How To Buy Property in Mexico
Due to its beautiful scenery, great weather, friendly people, fantastic food and rich history, Mexico has become one of the smartest places in the world to buy property. Mexico is becoming the most favorable location for retirees and others not from Mexico who choose to live there part or full time. Many people are choosing Mexico because of the low cost of real estate prices, low cost of living, and low cost of health care.
Because of this and more, many people are deciding to invest in real estate in Mexico. Many do not consider buying property in Mexico because of negative press and misconceptions. Can a foreigner own land in Mexico? Can the Mexican government confiscate a property owned by an expat? How does one who is not a Mexican National safely purchase real estate in Mexico?
It is true that foreigners investing in Mexico often worry about their property being taken by the Mexican government. Under the North American Free Trade Agreement, NAFTA, Mexico may not directly, or indirectly, expropriate property except for a public purpose. This is the same as “Eminent Domain” in the U.S., and when it occurs, a fair market compensation must be paid, with accrued interest.
Who Can Own Mexico Real Estate?
A non-Mexican citizen can purchase and own property in Mexico through a bank trust. The Mexican Constitution does not allow direct ownership of real estate by foreigners in what is known as the “restricted zone”. This includes all land located within 100 kilometers of any Mexican border, and within 50 kilometers of any Mexican coastline. In order to allow foreign investment in these areas, the Mexican government introduced the “Fideicomiso”, or bank trust.
Essentially, this type of trust is similar to the ones set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of the record. Bank trusts have enabled foreigners to enjoy unrestricted use, make improvements and profit from the sale of the property. The trust can also be inherited to your family by naming them as secondary beneficiaries in the event of your death.
Bank trusts can be set up through any Mexican Financial Institution for a period of up to 50 years and can then be renewed for additional 50 year periods. The beneficiary of the bank trust does not lose possession of the property after the 50 years have transpired. Under the trust agreement with the Mexican bank, all benefits that may result from the use or sale of your property belong to the beneficiary. If the bank that holds the title goes under, the Fideicomiso will be transferred to another authorized bank. The bank does not own the Fideicomiso, you do.
How Does a Foreigner Invest in Mexico Real Estate?
There is something for everyone in Mexico? Once the right property has been discovered, an “offer to purchase” is made. It is a written document that declares how much you are willing to pay for the property, provided that certain conditions are met. An offer to purchase is accompanied with an earnest money check, a monetary commitment of usually 5% or 10% of the sale price that proves that the buyer is serious, however all transactions are different and these agreements can be catered to fit the needs of both buyers and sellers.
An escrow account is recommended to use. While a modest cost is involved, escrow allows for safer administration of monies. Having an escrow account involves a process whereby an impartial third party, such as an attorney, an escrow company or a title company, is entrusted with the job of seeing that the transfer of ownership from the seller to the buyer takes place according to the terms of the written contract agreed upon by all parties involved. The escrow agent (the third party) holds any funds safely until all the conditions and details have been met.
Once the offer has been accepted, and if all documents are in order, the establishment of the bank trust can be realized. This may take four to six weeks. With the bank trust established, the notary public can be contacted to initiate the process.
The Purchase Contract will then be drawn up. This contract gives beneficiary rights to the investor of a specified unit, outlines the payment schedule, dates of delivery, size and location of the unit, size and location of the complex amongst other details. The contracts will be reviewed by the investor, and it is also recommended to hire a Mexican legal counsel to do a revision as well. As Mexican laws and practices regarding real estate differ from those in the United States, it is a good idea to have a Mexican legal counsel with you through the process.
The purchase sales contract will be formalized with a Notary Public. In Mexico, Notary Public is completely different than in the USA and other countries. A Notary Public is appointed for life by the governor. They are licensed attorneys who attended law school in Mexico and passed the bar.
A Notary is required to close all real estate transactions. His or her responsibilities include reviewing all documents of importance with respect to the sale of real estate, and collect all taxes and forward the monies to the Mexican Tax Authorities. The Notary Public will notarize the title and register it with the Public Registry.
The Public Registry of Property is a government office where documents are filed, allowing for research for actual ownership of land titles and shows if any liens of such titles already exist. When the notary public prepares to verify and certify a transfer of property ownership, he or she realizes a 10-year search of the title to verify that there are no liens or encumbrances recorded against the property. He or she also verifies that the seller has the capacity to transfer ownership.
During the title transfer process, the Notary will obtain a certificate from the local City Hall to prove that the annual property taxes have been paid to date. Once the new title is finalized and signed by the notary, the seller, the bank holding the bank trust, and the buyer, the balance of the purchase price changes hands. Taxes and notary fees are then collected to finalize the operation. A few weeks later, the new owner can collect a certified copy of their files.
In the past, real estate agents in Mexico did not need to be certified or have any credentials to sell real estate. That is changing.
Find a good real estate agent who has the education, credentials, testimonials from past clients and knowledge about the market in your area of Mexico. By working with a pro and understanding the laws and regulations for foreigners, it is not only possible to buy property in Mexico, it is a GREAT idea.