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The Donald Settles Baja California Condo Lawsuit

December 13, 2013

Posted in Business Litigation, Real Estate Law

Photo by Daniel Ramirez

Donald Trump settled a long-running lawsuit with investors in a luxury condominium complex in Baja California, according to the Orange County Register.

The settlement terms have not been disclosed. Nearly 200 investors lost about $22 million in deposits when construction of the resort between Tijuana and Ensenada ceased in 2008 during the financial crisis. A co-developer of the Trump Ocean Resort Baja Mexico, Los Angeles based Irongate Wilshire LLC, paid $7.25 million to settle its part of the case in October 2012.

One plaintiff’s attorney said Trump’s association with the project was key to his clients’ decision to invest. Trump said in a 2006 interview with The San Diego Union-Tribune that he was a “significant” equity investor in the project. An attorney for Trump denied he was a developer, only that he licensed the Trump name and imposed certain development and operating standards.

$32 million spent on luxury condos that were never built

Trump Ocean Baja was proposed as a 526-unit condo/hotel development in 2006, when real estate sales were booming on the Baja California coastline. The purchasers put down an average of $160,000 in deposits for 132 units in the planned luxury development.

The developers, Irongate and its Mexican counterpart, PB Impulsores, lost their financing in 2008 when a construction loan fell through. The project was scrapped early in 2009. By then, $32 million in buyers’ deposits had been spent. Trump terminated his agreement with Irongate in 2009, saying the company failed to comply with the terms of the licensing agreement. The property has a $1.8 million lien and the Mexican company that took their money, Empresa Constructora Fortaleza, has long since closed shop.

Take steps to protect your investment

This development is probably the best known of a number of real estate projects in Mexico that have gone south for American buyers and investors.  According to another U-T San Diego article, the cases involve Americans who said they mistakenly placed faith in U.S. real estate franchises or projects promoted by U.S. companies in Baja California. While affiliation with well-known U.S. firms or names may be a powerful marketing tool, it confers no special protection in Mexico.

The U-T San Diego has this advice for Americans thinking about buying Mexican real estate:

(Get legal advice.) Victor Loza, president of the Baja California Real Estate Council, said the attorney should represent only the purchaser’s interests, not the seller’s.

Title insurance and escrow: Three U.S. companies now offer title insurance in Mexico, a recommended safety buffer for property transactions. Escrow also is widely available.

Deposits: Don’t release any money to the seller until you have title to the property. Make sure your deposit is held by an independent third party, such as a title insurance company, and insist on going through escrow. Be sure you understand the escrow instructions, which can be translated into English.

No matter what kind of real estate transaction you may be considering, you need to do you due diligence into the transaction and the parties involved. While getting involved in Mexican real estate may increase the complexity and risk of a transaction, these kinds of failed projects happen all too often this side of the border too.

Whether you’re considering buying real estate, or have found yourself on the short end of a real estate development that’s gone sour, contact my office. We may be able to prevent problems for you if you’re just starting the process, or if your real estate investment is in trouble, we can discuss the situation and possibly come up with a plan to try to put you where you want to be.