How to reverse a Mexican judgement & reclaim your $30mil in land?
January 10, 2014 5:35 PM   Subscribe

What follows is an harrowing tale of the dangers in investing in developing markets. Additionally, there are several telltale signs of the naive and brash personality of many American businessmen before the Great Recession many mefis will find entertaining. Unfortunately, this isn't some made-up story (though I wish it was) and the money my friend has lost is, indeed, very real. Please help!!!

Eight years ago my friend, who we'll call Ernie, was approached by a friend about a real estate opportunity in Mexico. The friend and some colleagues were in the process of forming an LLC to raise upwards of $18 million, and asked Ernie to join.

As experienced entrepreneurs and real estate businessmen, they hoped to buy a piece of prime, beach front property in a desirable part of Mexico, and turn a profit. This land, nestled between two hugely successful resorts like an unspoiled fruit waiting to be eaten, seemed like a great investment opportunity. Obviously, our greedy and oh so human protagonist couldn't resist the prospects of finally being able to pay down his outstanding debt and retire, so he joined the LLC with around 300 large of his hard earned cash.

Within the framework of an exuberant, pre-crisis mindset, there wasn't much to it. Buy, hold, sell. Or, if they got lucky: buy, partner with a resort, milk, and sell. In any case, it was supposed to be a 5-7 year investment, and then home for dinner. Of course, things didn't exactly go that way.

Soon after he invested, the LLC signed a pretty, American-made contract for 30+ acres of prime real-estate. In addition to a large loan, they also had a sweet deed of ownership.

Here's where the story begins to get messy: Given the prime location and quality of the land, their recently purchased property was unsurprisingly protected by the Mexican government. They knew this before, though, and were assured by the sellers that the permit (an MIA?) was easily obtainable. So, as planned, they bought a $450K permit to gain the rights to build improvements (like a resort) on the land, and its value instantly went up. Little did they know they just spent half a million dollars on a fake permit.

Soon after, a neighboring American resort company, which we'll call RMA, got wind of the project and wanted in. They decided to purchase 60% ownership of the venture after a fact finding mission and a long period of due-diligence. This cost a large portion of their ownership, but for 14 million USD and an experienced developer partner it was a small price to pay. Plus, this meant they didn't owe the bank anything.

Cue dramatic music as the fiasco unfolds.

Several months after this great alliance forms, it's revealed (to everyone's surprise) that the environmental building permit is phony. Clearly, the permit seller had already skipped out of town and the land became officially "unbuildable" because no one wants to put another half million dollars into "purchasing" another. Suddenly, RMA freaks out and starts threating to sue the LLC for the amount they purchased the land for, plus damages. That is, they threaten to sue for more than 14 million dollars USD.

Over the course of a couple of years, they send threatening letters to the managing director (who loosely reports back about this) threatening American and Mexican civil suits. Essentially, they argue that they would have never made the deal if they knew there was no permit, (As if the LLC new that) and that they wanted out.

Now cue financial meltdown, a huge depreciation of the land (so it's almost underwater), Ernie loses his job, and several members of the LLC lose almost their entire fortunes. As you can tell, things just became kinda difficult. Ernie is official over his head, out of his depth, in too deep, etc. Understandably, the other investors are also preoccupied with their own affairs to the extent that no one takes the allegations very seriously.

One day Ernie gets a notification in the mail. It's a summons for Mexican court by RMA. They're officially suing the LLC. Oh, and the court date is coming up really soon. Apparently, it will cost an additional 200 - 400 thousand dollars for the group to defend itself, so they laugh and say "the contract is American! Who gives a fuck what the Mexican court says?" Right? Ha. Tell that to the 26 million dollar judgement RMA is awarded for legal fees, missed opportunity costs, misc. costs, and other bogus charges. Apparently, if you can't pay for your day in court you don't get it then. The law at work!

Stunned and confused, nobody from the LLC knows what to do. Like silly children, they hide in their doll houses across the border clinging to the American legally enforced deed of ownership. The group lies wounded, sullenly licking its wounds, as the resort company comes attempts to lumber the judgment to an American court in Delaware. Thankfully, the US justice system will have none of it and the thing dies for the moment. Of the dozen, or so, investors none of them respond to RMA's bullying as they demand their portions of ownership. No one but the sole responsible guy, the managing director, who grudgingly gives his share to RMA.

Flash forward several years, we gradually exit the recession, and now land value is suddenly back to historical highs. An appraisal values the land between 25 - 40 million and everyone slowly starts to realize what a clusterf•ck they have on their hands. Huge corporation vs. some duped investors totally overextended and out of their league in international waters...

