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Foreigners Purchasing Real Estate in Mexico
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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 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.
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 it should be noted that 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 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.
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
Financing
In the past, real estate transactions in Mexico were all cash deals. More recently, different types of financing have become available.
A Few More Thoughts
Business deals are processed slowly in Mexico. It may be necessary to make personal visits to resolve details that one might think could be handled by telephone. As is the case in other countries, some Mexicans may not approve in general of the sale of their lands to foreigners. Be a good neighbor.
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The information on this page is provided to acquaint the reader with the process of foreigners buying property in Mexico. It is not a substitute for qualified, up-to-date legal advice at the time of sale.
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