condo towers have sprung up every few miles along the picturesque toll road from Tijuana to Ensenada. Land values have spiraled skywards, and the various players in the real estate game have galvanized into action.
The federal government, spurred into action by leadership changes in Mexico City, has begun conducting a census of the federally owned coastal land and people like the Youngs have found themselves caught in the middle of the tempest.
“We’re between a rock and a hard place,” Russ Young said. “We’re kind of at a stand-off right now.”
Mexican law states that coastal land 20 meters (66 feet) inland from the mean high-tide line is owned by the federal government. In essence, all land within the so-called Federal Zone is owned by the nation and cannot be bought and sold. Instead, Mexican nationals can arrange for a concession from the federal government, which is basically a document that allows them to use the land for their own purposes.
Non-Mexican nationals are not allowed to own any land in Baja. However, over time, a system has developed that allows foreigners to acquire de-facto ownership of Mexican property by entering into a trust with a Mexican bank. The Mexican bank purchases the land on their behalf and enters into a trust, or contract, with the foreign national. That trust allows the foreigner to use the land just as if they owned it.
However, many plots of land inhabited by foreigners lie partly in the Federal Zone and partly on private property owned by Mexicans. That’s the problem for people like Russ Young and other residents who live on the stretch of beachfront property know as Campo Torres. The Youngs have been renting the privately owned portion of their land from the Mexican owners, and never arranged to purchase that land using a bank trust.
Silvia Perez-Thompson, a real estate consultant based in Rosarito, said there are many people the same position as the Youngs. She said hundreds of Americans paid for beachfront property in Baja in the 1970s and 1980s without realizing the technicalities involved with owning on federal land. Many people have also been leasing part of their land from private homeowners while most of their property is actually on federal land.
That hasn’t been a problem until fairly recently, Perez-Thompson said. The federal government has, from time to time, sent out agents to confront homeowners and to demand documentation, she said, but in the last few years enforcement really kicked up a gear. Perez-Thompson puts the upswing in activity down to an increase in the political will to collect the fees and a realization on behalf of the federal government that they are missing out on cashing in on the real estate boom by not charging people who live and run businesses in the Federal Zone for their concessions.
“The federal government finally is enforcing the laws and demanding that people get a concession because also they realize they will receive money this way,” she said.
Only Mexican nationals may apply for a concession and doing so is a complicated process that has, until recently, been something of a haphazard legal nightmare, Perez-Thompson said. She and other real estate professionals in Baja tell stories of paperwork that has gone missing time and time again; of inept and corrupt officials and of applications that took, in some cases, more than a decade for the government to process.
Things improved at the federal level recently, Perez-Thompson said, and the concession application process seems to be running a lot more smoothly these days.
The application process varies from property to property, she explained, but foreign residents who live on the coast and whose property encroaches into the Federal Zone can basically be split into two groups: Those who have “bought” the privately owned part of their property through bank trusts and those who, like the Youngs, have not.
Foreign residents who have set up bank trusts for the privately owned part of their land may apply for the concession through their bank. Basically, the bank applies for the concession on the foreigner’s behalf.
For those who, like the Youngs, have only been leasing the privately owned portion of their land, things are much more difficult. Perez-Thompson said people in that position are best advised to negotiate with the land owner who has been leasing to them. If they can convince the landowner to sell the land to them through a bank trust, they can then seek the concession through the bank. If they can’t convince the landowner to part with the land, however, then they’re basically stuck.
That’s where Russ Young finds himself. After thinking for 23 years that he owned the property where his house sits, he and his wife now don’t know what will happen to their property from day-to-day. For now, there’s little he can do but wait and see whether the federal inspectors turn up again.
“We’ve been there a good number of years and it’s our little piece of paradise,” he said. “We still are quite nervous about it.”
Some investors in Baja have negotiated the trap in which Young and his wife find themselves. In 1989, Bob Gee and his wife Pat bought a small hacienda, or guesthouse, in the small village of La Mision just north of the famous Hotel La Fonda, less than 40 south of the border.
Gee, like Young, bought his property from another foreigner and was assured that the concession for using the federal land was in place. When he went to renew the concession in the 1990s, however, he found the process to be a bureaucratic nightmare. He said he spent 12 years trying to renew the concession, to no avail. Then, one day, the federal government showed up at his door.
“I got a fine for $800, even though I had done all the work and it wasn’t my fault,” Gee said.
But Gee fought the fine and, after managing to arrange a bank trust for the section of his property that sat on private land, he was able to use the same bank to arrange for a federal concession for the part of his property that’s in the Federal Zone.
Getting his ownership deemed legal took a long time, money and heartache, Gee said. But in the end it was worth it. As the building boom continues along the Baja coast, Gee said, foreign residents in Baja would be advised to start cleaning up their paperwork and to get their applications in early, because there are lots of people lining up to take advantage of the hot commodity south of the border: beachfront land.
“They thought they had a place in heaven, but now it’s getting to the point where it’s just become too valuable,” he said. “It’s got to be solved, they’re illegal there.”