OWNING IN MEXICO

Real estate in Mexico has become a desirable lifestyle option for many, but also a potential alternative for a viable investment strategy. Purchasing properties in Mexico is safer and easier than you think, with U.S. Title Insurance and third-party Escrow the standard. I am here to guide and assist you through your transactions, ensuring your process is done correctly, securely, and professionally.

OWNING IN MEXICO

The purchase of real estate in Mexico by foreign citizens is a straightforward process, however there are some inaccurate misconceptions. Buying real estate in Mexico for foreigners has been possible since the Foreign Investment Law passed in 1973. The law permits foreigners to acquire property in Mexico, as long as it is located outside of ‘Restricted Zones’, which include any land within 100 kilometers of foreign borders or within 50 kilometers of the sea. This was to attempt to prevent foreign invasion. As a consequence, this law largely prevented development in those zones and, therefore and subsequently, was modified in 1993 by the Mexican government. Since then, foreigners (non-Mexicans) have been able to purchase properties in the “restricted zone” (coastal and border properties) through an established and perpetually renewable trust called a Fideicomiso.

Article 27 of the Mexican Constitution restricts direct ownership of land by non-Mexicans within 100 kilometers of the border and 50 kilometers (about 30 miles) of the coastline. This is a protectionist measure, put in place after foreign invasions repeatedly threatened the country’s sovereignty at the end of the 19th century. Today, foreigners may directly own real property in the interior of Mexico subject to certain limitations on specific agricultural tracts. Modification of this constitutional restriction have been made, and since 1973 foreigners (non-Mexicans) have been able to purchase coastal and border properties through an established and perpetually renewable Mexican property trust called a Fideicomiso. This is a bank trust, much like an estate trust in the U.S., which gives the purchaser all of the rights of ownership.

Q: Can foreigners own property in Mexico?
A: Yes. Foreigners can purchase and own real estate through Fideicomiso or through a Mexican Corporation.

Mexican trust banks are authorized by the Mexican Government to carry out the acquisition of properties located in the restricted zone through Trusts (Fideicomiso). The bank is the holder of the trust deed and is responsible to check if the property is free of liens or any claims to the property. This trust remains valid for 50 years and can be renewed at any time for another 50 years. In the case that the purchaser should miss out on renewing the trust, they have a further period of 10 years to do it. The beneficiary of the trust holds all rights and responsibilities of selling, leasing, mortgaging and entrusting the property. Furthermore, it is possible to transfer the trust to another foreign buyer.

How Does the Fideicomiso Trust Work when Buying Property in Mexico?

How Does the Fideicomiso Trust Work when Buying Property in Mexico? Mexican trust banks are authorized by the Mexican Government to carry out the acquisition of properties located in the restricted zone. The respective bank owns the land and acts on behalf of the foreign buyer. Nevertheless, the purchaser holds all rights and responsibilities of selling, leasing, mortgaging and entrusting the property. Furthermore, it is possible to transfer the trust to another foreign buyer. The bank is the holder of the trust deed and is responsible to check if the property is free of liens or any claims to the property. This trust remains valid for 50 years and can be renewed at any time for another 50 years. In the case that the purchaser should miss out on renewing the trust, they have a further period of 10 years to do it.

On the contrary, Mexican corporations which are 100% foreign-owned can own properties in restricted areas without a trust. But if the property is intended to be used for commercial purposes, there are more requirements and restrictions that come into play, such as higher rates for water, electricity and more, making it less advantageous than buying it through a Fideicomiso Trust.

Q: What is this Trust, and how does it work?
A: Essentially, the bank acts as the “Trustee” for the trust and the purchaser is the “Beneficiary” of the trust. The trust is not an asset of the bank; the bank merely acts as the trustee of the trust, and the trust holds the legal title to the property. All rights and privileges of ownership, including exclusive use and enjoyment, are held by the trust Beneficiary-the foreigner. The beneficiary enjoys all rights of ownership enabling him to occupy, rent, gift, or transfer title to the property to any legally qualified person he may designate. The actual document is a Trust Deed and is public document registered in the local land registry. These Trust Deeds have an initial term of 50 years, and are legally renewable in perpetuity at any time or at the end of the 50-year period for a filing fee (less than US$1,000.00) for additional 50-year periods. The property may be sold at any time, with the seller being responsible for paying his capital gains taxes on the appreciated value. This process is designed to protect the rights of foreigners, and ensure that property transfers are made in a legal manner.

Q: How are these Trusts created?
A: To establish a property Trust, (fideicomiso), banks will charge a predetermined fee, plus a percentage of the property’s value, to cover the costs of preliminary studies and the drafting of the Trust agreement. The bank also charges an annual fee for maintaining the Trust, roughly averaging USD$500-$1,000 per year, providing there is no financing involved.

The Trusts are carried as off balance sheet assets by the banks who act as trustees. The Mexican Government specifically set the trust system up to allow non-nationals the security of ownership without having to change their 1917 constitution.

Q: Are there differences in other aspects of property ownership in Mexico?
A: Closing costs to the buyer tend to be higher in Mexico than they are in the U.S. or Canada, averaging 4 to 5 percent of the purchase price. Closing will take from 30 to 60 days depending on contingencies and financing requirements. Escrows are now available via private escrow companies specializing in this function and will run from USD$850 per transaction.

In most cases, the buyer and seller need not be present at closing, but may be represented by their sales agent via a power of attorney, or may execute their documents abroad, certifying their signatures with an apostille.

Public Notaries in Mexico are the agents of record for all transactions registered in the Land Registry Office. The notary is also responsible for collecting any taxes that may be due at closing.

Q: What about the availability of insurance on the property itself?
A: Insurance – including property, theft, flood, liability, hurricane, damage, and earthquake – are all readily available in Mexico and policies can be written to pay claims in U.S. dollars.

Q: What about taxes? What can I expect to pay in Mexico?
A: For the buyer/owners, the subject of property taxes generally comes as good news, because it tends to be low. Known as ‘Predial’, the tax is calculated as a percentage of the assessed value determined at the time of sale, paid every year. Property taxes have historically been low in Mexico because they have never been considered a source of governmental revenue, however, this is subject to change.

Q: What other expenses should I consider on the purchase of property in Mexico?

A: If you are not planning on living full time in Mexico, property maintenance and management will need to be considered for the time you are away. For condominium owners, maintenance and security is handled by the HOA, paid for through monthly fees.