Miguel Angel Gomar De Luna, 74, had escaped his nursing home and gone on a drinking spree, sleeping rough and begging for more money to buy booze.
After months of searching for him in the cold winter months, officers called the family to say they had found a badly decomposed body matching his description.
His daughter, Lucero Gomar Ramos, was shown pictures of the corpse but it was in such a bad state she struggled to recognise her father.
But she was told if she did not confirm the body as that of her missing father, they would not be able to release him to the family, forcing her to sign papers confirming his death.
Days later a funeral was held for Miguel and the body was cremated with the ashes returned to the family.
But on February 24 this year, the family got another call saying Miguel had been found alive. He returned to the family home drunk, with bandages around his head from unknown injuries sustained during his months long bender.
A video of the bizarre reunion in Chihuahua, Mexico, shows Miguel slurring his words and saying: "They thought I was dead, but I just walk and walk."
Lucero said: "Imagine our surprise when we spoke to police who told us that they had located him on the street, we could not believe it.
"We thought he was gone."
It is not clear who the body mistaken for Miguel was.
The family also face a battle to gain back their relatives identity, having already been declared legally dead.