The Calvo Clause: Waiving Your Rights As a Foreign Investor in Mexico

Enrique "Henry" Saldana (May 2012)

Now, and before you begin reading this very important information, let me just say that, knowing the idiosyncrasy of our business (real estate) in Mexico, I can foresee a lot of people in disagreement about the disclosure of the below-presented information. Nevertheless, let me just say that I, throughout my entire real estate and mortgage broker career, have followed the premise that proper disclosure and transparency in the business of real estate generates more trust (confidence) and creates better results for all parties involved in the process of property sale and acquisition as a whole, and why not make this the norm in Mexico also.

The Calvo Clause applies to all Foreign Real Estate Purchasers and Investors in Mexico.

The Calvo Clause is a legal doctrine that attaches the following five key provisions to an international investment agreement: 1) submission to local legal jurisdiction; 2) application of local law; 3) assimilation of foreigners to local contracting arrangements; 4) waiver of diplomatic protection in a foreigner's home state; and 5) surrender of rights under international law exclusion.

The vast majority of real estate purchases in Mexico by foreign purchasers are subject to the Calvo Clause whereby buyers waive all legal rights to have disputes adjudicated by courts outside of the Mexican jurisdiction where property is purchased.

In Mexico, the Calvo Clause is typically found in contracts of real property sold to foreign investors. Under Article 27 of the Mexican Constitution, only Mexicans by birth or nationalization or Mexican companies have the right to acquire property in Mexico. Under this same Article foreigners may acquire property, but only if they agree before Mexico's Secretariat of Foreign Relations to consider themselves as nationals with respect to the property that they purchase and bind themselves to "not provoke the protection of their government in matters related to contract non-compliance or property forfeiture." With regard to Mexican coastal properties, the Calvo Clause is typically found in the Fideicomiso document, not in the purchase contract.

In direct contradiction to the language embedded in real estate contracts that stipulates that foreign buyers will be treated as Mexican nationals, the presence of U.S. title insurance companies and U.S. developers and brokers gives many would-be purchasers of property in Mexico the false impression that there will be U.S. legal remedies if issues arise with their planned Mexican real estate purchases. Because U.S. buyers put more trust in transnational agencies, they may not be as meticulous in their research, thinking that they are somehow protected by these agencies.

In the cases of many Mexican real estate properties sold to foreigners, however, potential home buyers are not provided up front with full disclosures of their legal limitations as a foreigner in Mexico, nor are the documents provided to them in English, their primary language.

In a nutshell, the Calvo Clause provides a lot of uncertainty to the foreign real estate investor in Mexico, not to mention the great number of cases whereby foreign investors have been defrauded out of their investments in Mexico. Furthermore, and unfortunately, given the travel, cost and language constraints of pursuing a case from abroad, legal claims by foreigners are rare, mostly because there is the belief that the investment will never be recovered. WRONG!!!

I am not going to go deep into this topic, but what I can tell you right now is that out of 15+ legal demand cases presented by former clients of ours in order to recover their investment plus damages and penalties, all of which have been won at different court instances, one of them is just going into the process in which the property will be adjudicated to the plaintiff (our former client). In other words, possession of the property will pass on to the plaintiff (our client) unless the developer decides to refund their deposit and pay liquidated damages and penalties, according to the highest Federal Courts in Mexico.

So even though the Mexican Government provides for the Calvo Clause as a way to protect their national sovereignty, as in Article 27 of the Mexican Constitution stipulates, you, a foreign real estate investor, still have the legal recourse of the Mexican Courts, as some of our former clients are now finding out, to recover your investment, in addition to liquidated damages and penalties, in Mexico.

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This report courtesy of Enrique (Henry) Saldana
Mexico Realty Solutions
Mortgages "R" uS
Enrique (Henry) Saldana
Off:  (984) 147-2388 Cell: (984) 111-8743
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Skype: MexicoRealEstate