Buying Real Estate in Mexico ? NEVER ASSUME ANYTHING!!
SEPTEMBER 17, 2012 BY MARCO EHRENBERG
Read carefully and then apply, do not leave your brains at the border
All too often, citizens of the United States, Canada and other countries assume that property purchases in Mexico are carried out automatically in a manner similar to their native countries. The first rule of any property purchase in Mexico is, NEVER ASSUME ANYTHING! Purchasing property in Mexico is not the same as in other parts of the world.
Would you purchase property in your hometown, which is not registered in the local public registry, or land title office? Would you hand a complete stranger, without an office or established business, a check for perhaps hundreds of thousands of dollars to pay for a property? The obvious answer to these questions is, OF COURSE NOT.
Then why do so many foreigners do this very thing when they purchase property in Mexico? Many do not take the time to investigate how Mexico’s real estate transactions function and how the supporting legal system has responded to that industry’s needs. It is essential that you have an idea of how this system works and what to expect when considering an investment in Mexico.
MEXICO REAL ESTATE LAW AND HOW IT RELATES
TO FOREIGN INVESTMENT
Article 27 of the Mexican Constitution regulates the ownership of its territory by establishing that “..in a zone of 100 km. (62 miles) along any border or 50 km. (31 miles) along the coast, foreign entities cannot acquire direct ownership of the land and waters”. Until recently, foreign investors were allowed ownership of real-estate only outside of the “Restricted Zone”.
Recognizing the demand by foreign interests for ownership of real property, and the importance of making these desirable properties available to foreigners for the potential positive impact on the economy, the Mexican government implemented a series of Foreign Investment Laws begun in 1973, Modified in 1989 and modified again in December of 1993 to incorporate the provisions of the NAFTA treaty.
Creation of the Land Trust (FIDEICOMISO)
For those who wish to acquire property for residential usage, and who have a valid entry visa, current law requires that title to the property be transferred to a Mexican bank, as trustee, in the establishment of an individual land trust. The bank handles all of the paperwork including filing for all of the necessary permits with the Ministries of the Interior and Foreign Affairs. In general, the bank has the responsibility to the government to ensure precise fulfillment of the Trust agreement, assuming full technical, legal, and administrative supervision in protecting the interests of the beneficiary (purchaser).
The bank owns the real property rights, and the beneficiary owns the personal rights to use, rent, modify or transfer his rights to a third party. Ownership of these personal rights is evidenced through a deed prepared by a Mexican Notary, signed by the representative of the trustee bank and duly registered with local authorities.
The Foreign Investment Law of 1989 stipulates a term of 50 years for the Trust with opportunity for multiple renewals, upon filing an application with the bank. By requesting renewals every 50 years, a property may be held by a family or business entity for generations.
Since by law Mexican banks enjoy government protection against bankruptcy, the Trust is indirectly guaranteed by the government. As a practical matter, even in unrestricted zones many foreigners prefer to hold their property in Trust.
QUESTIONS AND ANSWERS
Q: I’ve always heard that foreigners can’t buy coastal property in Mexico, is that true?
While it was once true, times have changed. Prior to 1973, foreigners were not allowed to hold legal title or exercise direct rights to real property in an area within 64 miles of Mexico’s borders and 32 miles of its coasts. But laws passed in 1973 and1993 have made it possible for foreigners, foreign firms and Mexican firms with foreign participation to acquire interests in coastal real estate through a bank trust (Fideicomiso).
Q: Who is involved in this bank trust?
Three parties: The Seller = Trustor. The Bank =Trustee. The Buyer = Beneficiary.
Q: How does the trust function?
Title to the property is transferred to a trust with a Mexican bank acting as Trustee. The Trust Agreement is formalized by the issuance of a permit from the Mexican Ministry of Foreign Affairs. The lot or home buyer is designated as Beneficiary in the Trust and the beneficiary rights are recorded in the public record by a Notary Public.
Q: What are my rights as a buyer?
The trust is a legal substitute for fee simple ownership, but in this case, the Trustee is the legal holder of the property. As Beneficiary, you have the right to sell your property without restriction. You may also transfer your rights to a third party, or pass it on to named heirs.
Q: Is the trust renewable?
Yes. According to the Foreign Investment Law passed in 1993, trusts can be renewed for an indefinite number of successive 50 year periods. In effect they run in perpetuity.
Q: If at a later date, I decide to sell my property can anyone buy it?
Yes. If the buyer is also a foreigner, you simply assign beneficial rights. If the new buyer is a Mexican National, you can instruct the bank to endorse the title in favor of the buyer.
Q: If the buyers are foreigner, is his interest limited to the balance of my 50 year trust?
No. Upon application, a foreigner automatically receives his own renewal 50 year permit. This, however, is not mandatory.
Q: Do many foreigners currently own coastal property in Mexico?
Yes. Today thousands of foreign owners enjoy their ocean side resort property; many have benefited from the appreciation of their property.
Q: Is there a Realtor association of Los Cabos similar to Realtors of Canada and USA?
Yes. AMPI is the Mexican Association of Professional Realtors,when doing business in Mexico be sure to hire AMPI associates.