In 1906, the Rio Grande Land and Irrigation Company performed an unauthorized diversion of the Rio Grande (Río Bravo del Norte), which moved a 413-acre (165 ha) tract of land, including Rio Rico, south of the river. The company was later fined, but the diversion of the river was allowed to stand on the condition that the company place boundary markers, which it never did.
The land was now physically south of the Rio Grande—the border between Mexico and the U.S. since 1845—and Mexican authorities unknowingly assumed control of the area, which became known as the Horcón Tract. However, since the course change was due to man-made changes and not natural changes, international law dictated that the land remained U.S. territory, a fact that was not in dispute. Something of a resort town grew up there during the 1920s and 1930s, with free-flowing liquor and gambling.
The U.S. eventually ceded the territory to Mexico with the Boundary Treaty of 1970, and it was formally annexed by the state of Tamaulipas. The handover took place in 1977. After one local resident filed a lawsuit to prevent the United States Immigration and Naturalization Service from deporting him, the U.S. courts ruled that all residents born in the city between 1906 and the 1977 handover could retain their U.S. citizenship.