What are they to do? Who should they speak to? Can a Mexican judgment be reversed? How do $14 million in damages become $26 million simply because they didn't have the resources to defend themselves? Will the resort company be able to build on the land anyways because they own a majority? How can a contract concerning Mexican land be formulated and signed in the US?
posted by intelligentfool to Law & Government (13 answers total)

This post was deleted for the following reason: poster's request -- LobsterMitten

This is pretty much a classic case of asking a legal question that only a lawyer you hire -- not the denizens of Ask.Metafilter -- can answer. C'mon.
posted by jayder at 5:44 PM on January 10, 2014 [8 favorites]

Yes, dear lord, I don't know how incompetent anybody had to be not to hire a lawyer in the first place for at least a consultation when the original lawsuit came up, but you cannot fix a colossal mess caused by a lack of legal representation with a continued lack of legal representation. When you get to talking about dollar figures that end in "illion", there is no DIY.
posted by Sequence at 6:22 PM on January 10, 2014 [3 favorites]

@sequence There were definitely lawyers to begin with. Actually, there were lawyers throughout the process. The problem is they were American lawyers with inadequate or mistaken knowledge of Mexican law. When it came to really settling down with a team of lawyers and defending themselves in that first case, it was going to require significant time and resources. I mean, would've been 200K alone payable to the Mexican gov. to defend themselves. Not to mention the costs of lawyers, etc. Keep in mind this was at the beginning of 09' and people invested in this project were literally losing their own homes back in the States. Obviously, a huge lawsuit didn't seem very relevant at the time.

I'm really not looking for DIY fixit solutions, or comprehensive legal advice. This thing is basically dead, as far as the investors are concerned. I want to determine if it really is, and if so how this could happen. In short, I'm asking about people's own experiences in the real-estate, investment world, whether anyone has knowledge of the subject or could refer my friend to someone that did, etc. This is a pretty esoteric subject. Consequently, it's not easy to gather information (legal or otherwise) about it. What's done is done. That song has gone out of tune, now I'm singing about damage control or post-mortum assessment.
posted by intelligentfool at 6:45 PM on January 10, 2014

My answer is get a lawyer. My advice is next time you want to ask a question like this, make it more concise. Just describe what happened and cut the snide asides and commentary.
posted by variella at 6:46 PM on January 10, 2014 [5 favorites]

You need a lawyer to unpack this. Even if AskMe were the right place to get advice on an eight-figure (!) judgment, there is just no way to make sense of this from what's in your question. Your friend needs an actual lawyer to look at the actual contracts and court papers. You are a layperson posting on behalf of a friend, there is no way you would be able to communicate all the intricacies of the situation, it is way too complicated to survive a game of telephone. Lawyer.
posted by payoto at 6:59 PM on January 10, 2014 [3 favorites]

Not just a lawyer, but a Mexican lawyer.
posted by Area Man at 7:18 PM on January 10, 2014

How do $14 million in damages become $26 million simply because they didn't have the resources to defend themselves? Will the resort company be able to build on the land anyways because they own a majority?

Dude. Your peeps were scammed because they went through bullshit professionals, and now they are out millions of dollars.

You are in a position to get them advice, and you turn to the bullshit professionals of askme. The same thing is going to happen again.

You need to get a lawyer, also, i hope publishing this info doesnt hurt you.
posted by hal_c_on at 7:35 PM on January 10, 2014 [2 favorites]

memail me. I know people who do this kind of stuff for a living. Does not mean they can necessarily help you with your case, but it's worth a shot. They are a mix of professionals including lawyers but would not necessarily act in a purely legal capacity in any particular case.
posted by cacao at 7:45 PM on January 10, 2014

i mean, they would not necessarily act purely as lawyers in any particular case. Every action they would take would be in accordance with laws. Nothing fishy, lol!
posted by cacao at 7:46 PM on January 10, 2014

One more thing- I know you're desperate but you probably should not have these details in a public forum like this. It may affect your case, if you have one, in some way. Last comment!
posted by cacao at 7:47 PM on January 10, 2014

>Not just a lawyer, but a Mexican lawyer.

Foreign real estate investment? - This is a lost cause. If your friends would want to pursue it, they'd need not just a lawyer, not just a Mexican lawyer, but some local bureaucrats and maybe a politician or two. But then, as they have already amply demonstrated their naïvety, they might get ripped off even more. If I were them I would ignore the sunk costs, walk away, maybe stay out of Mexico for a while, and retain an attorney or two that specialize in relevant Mexico-US legal whatevers, just in case.
posted by carter at 7:49 PM on January 10, 2014 [1 favorite]

P.S. IANAL, obviously. But have been in various parts of the world and watched various ex-pats get snarled in various real estate 'deals.'
posted by carter at 7:51 PM on January 10, 2014

I personally find it interesting (as a third party observer) and would like to learn more about the complexities of real estate investing and international law.

This is a different question altogether, one which is more easily answerable: learn a bit about Mexican law first, as well look at as links like this.
From there, check this out.

Then, have lunch with a lawyer yourself. Good luck!
posted by StrikeTheViol at 8:36 PM on January 10, 2014

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