More homebuyers today are looking to purchase highly sought after Mexican Real Estate due to the strengthening of the housing market in the United States and Mexico.
The Restricted Zone
Foreigners may acquire direct ownership of property in the interior of Mexico; however, the Mexican Constitution regulates land ownership and establishes states that “…in a zone of 100 kilometers (about 62 miles) along any border or 50 kilometers (about 31 miles) along the coast, a foreigner cannot acquire direct ownership of this land.”
This zone is known as the “restricted zone” or “prohibited zone.”
Foreigners must use a trust to buy property within this zone. A real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts to hold title to real estate in the restricted zone, they must have a bank act on their behalf.
The Mexican Trust
Foreign investment in these restricted areas is possible through the use of a “fideicomiso” (fee-day-e-co-me-so), which is a Mexican real estate trust that was created by the Mexican government. The “fideicomiso” has been a legal document since December 28, 1993.
A Mexican bank must be nominated as the trustee and is required to hold the title to the property. The Mexican Government created the "fideicomiso" to resolve the problems involved in developing the restricted zone and to attract foreign capital. Now foreigners, as beneficiaries of the trusts, can finance land located in the restricted zone without violating the law.
The trust agreement is executed between a Mexican bank and the seller of the property in the restricted zone. The bank acts on behalf of the foreign buyer, taking title to the real property.
The bank, as trustee, acquires the property for the foreigner, and then has a fiduciary obligation to comply with all instructions given to the bank by the foreigner, who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, rent, remodel, profit (an example of this would be selling crops), and even to sell the property to any eligible buyer.
There is a common misconception among foreigners investing in Mexico that once the trust term expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank has an obligation to respect the rights of the beneficiary.
The bank is also expected to obtain a permit from the Ministry of Foreign Affairs. The reason for this is to ensure the trust’s beneficiary is granted the right of use concerning the property.
The Mexican Land Lease
A Mexican land lease for more than ten years is not legal and never has been legal in Mexico.
If a lease in Mexico that exceeds ten years is finalized and the landowner decides he wants his property back after the first ten years, he can disregard the agreement and legally take back the property regardless of the time period noted on the lease.
The leaser would have no alternative, because a lease that exceeded ten years was signed and finalized.
In this case, and under these circumstances only, can the Mexican Law take away the option to use the Mexican Court System.
We recommend a lease only if you have limited your total investment to an amount you feel comfortable with, knowing that at the end of the, up to ten year, period you could be asked to leave the property.
Today, the Mexican landowner may say he will renew your lease as many times as you want, but that may not be the case in the future.
Title Insurance is not required in Mexico but, it is very strongly recommended. The policy is a “contract of indemnity” that guarantees a purchasers ownership rights and lien interest as established in the public deed (escritura publica). This policy insures the purchaser against any loss suffered by a defect or cloud on title.
The policy is the only guarantee that any buyer or lender can receive that protects their rights of ownership or lien priority as recorded in the Mexican public registry of property and commerce.
There are two title companies with a good solid reputation for doing business in Mexico and they are Stewart Title Company and First American. They apply a United States standard of title insurance on property by performing an extended title search (non-standard by Mexican Practice) and obtaining all relevant documents in the chain of title. They have more than 110 years of real estate experience in the United States and are traded on the New York Stock Exchange.
Financing Mexican Property
There is financing available through Mexican banks and now with US banks too. US banks have traditionally been reluctant to provide mortgage financing on Mexican property due to their inability to obtain title and potential difficulties with foreclosing in a foreign country. Purchases were limited to investors only with sufficient resources to buy real estate and had no need for financing.
The bank trust has become sufficient collateral and a simple notation is made on the trust document to protect the lender (If buying in the interior a lien is placed on the property, much like in the US). Everyday more and more lenders are realizing that their investment in Mexico is a safe investment. Their introduction of mortgage capital shows a vote of confidence in Mexican real estate.
Closing on property in Mexico
When an offer is made and accepted by all parties, a survey, current appraisal, and a letter of inspection are required. If the transaction is with a trust then the letter of inspection is sent to the bank and the bank will give you a letter that says all trust fees and requirements are met with the bank.
A file is opened with a notary, and a lien waiver certificate, property tax receipt for the current year, and a letter from the Home Owners Association are required. This validates that all fees are current and there are no pending assessments with the Association or the Federal Zone.
The Notary will also need from both parties of the transaction: proof of full names, marriage certificates, place of birth, official identification, and your visa to prove you are in Mexico legally. He takes all this information verifies it, along with a title search, and will not sign any document until everything is in order and within Mexican Law. Once everything is in order the notary will sign the document, record the transaction, and collect all government fees. The seller pays the capital gains tax, if any.
However, an arrangement can be made to have the buyer pay this fee. The Notary will inform you of the amount, almost to the cent. Cash changes hands the minute the seller signs over the deed and, customarily, the buyer pays notary fees, which must be paid when the title is signed over. At this point the transfer is executed. Now, the notary must take the escritura to the Registro Público de la Propiedad (Public Registry of Properties). This should be done promptly, as the transaction is not valid until registered. Finally, once this is done the transaction is complete.
The Mexico Notary Public
In Mexico a notary public (Notario público) is very different from an American notary public. He is a public official appointed by the State Governor. He has the capacity to attest and certify documents and legal transactions that require authenticity also providing strict security of original records and documents.
Accomplishments required of a Notary Public in Mexico:
Every legal document such as deeds, wills, powers of attorney, constitution of corporations, establishment of trusts, and other documents must be made before a notary public in order to be valid otherwise it is not legal.
Other Useful Information
When buying real estate and you reach an agreement, go to the notary first. The buyer chooses the notary. If you choose not to hire an attorney, the notary is well qualified and legally authorized to perform the transaction.
Copyright 2006 by GainClients, Inc.
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