Information for Americans Buying Mexican Real Estate

This rich country has 6,000 miles of breath taking coastline, making Mexico a very tempting location for foreigners. You may have questions about buying Mexico Real Estate in Mexico.

To help you understand the technical and legal matters we have put together this document, a quick guide through the restrictions and limitations of purchasing and selling Mexican Property as a foreigner.

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Foreigners Purchasing Real Estate in Mexico

History of Property Ownership in Mexico

1917 The Constitution of 1917 proclaimed that all land in Mexico would either be ejido (communal) or owned by Mexican nationals only. Ejido land was given to every village in Mexico and could not be sold.

1973 A constitutional amendment known as the Foreign Investment Law allowed foreigners to purchase real estate anywhere in Mexico, except the restricted zone. The restricted zone consists of areas within 100 km (64 miles) of international borders or within 50 km (32 miles) from the coastline (at high tide).

1993 Mexico amends the constitution to allow foreigners to purchase real estate within the restricted zone by means of a fideicomiso (bank trust).

1994 The NAFTA trade agreement between the United States, Canada, and Mexico is passed. A constitutional amendment allows corporations to be 100% foreign-owned. (A corporation may own property in a restricted zone without a fideicomiso.)

The Real Estate Agent

In Mexico, real estate agents are not licensed and are free to operate without special regulatory oversight. So it is best for the client to have some sort of assurance such as a recommendation or knowledge of the longevity of the realtors' practice. That being said, there are plenty of reputable REALTORS operating in Mexico that provide a valuable service in helping buyers and sellers to navigate the intricacies of property transfer. REALTORS may also deal with rentals, provide property management services, and advise or assist with residency requirements.

The Purchase Agreement

A purchase agreement (contrato privado de promesa de compraventa) is typically a boilerplate two-page document prepared by a lawyer or a notary. It states the seller's and the buyer's name, address, age, marital status and other particulars. It also states the exact size and location of the property as it appears on the deed.

The agreement must show the amount actually to be paid including the down payment which is paid at the signing of the agreement... (The capital gains tax is 15%; 28% for foreigners.) In this case, the amounts must appear in the purchase agreement.

The date of initiation of closing must also be declared. Most purchase agreements allowed for three weeks to lapse before the title transfer process would be initiated with a notary. This is the amount of time that the seller would need to get a certificate of non-encumbrance (certificado de no gravamen) from the deed office and that the buyer might need to get his papers in order. If the sale does not go through because the seller does not present the paper work to the notary by the agreed upon date, he must return the deposit to you.

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The Fideicomiso

The fideicomiso is a bank trust wherein the bank (trustee) holds the trust deed for the purchaser (beneficiary). While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, mortgage, and pass the property on to heirs. The fideicomiso is authorized by the Mexican Government under the Ministry of Foreign Affairs

The bank is required to check ownership and insurance, and to verify that the property is free of liens. A trust is granted for a 50-year period. The trust is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which he may submit an application to renew the trust. If property is purchased that already has a fideicomiso, the existing trust may be transferred to the new owner and will be good for the remainder of its 50-year period, or the trust may be renewed. If property is already in a fideicomiso, probate and transfer tax are avoided when the property is transferred.

There is a fee of about US$350 (varies from bank to bank) to obtain the fideicomiso and an annual fee as well. To obtain the fideicomiso, you will need your accepted purchase offer, a photo ID and 10% of the purchase price. Monetary transactions are handled through the bank.

Taxes

The predial (property tax) is 0.1% of the assessed value, paid annually. The value of the real estate is determined at the time of sale. There is a 2% sales tax.

Closing Process

The closing process takes between 30 to 45 days. The buyer pays closing costs, which are usually about 6% of the purchase price. 2% is for sales tax and about 4% is for other fees such as title search, attorneys fees, and filing of legal documents.

