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BUYING REAL ESTATE IN MEXICO
FOREIGN OWNERSHIP In 1989 the Mexican government amended the Foreign Investment Law to allow direct foreign ownership in real estate in all but restricted zones.
The restricted zone, referred to as Constitutional Article 27, encompasses all land within 62 miles of any Mexican border and 31 miles of any Mexican coastline. Foreign investors seeking to own property within a restricted zone may do so only, by forming a “fideicomiso” a real estate trust.
Foreign buyers purchasing property in their own name must obtain a document from the Ministry of Foreign Affairs which confirms that the buyer is not seeking diplomatic intervention or protection from the home country in matters pertaining to the property purchased and that he or she will agree to be subject to the Mexican legal system, as would any Mexican citizen in matters concerning the property.
HOW THE TRUST WORKS. The Trust is a 50 year renewable real estate trust or “fideicomiso”, provision created by the Mexican government to attract foreign investors to the restricted zones. It is essentially a contractual agreement that in most respects is similar to the type of trust commonly used in the United States. The arrangement enables the investor to enjoy unrestricted use of land as beneficiary of the trust. A simple title is placed in the name of the bank selected as trustee by the buyer. The buyer/beneficiary has full ownership rights to build on the property, tear down or modify the existing buildings, rent, and lease, subdivide or sell at any time, and received the profit, conforming only to Mexican general laws.
PROPERTY REGISTRATION. Mexico has a form of title registration that protects the buyer from fraud and hidden claims. An attorney conducts a title search and declares that the property is free from liens and encumbrances. The final step toward ensuring correct registration is to obtain the property's “escritura” similar to a deed. A Mexican attorney should draw up the real estate contract and review all of its conditions and terms. A notary public is also a licensed attorney who is issued a special license to act as an extension of the government to ensure all real estate transactions are executed according to the law. A document signed by a notary is a legally binding, valid document. Real estate contracts must be written in Spanish in order to be legal, and may be drawn-up in foreign currency, but the buyer may pay the contract's equivalent in pesos at the current rate of exchange, based on the U.S. dollar. A Mexican corporation can be formed for the acquisition of non-residential property anywhere.
CLOSING COSTS. Closing costs and transfer taxes are determined by whichever is greater, the bank appraisal or the selling price. The buyer pays around 7% of the price as a closing cost and a standard transfer should be completed 45 to 60 days from the time all documents are consummated.
REAL ESTATE AGENTS. The only professional real estate organization is the Mexican Real Estate Professionals (AMPI), which is similar to NAR and CREA in the United States and Canada. Real Estate agents are not required to have licenses, although such legislation is currently under consideration. Individuals should seek professional assistance from a member of AMPI when purchasing real estate in Mexico.
1. What is a trust institution?
In Mexico, a Trust Institution is a Banking Institution which is authorized to open fiduciary accounts and conduct trust operations. The Trustee holds the legal title of the real estate property during the term of the trust, and is also empowered with rights and powers necessary to achieve the objectives of the contractual agreement creating the trust.
2. What characteristics would have a trust agreement (fideicomiso)?
In the trust deed, the present owner of the land would appear as the settler or trusted (fidelcomitente) and would thereby deliver title of the real estate to the trustee who would hold the property during the life of the trust (50 years).
The buyer (you) would appear as the Beneficiary (fideicomisario) having the absolute use and avail of the property. The legal effect of the trust deed is that the Trustee keeps temporary ownership of the real estate, complying with Article 27 of the Mexican Constitution that prohibits foreigners from full ownership of real estate located 50 kilometers wide along the coastlines and 100 kilometers wide along the border areas of Mexico. These areas are known as the "restricted zone".
As foreigner you cannot ever record title to land in the "restricted zone", but you can own the beneficial interest from the trust agreement. It is, in a way, like owning 100 percent of the shares of a corporation, which in turn owns a farm (the corporation does); it is for most practical purposes like ownership.
