February 10, 2013

The Community Property System and the Sale of Real Estate

By Jorge Ojeda

The various civil codes in Mexico establish two principal marital property systems: community property and separate property. In a few states, such as Jalisco and Sonora, a third regime known as the legal property (sociedad legal) system exists, which essentially consists of a broader community property system. When a spouse under a community property system purchases real property, there is a presumption that such real property is held as community property, and such is deemed to have been acquired by both spouses in equal shares, unless a legal exception applies. Consequently, the sale of such real property would require the consent of both spouses. Historically, this requirement has led to conflicts and legal uncertainty when title to real property is recorded in favor of only one spouse and such spouse sells to a third party without the other spouse’s consent. In this case, the spouse who did not provide his/her consent could nullify such purchase and sale transaction, even if the deed contained no reference to the marital property regime or no reference is made as to such in the corresponding inscription before the Public Registry of Property. A principle exists in Mexican law which provides protection for good faith purchasers of real property. This means that a good faith purchaser who has acquired title to real property from a seller who is reflected as the record owner in the Public Registry of Property has protection against third party claims to such real property. Notwithstanding, various contradicting judicial interpretations concerning a spouse’s right to contest his/her spousal rights to marital property (such as community property rights) existed that created a degree of uncertainty in this area. Some courts have held that a good faith purchaser prevails. By contrast, other courts have held that the spouse’s marital rights to real property take precedence over those of the good faith purchaser, and have upheld such community or marital property rights, despite the fact that the other spouse is listed as the sole record owner of the property and that no registration is made as to their marital property regime with respect to the real property. In January 2013, Mexico’s Supreme Court of Justice resolved this controversy and the contradictory legal rulings by holding that registration of community property in the Public Registry of Property is a necessary requirement in order to enforce such against third parties. This decision by the Supreme Court of Justice provides legal certainty to good faith purchasers of real estate.