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The Notario Publico

The closing of a real estate transaction requires the services of a Notario Publico (Notary). The Mexican Notario Publico is an official who possesses greater rank and responsibility than the Notary Public in the United States. The Notario Publico is an attorney representing the Mexican government. He is responsible to both the buyer and the seller to insure the legality of the contract, and to the government for the collection of taxes and capital gains for the real estate transaction. The Notario Publico finalizes the real estate contract and records the transaction with the Public Registry. A real estate agent may be involved in the transaction, but as noted above realtors in Mexico are not licensed or regulated as they are in the United States.

The Notario Publico charges a fee for his services and the bank charges a fee as well. These fees should be competitive and are based partly on the value of the property. Typically, a realtor will work with one Notario Publico who will work with one bank, but there is no reason why the buyer can't shop around, compare fees, and select her own bank and Notario.

The following is a statement from Notario 14, Lic. Hugo Manuel Felix Garcia, Puerto Escondido, Oaxaca, that offers some insight into the Notario-Buyer-Seller relationship:

The ultimate test of a Notario is whether or not the sellers Title Deed holds up if challenged. We are proud of our record of having no property title successfully challenged over a period of 40 years, our position as Counsel to our Peers in this profession and our status as Notario to the Office of the President of Mexico in Oaxaca. In my experience there are a few major categories of customers who are most frequently dissatisfied with their Notarios.

a) Property Sellers who seek to have an unwitting foreign purchaser pay the Sellers Capital Gains Taxes.

b) Sellers and their Agents who seek to pass on a greater future Capital Gains Tax liability to an innocent Purchaser by documenting the current sale value of property below its market price.

c) Sellers who seek to accommodate a sale via a 'Presto Nombre' by putting the property in someone else's name. This is fraught with risks i.e. it is quite possible that the Purchaser's heirs could lose the property if the Purchaser's final Will and Testament is challenged upon death by the Presto Nombre.

d) Delay in completing the documentation which can either be the fault of the Notario or other participants in the title transfer process. (We humbly apologize if any customers experience was below the high standards which we set for ourselves.)

In most instances of a) to c) above the Purchaser has found their dream property and has had many hours of relationship building with the seller and realtor/advisor before approaching the Notario, who may have just spoiled the party. His intervention is understandably not welcomed by an unscrupulous Seller/Realtor/Advisor and often only after thoughtful reflection by the Purchaser. The buyer may not initially understand that the unhappiness and complaints of his/her new found fair weather 'Amigos' arose from an equitable rebalancing of scales of justice (or tax expense) by the Notario under the Tax and Title laws of Mexico in favor of the less informed newcomer.

The Lawyer

Technically, it is not necessary to have the services of a lawyer in addition to the Notario Publico. However, for additional assurance that your interests are being protected, it may be advisable to hire your own lawyer.

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Documents and Information

They buyer will need to provide his address and telephone number in the country of origin, occupation, marital status, and nationality. If married, the same information is required of the spouse. The buyer's passport and tourist visa are required as well as the name, nationality, address and telephone number of any secondary beneficiary to the trust.

Property Ownership Through A Corporation

A Mexican corporation may be 100% foreign-owned and may purchase property in a restricted zone without a fideicomiso. Property owned by a corporation is commercial property and will have much higher water, electric, telephone, and tax rates. A Mexican corporation may not own a single-family residence.

In a corporate transaction there is usually a preliminary sales agreement or an "agreement to agree". The preliminary sales agreement includes the price, terms, and closing date. A formal sales agreement is executed at the time of closing. Escrow, the process of having a third party hold the deed in trust during the transaction, is not used in Mexico. The buyer should be cautious about making any initial deposits.

Property Management

Condo-owners usually pay a monthly fee for maintenance of the property. For the owners of other property who may be absent for extended periods, property management agents are available to handle upkeep and bill-paying while the owner is away.

Insurance

American title insurance is available for Mexican real estate, but is not commonly used. The cost of title insurance depends on whether the property is covered by a "master title commitment".

Property insurance is available in Mexico and the rates are relatively low.

Financing

In the past, real estate transactions in Mexico were all cash deals. More recently, different types of financing have become available.

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