The Purchase of Mexican Real Estate

The Purchase of Mexican Real Estate

Foreigners (non-Mexican) are able to purchase real estate in Mexico. They may directly own rural or urban land in the interior of Mexico with certain limitations on specific agricultural tracts. In the restricted protected zone, a Trust Deed is used. These protected areas include 100 kilometers along all-natural borders, 50 kilometers along coastlines, and all of Baja California.  Banderas Bay is primarily in the restricted zone.

What is the Trust Deed?

The Trust Deed is established through a Mexican bank giving foreign buyers rights and privileges of ownership.  As of 1994, the Foreign Investment Law allows these deeds to be established for a term of 50 years and renewable upon termination. This public deed is called an escritura. In the restricted zone, title can be held in one of two ways: (1) the Mexican bank trust is for residential property.  (2) A Mexican corporation can hold non-residential real estate.  Foreign nationals can be the sole and exclusive stockholders of the corporate stock which holds the title to this nonresidential property within the restricted zone. If you hold property as residential and claim it as a fiscal residence in Mexico, you can be eligible to waive partial capital gains tax. Certain restrictions do apply.

Importance of the Notary

The public notary in Mexico is responsible for the transfer of real estate. The notary’s responsibilities are much greater than what we are familiar with in the United States. The notary in Mexico is appointed by the governor of the state and the executive branch of the federal government of the particular state. A notary is an attorney who has additional specialization and has passed an extensive exam. He/she is appointed for life.

What You Need to Know About the Escritura

The deed (escritura) is prepared from the purchase-sale agreement. The escritura, as well as all closing documents, are in Spanish. English translations are courtesy translations only.

Prior to closing, the notary examines the documents of the seller to verify title. A search of the public records is done to determine further status of the title and the existence of liens against the property.  The notary is responsible for the collection and payment of property taxes and government transfer taxes. If a seller owes capital gains, that is determined by the notary. This tax is collected and paid by the notary, when due.

The escritura, or public deed, names the seller conveying and the buyer receiving the property, in addition to the legal description. The terms of the bank trust (fideicomiso) agreement are incorporated into the escritura. There should also be a description of the metes and bounds of the land, and a plat. In the case of construction, there should also be a floor plan or footprint of the building on the land.

Permits and Utilities

A buyer should also receive a copy of the building permit and evidence that utility services on the property have been paid to the date of closing. At closing, the notary meets with the buyer and seller to formalize the transfer by requiring appropriate signatures upon execution of the deed. The escritura is then recorded with the public registry where the property is located.

The Closing Costs

The buyer pays closing costs, with the seller paying any capital gains taxes and real estate fees.  Closing costs are typically higher than costs for buyers in the United States and Canada. A part of the cost is the application, approval and formation of the bank trust (50 year, renewable), in addition to the transfer tax, and notary services.

Points to Remember:

  1. Buyer or Seller Beware. There is no compulsory licensing in Mexico of real estate agents. AMPI, which is the Mexican association of real estate professionals, is the closest organization to the National Association of Realtors and their Canadian counterpart. The members of AMPI work to regulate and elevate their degree of professionalism in the practice of real estate in Mexico.
  1. Title insurance is available, through US-based title companies. Currently, title insurance issued by a Mexican company does not exist.
  1. Sales contracts, to be legally binding, must be recorded before a notary public. To bind third parties to a contract, the contract must be filed with the public registry.
  1. Oceanfront or river front properties are typically adjacent to the Federal Maritime Zone. If there is use of and/or construction in this zone, there is need for a concession, authorizing the use of this federal land. A formal agreement has to be in place and annual payments made during the term of the concession agreement.
  1. Market appraisals are not common. Appraisals, charged by the notary as part of buyer closing costs, are for tax evaluation purposes.
  1. Mortgages. There are Mexican and American companies offering real estate mortgages. Terms and conditions vary by lender.
  1. Be sure to get an accurate estimate of closing costs before you decide what your overall expenses are going to be in purchasing real estate.
  1. Determining how and where to send money into Mexico is not simple. In order to escrow or hold purchase funds, a company or individual must be properly licensed and empowered by the law to hold and disburse these funds.
  2. Purchasing real estate within the coastal areas of Mexico is different from the rest of North America. Do not assume. Ask questions, and then more questions.

 


This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta / Nayarit (Bahia de Banderas) areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.  If you have any other questions, contact me through my website.

Harriet Murray
harriet@casasandvillas.com