Mexico Real Estate Information.

Basic Information about Purchasing Properties in Mexico

by Mitch Creekmorby Mitch Creekmoree
There is an abounding opportunity for new capital, investment, and infrastructure development in Mexico. But you need more than the ability to translate Spanish. REALTORS®  can benefit their clients
by understanding the nuances of real estate transactions in Mexico.There is an abounding opportunity for new capital, investment, and infrastructure development in Mexico. But you need more than the
ability to translate Spanish.

condominiums, and timeshare projects can now enjoy greater legal freedom and ownership rights under
Mexico’s new foreign investment law. In Mexico, as in the United States, the transfer of real estate rights is administered by federal, state, and local laws. However, buying south of the border is not like buying property in the United States, and the worst a purchaser can do is to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country.
Stay on your toes. Foreign purchasers should be aware of the same basic issues that any prudent buyer would consider when acquiring real estate in the United States. Additionally, they should not depend on the seller for information or advice about the property, because they have no way of knowing whether it is correct. The first thing a buyer must consider is whether the seller of the property has legal title to the
property, and if so, whether the property can be legally transferred. Although this seems to be a logical
and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. Very simply, the seller didn’t own the property or he had not completed the required development procedures for the
conveyance of the real estate. A buyer should always ask the seller for a copy of the public deed escritura publica) vesting title to the real estate. The buyer should request a copy of the NO lien certificate   (certificado de libertad de gravamen) on the property that should indicate the owner of record, surface area and classification of property type, the legal description, and whether there are any liens or encumbrances filed of record against the property. The buyer can also request a certificate of no tax liability (certificado de no aduedo) from the local taxing authority.
The public notary in Mexico (notario publico) is responsible for the title search in Mexican transactions.
However, the notary typically only examines the current deed and a current lien certificate, resulting in
the possibility of a short or incomplete title history of the property. A foreign purchaser always has the
option of hiring Mexican counsel or a U.S. title company to provide an opinion on the status of title.
Title to all real estate in the prohibited zone being acquired by foreign purchasers can only be legally vested and recorded in one of two ways: in a Mexican bank trust (fideicomiso) for all residentially
declared property; or in a Mexican corporation for all nonresidential real estate. There is no gray area concerning foreign acquisition in the restricted zone of Mexico. Foreign nationals can be the sole and exclusive stockholders of a Mexican corporation that holds fee-simple title to nonresidential property in the prohibited zone. In any type of real estate acquisition in Mexico, non-Mexican purchasers must always register their ownership interest with the secretary of foreign affairs and must waive their rights to
foreign government intervention in the event of a property dispute. This is known as the Calvo Clause, which is constitutionally mandated, and is contained in all bank trust agreements. It should be noted that
Mexican banks, acting as trustee for a foreign buyer in a fideicomiso, make no warranty or guarantee of the title to the property in the trust nor do they provide any restitution in the We’re getting closerto Mexico.
No, the land isn’t shifting, but NAFTA, technology, and sweeping changes in Mexican politics have forged a closer relationship between the U.S. (especially those of us in border states) and our neighbors to the south. Whether you have clients who might benefit from purchasing property in Mexico or you are entertaining thoughts of buying a vacation or investment property for yourself, the climate for real estate business is inviting. Mexico is forecast to have a 7% growth rate for 2001 – double that
of the U.S. economy. In addition, the Mexican peso is expected to remain at its current level in relation to U.S. currency. Couple this with continued foreign-investment law reforms and Mexico’s heightened awareness of protecting foreign investment in the public and private sectors, and the result is an abounding opportunity for new capital, investment, and infrastructure development in the country. With the slowdown in the U.S. economy, Mexico’s real estate market would appear to be a viable
alternative to other investment strategies. It’s not the same old Mexico Purchasing real estate in Mexico has changed dramatically over the past five years for non-Mexican nationals.
Beginning in 1994, the federal government of Mexico liberalized ownership provisions of all property within