3. What requirements are necessary?
You or the seller must provide to the Bank the following documents and information:
a) A copy of the real estate title or deed Indicating the exact surface area and bounds of the property, and a certificate of no debt of Federal, Local or municipal Taxes. (These documents are given by the seller).
b) Your name, nationality, occupation, address and phone number. (Copy of your passport, Immigration form (in case), phone or other service bill mail to your address)
c) The name(s), nationality, address (es) and phone number of the substitute(s) beneficiary (ies) for the case of your decease during the life of the trust.
e) The agreed purchase price.
Upon receiving the information and documents herein described, the trustee shall proceed to apply at the Foreign Affairs Ministry (Secretaria de Relaciones Exteriores) for the permit authorizing the trust deed.
Upon obtaining the said permit the bank shall proceed to execute and legalize the trust deed before a Notary Public. Notaries in Mexico have far greater legal status and competence than those in the United States. The Notary Public is an Attorney at Law who is authorized by the State Government to give final formality to the title transfer process in his protocol book. The resulting document taken from this protocol book is registered at the Public Registry of Properties, and it will give evidence of title in the name of the buyer.
In the event that you cannot be present at the signing of the trust deed before the notary public, you should send us a letter where you accept the terms of such trust agreement.
4. What rights and obligations does the beneficiary assume upon the celebration of the trust deed?
As the Trust Beneficiary, you will have the use and possession of the property, that is, you may live on the land, undertake any alterations and improvements. You also have the capacity to instruct the Trustee on mortgaging the real estate, renting it, selling, transferring your beneficial interests to another person or corporation, or performing anyone of the acts that by law derive from the ownership.
If you sell the property to another foreigner, you may assign your beneficial interest to the new purchaser. This assignment of rights must be formalized before a Mexican Notary Public, prior the payment of the federal and local taxes and fees that arise from the transfer of Beneficiary rights.
You will have the obligation to pay the duties on the land, i.e.: real estate and water service taxes, the condominium maintenance fees, if applicable, as well as the Trustee's annual fee.
5. What approximate fees will the trustee charge for this type of trust? (prices given only as approximation)
A) As a trustee's acceptance charge, $3,000.00 pesos (as a minimum) payable only once upon the signing of the Fideicomiso.
B) For handling and management of the Fideicomiso, depending on the real value of the property held in trust, with a minimum of US$4,000.00 pesos. This fee is subject to payment in advance.
Every year, on the anniversary date of the trust, the Bank shall mail to your address OR E.MAIL YOU the bill of the annual fee for keeping the property in trust.
6. What other expenses must the beneficiary meet upon the celebration of the trust deed?
You must pay the fees, taxes and expenses that arise from the purchase as well as the formalization of the trust deed before a Mexican notary public.
The cost and taxes of the operation are the same as those that would be paid for a normal title transfer from one Mexican to another.
Also, you wilt pay the cost of the permit that must be obtained from the Foreign Affairs Ministry to acquire the property in trust, and the recording of the trust deed at the
National Registry of Foreign Investments.
7. What happens if the beneficiary should die during the legal period of the trust?
The Beneficiary has the right to appoint substitute(s) beneficiary (ies) who will receive all the rights and obligations that arise from the trust if the beneficiary dies during the life of the trust.
With this designation of substitute beneficiaries, your heirs will not need to follow any probate proceeding before the Mexican courts, that could take time and Attorney's Fees. They would only have to give notice to the bank of the decease and show the death certificate and their Identifications, then the Bank will accept and register them as the new owners (beneficiaries) of the Trust Property, without any cost.
8. What will happen at the expiration of the trust?
On December 27, 1993 a Presidential decree was issued establishing the new Foreign Investment Law (Ley de Inversion Extranjera). According to article 13 of this Law, the Foreign Affairs Ministry shall allow the renewal of trusts over the "restricted zones" upon expiration of their term (up to 50 years) Furthermore, the Foreign Affairs Ministry may authorize a new trust over real estate transferred from one trust to another for a period up to 50 years when the beneficiaries of the original and the new trust are different.