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Is it safe for a foreigner to purchase land in Mexico?

Property that lies within 50 kilometers (31 miles) of the coastline or within 100 kilometers (62 miles) the borders of Mexico is in what is considered to be the Mexican Restricted Zone. In the past 30 years Mexican laws have changed and are more accommodating to foreigners, including citizens from the United States and all other countries, allowing them to buy, indirectly, the rights to hold and develop or make improvements, to occupy, sell or rent the property.

How can I buy real estate within a Mexican Restricted zone if I am a foreigner?

Legal ownership is possible by using one of two methods which is generally determined by the intended use of the land.

For residential real estate, a bank trust, known in Spanish as a fideicomiso, is the most common method. While the bank has technical “ownership”, for a 50 year term, it has no rights to the property, and is mandated that any dealings with the property are to be solely at the instruction by and for the benefit of the beneficiary which may be an individual or corporation. The fideicomiso allows a buyer to avoid inheritance taxes and to put the property in a will, as well as the obvious rights of real estate ownership including building or developing the property or selling the property. Foreigners are required to obtain a permit to own the land, as is the case with ‘direct deeds’, from the Secretary of the State, which is essentially an endorsement from the Mexican government of ownership of the property. As such, a fideicomiso affords foreigners the same rights and responsibilities full and direct ownership gives. Upon the sale of the property the buyer can assume the current fideicomiso or can take out another one.

For commercial real estate, a foreigner will generally form a Mexican corporation, also known as a Sociedad Anonima (SA) that buys the property, as the law permits a foreigner 100% ownership of a corporation.

The property is deeded directly to the corporation and required to be used in a commercial capacity. There are annual corporate fees and tax reports to be filed by an accountant, but this approach avoids the initial costs of setting up and the annual fees, approximately US$300 to $500 per year, that are associated with a fideicomiso.

How do I create a Mexican Corporation Sociedad Anonima (SA)?

Once you obtain a permit from The Department of Exterior Relations, whereby you register the name of the Mexican corporation, you then create the articles of incorporation. This requires a “Notario” who is a keeper of the public record appointed by the state, licensed as an attorney who passed the Notario exam and is willing to forgo litigation.

After the articles of incorporation are recorded in the public record, next is the process to obtain necessary permits Tax ID (RFC), any others.

 How can I confirm that a seller has legal title to a property?

A buyer should request a copy of the lien certificate or “certificado de libertad de gravamen” which will indicate the owner of record, including the surface area and classification of the type of property, the legal description and if there are any encumbrances filed against the property. A title search of the property should be performed and a copy of the title to the real estate should be requested of the seller.

In Mexican transactions it is the responsibility of the Notario Publico to perform the title search but the Notary generally examines the current deed and current lien certificate. Accordingly, it may be prudent to hire a Mexican attorney for a legal opinion on the status of title.

What is the role of the Public Registry of Property?

Public instruments in Mexico, such as deeds, can be researched at the local Public Registry of Property which is open to the public and exist in most cities and towns in Mexico.

It is a government office where documents are registered allowing third parties to research land titles and liens on titles. Any Public Instrument is required to be finalized and signed by a Notario Publico. Public Instruments usually identify the property; include the entities involved in the transaction as well as the Notario, seller, buyer, and the bank if there is a fideicomiso.

 Who is involved in real estate transactions in Mexico?

Typically, there are four entities involved when consummating a real estate transaction in the restricted zone: The real estate agent, the attorney representing the buyer, the seller and the Notary Public.

It is advisable to hire a Mexican attorney of your own, as opposed to that of the seller, to perform title searches, write contracts and review the conditions and terms of a sale. The attorney should also be able to provide a “cédula profesional”, a document that is a registered license to practice law in Mexico and will include a signature and photograph of the attorney.

What is the role of Public Notaries (Notarios Publicos)?

Real estate transactions and the legal conveyance of any type of property in Mexico involve the participation of a Notario Publico.

In standard transactions, the Notarios prepare deeds in accordance with the purchase-sale agreement. The buyer and seller get together with the Notario to formalize the transfer of property and authorize the signatures upon execution of the deed. Notario’s record the deed with the public registry of property where the property is located after the property has been transferred. A Notario’s duties before the closing include verification of title, searching public records for status of the title and for liens against the property and to examine the seller’s documents to ensure accuracy and legitimacy.

They are also responsible to collect property taxes and government transfer taxes.

How much should I expect closing costs to be?

Common practice in Mexico is that the seller pays capital gains tax and the real estate broker’s commission. The buyer is responsible for paying the transfer or acquisition tax and all other closing costs including the Notario’s fees.

How do I start the process of buying real estate in Mexico?

The process of buying real estate varies from case to case.
Typically you will find a property you want to purchase and will verbally agree a price. The initial offer to purchase detail the costs, inclusions and exclusions, and any deadlines. A deposit is usually paid by the buyer and any penalties for cancellation are determined.

If the property is inside the Mexican restricted zone, you will need to set up a bank trust / fideicomiso or form a Mexican corporation.

If you are buying a condo or direct from a developer in a residential development it is important to have the Notario Publico ensure the developer’s permits are in order.
You will obtain a copy of the Land / Property Deed from the seller, which will be evaluated and verified by the Notario Publico.

You will need to provide official documents to the Notario Publico that can include a photo ID such as a passport, birth certificates, marriage certificates, and your tourist or other visa to verify that you are in Mexico legally.

The Notario Publico will require the seller to produce documents, including the original property deed, current tax records for the property, paid public utility bills as well as details of land-service fees with zero balance due.

Payment of any capital gains taxes are made at the time when the deed is signed and is done at the Notario Publico’s office.

The Notario Publico’s fees are paid at this time in addition to any other taxes associated with the purchase of the land.

What kind of contracts and agreements are involved in a Mexican real estate transaction?

In Mexico, real estate transactions usually have two contracts. First is an offer to purchase and a promissory agreement. These are preliminary agreements containing the basic transaction information, but not the document in which the property title is transferred to the buyer. The second contract is the agreement to be handled by the Notario which transfers the title to the buyer. This may come in different forms.

The Civil Code defines an agreement as an accord between two or more persons to create, transfer, change or terminate obligations. The buyer’s attorney should write the promissory agreement, after a written offer has been accepted, because this is the most important document in the process determining the terms and conditions of the transaction.