the constitutionally protected area known as the prohibited zone. This restricted area includes 100 kilometers along all natural borders, 50 kilometers along all coastlines, and all of Baja California. Prospective buyers outside of Mexico’s borders seeking to buy tourist property – including housing developments, There have been many transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. consideration to the seller. And in
many cases, the real estate agent or “broker” involved in the transaction has served as an escrow agent. Real estate brokers are not licensed in Mexico and typically do not set up separate accounts for earnest money deposits. The caveat here is expressly made in bold letters: If a foreign buyer is willing to give earnest money to the seller or the real estate agent in the transaction,
be prepared not to get it back! A foreign buyer should always exercise caution and use common sense when it comes to his or her money. Today, a U.S. title company can provide escrow services with individual interest-bearing money market accounts for each purchase. Notario publico participation in
transaction is not the same as obtaining title insurance Ultimately, foreign buyers get to the point where they are ready to have the transaction consummated and take title to the property. In Mexico, all real estate transactions and the legal conveyance of any type of propevent of a title defect. Foreign buyers should consult U.S. or Mexican counsel regarding real estate transactions. Civil code of Mexico defines contracts
Most real estate transactions in Mexico will have at least two contracts: first, an offer and acceptance (oferta) and/or a promissory agreement (contrato de promesa); and, second, a purchase sales agreement
(contrato de compraventa). Specifically, the civil code of Mexico defines contracts as agreements that produce or transfer obligations and rights. In general, real estate contracts in Mexico must be recorded before a notary public and, to be binding on third parties, they must be filed with the public registry of property. Once there is a written acceptance to the offer, it is recommended that the buyer’s attorney draw up the sales contract or promissory agreement. Since this agreement is the single most important document the buyer will execute with the seller, and the agreement’s contents will determine the terms and conditions of the transaction, the buyer should insist that his attorney assume this
responsibility. Escrow agreements and earnest money – not like in the U.S. There are many aspects of Mexican real estate deals that are very similar to transactions closed in the United States. While it would seem the basic terms and principles are the same, a foreign buyer is much better off to assume nothing. Two such terms are escrow and earnest money deposits (depositos condicionales). In the United States, an escrow agent or title company– or a person legally empowered to act as an escrow agent – will serve
in the capacity of handling escrow functions and earnest monies. In all cases, the company or individual who carries out the escrow procedure is licensed and empowered by law to do so. They are legally responsible to see that the agreed-upon conditions of an escrow agreement are met before any funds are released. This is not the norm in Mexico. Historically, foreign purchasers have given earnest money as contractual Investing in Mexico not a “Punta Banda” story
News headlines blared in November 2000 when Americans were evicted from their homes in the Mexican
municipality “Punta Banda” near Ensenada, Baja California. Though disturbing, we must understand that this
situation is an aberration. Mexico has made significant changes to its foreign investment laws to promote,
enhance, and protect foreign investment in the real estate sector.
The evictions demonstrate that in any country, title discrepancies exist, lawsuits get filed, and in some
rare cases, buyers lose their property. To be educated and prudent buyers, we must understand the issues.
The American residents at Punta Banda are, on one hand, victims of possible fraud and misrepresentation
concerning the developer’s ability to enter into lease agreements for lots within the Baja Beach and Tennis
Club. On the other hand, residents ignored the warnings and disclosure that the ownership of the land was in
dispute and there was pending litigation to resolve the title matter.
The plaintiffs had given public notice that the developer did not own the property and that no one should
build on it. The U.S. lessees trusted in the assurances given by the developer and the Ministry of Agrarian
Reform. However, ownership of the land was overturned and the evictions occurred.
In that light, why should Americans not fear buying real estate in Mexico? Title assurances and ownership
protections that exist today were not readily available when Americans built in Punta Banda 14 years ago.
And remember that the property can probably be insured with a title insurance policy enforceable under U.S.jurisdiction guaranteeing ownership rights.


The Mexican Association of Real Estate Professionals (AMPI) now has a formal working relationship
with the National Association of REALTORS® (NAR) to enhance relations between U.S. and Mexican real
estate professionals. There are now commission-sharing arrangements between brokers in the US and
Mexico, which has been a problem because there is no formal licensing act in Mexico.
With major franchises such as RE/MAX, Century 21, and Coldwell Banker having established operations in Mexico, and through referral networks such as RELO, US REALTORS® have a variety of avenues to assist their clients in taking advantage of Mexico real estate investment opportunities. ✯
 

The Closing Process
Although the title translates to “public notary,” the notario publico’s responsibilities greatly exceed the
formalization of signatures. Appointed by the governor of the state and the executive branch of the federal
government for a particular state “district, notarios are attorneys who must pass two extensive examinations in order to receive their lifetime  appointments. In a typical transaction, they will prepare the deed of conveyance subject to the “protocolized” purchase-sale agreement. The notario brings buyer
and seller together for the formalization of the property transfer, and they authorize the appropriate signatures upon execution of the escritura. And lastly, after the property transfer has been formalized, the notario will record the escritura with the public registry of property where theproperty is located.
Prior to the closing, the notario’s additional duties include: examining the documents of the selling party to
ensure their accuracy and legitimacy; verifying title; and searching the public records to determine the status of the seller’s title to the property and the existence of liens against the property. The notario is also responsible for the collection and payment of all applicable property taxes and government transfer taxes.
As representatives of the state, however, notarios do not insure title to the real estate nor do they have
any legal responsibility for title defects. In short, a purchaser cannot seek restitution against a notario in
the event the purchaser suffers a monetary loss due to a title defect unless fraud, misrepresentation, or
gross negligence could be proven in a Mexican court of law.
Issuing title insurance on Mexican real estate requires an in-depth exam.If a foreign buyer is willing to give earnest money to the seller or the real estate agent in the transaction, be prepared not to get it back!
Additional resources
If you want to learn more about real estate transactions in Mexico and around the globe, here are a few places to find more information.
• The Mexican Association of Real Estate Professionals has a Web site with a variety of information (all in Spanish). www.ampinacional.com.mx.

• NAR offers a Certified International Property Specialist (CIPS) designation for real estate professionals who focus on the international market. www.cipsnetwork.com.

• The International Real Estate Federation (FIABCI) is an international real estate organization dedicated to helping members understand and succeed in international real estate. www.fiabci-usa.com.

• The Association of Foreign Investors in Real Estate (AFIRE) is a trade association and a resource for principals and investors

PURCHASING REAL ESTATE IN MEXICO
For non-Mexicans, purchasing and owning real estate in Mexico has never been a more viable proposition than it is today. Thousands have already made the transition from visitor to resident (or part-time resident) of Mexico, attracted by the country’s exquisite geography, warm climate, reasonable cost of living, relaxed lifestyle, and overall quality of life. Yet still, there are significant differences between buying real estate in Mexico and in the United States or Canada. For those interested in buying property in Mexico, it’s important to know how foreign ownership works, what the buying process involves, what's available, and what the prices are like.
In short, all land purchases are completed through a trust deed that is established with a Mexican bank. The Mexican bank acts as trustee on behalf of the purchaser and the purchaser holds all rights of ownership. The trust deed is registered in the public land registry and exists for a period of 50 years and is renewable for subsequent 50-year periods for the cost of a filing fee. The Mexican Government specifically set the trust system up to allow non-Mexicans the security of ownership without having to change its 1917 constitution, which states that foreigners may not own property within 100 kilometers of a boarder and 50 kilometer of a coastline.
To ensure smooth and secure transactions, OHL and the Laguna Kai Partners have partnered with Stewart Title Insurance Company out of Houston, Texas to make title insurance policies available when purchasing property at Mayakobá. Stewart Title has been working in Mexico for ten years and has been at the forefront of many of the new ownership laws.
In addition, OHL has contracted with a Mexican/US law office, with a long history of providing counsel for real estate purchases within Mexico and other international destinations. This partner will create the legal structure for contracts, sales documents and registration of all deeds pertaining to Mayakobá land sales. Purchasing at Laguna Kai will be a clear, secure, and uncomplicated process.
Q. Can foreigners own property in Mexico?
A. Article 27 of the Mexican Constitution states that foreigners may not own property within 100 kilometers of a border and 50 kilometers of a coastline. This was a protectionist measure written into Mexico’s constitution after foreign invasions repeatedly threatened the country’s sovereignty. Foreigners have always been allowed to own rural or urban land in the interior of Mexico subject to certain limitations on specific agricultural tracts.
As time has passed, the Mexican government has come to realize the benefits of opening these highly attractive areas to foreign investment and has modified this constitutional restriction. Since 1973, foreigners have been able to purchase coastal and border properties through a Mexican bank trust, known as a Fideicomiso.
Q. What is the trust, and how does it work?
A. Essentially, it is just like a trust in the United States—the bank holds the legal title to the property, with all rights and privileges of ownership, including exclusive use and enjoyment rights, held by the trust beneficiary—the foreigner. The beneficiary enjoys the right to occupy or rent the property, and may cause transfer of title, or beneficiary transfer to the property, to any legally qualified person he may designate. Beneficiaries are also allowed to modify their property in accordance with local zoning regulations.
These trusts have an initial term of 50 years and are renewable at any time or at the end of the 50-year period for a relatively small filing fee (less than $1,000 US) for additional 50-year periods. The property
may also be sold to a person legally authorized to own land or to another foreigner via a trust, at any time. This process is designed to protect foreigner rights and ensure all transactions are legal.
Q. How is the trust created?
A. To establish the real estate trust, or “Fideicomiso”, a public notary (an attorney appointed by the state to notary office of which there are a limited number in any given state) charges a predetermined fee to cover the costs of completing an investigation of the entitlements and certifications, a tax appraisal, and preparing and registering the trust deed agreement. The trustee bank also charges an annual fee for maintaining the trust, currently averaging between $400 and $500 per year. The trusts are carried as ‘off balance sheet’ assets by the banks, acting as trustees.
Q. Are there differences in other aspects of property ownership in Mexico?
A. Property financing is largely unavailable to non-Mexican citizens and therefore it is advisable to organize any financing you may need with your personal banking sources in the U.S. or Canada. The Laguna Kai partners have secured financing with a US based mortgage company, and will provide details upon request.
Buyer closing costs tend to be higher in Mexico than they are in the U.S. or Canada, currently averaging 4 to 5 percent of the purchase price. Closing can normally occur within 30 days depending on the dates negotiated in your purchase agreement. Stewart Title will manage all escrow deposits for property transactions at Laguna Kai.
The buyer and seller need not be present at closing, and may be represented by the sales associate via a power of attorney.
Notaries are the agents of record for all transactions registered in the Land Registry Office.
Q. Do non-trust properties sell at different prices in the market than trust properties?
A. No. There is has never been any differentiation between properties that are ‘in trust’ and those that are not – providing perhaps the ‘acid test’ validation of the trust system.
Q. Is property and title insurance available?
A. To date, there are neither home inspection agencies nor home warranty policies available in Mexico. However, title insurance is available on property that is fee simple land held in a trust. Beginning in 1996, Stewart Title Guaranty Company began underwriting title insurance for Mexican properties at an approximate cost of $7 per $1,000 of the insured amount. Other types of insurance, including property, liability, damage, and earthquake, are all readily available in Mexico at low costs, and policies can be written to pay claims in U.S. dollars.
Q. What about taxes? What can I expect to pay?
A. For the buyer, the subject of real estate taxes generally comes as good news, especially in Quintana Roo. Here, real estate taxes tend to be set for the lowest common denominator. Known as 'Predial', the tax is calculated as a percentage of the assessed value, paid every bi-mester, and determined at the time of sale based upon the tax appraisal (property assessment). Property taxes have historically been low in Mexico because they have never been considered a source of significant governmental revenue.