Mexico Buyers Guide
Mexico Buyers Guide
For anyone that has enjoyed Mexico's beautiful beaches and sizzling nightlife, owning property there is a dream shared by most. However, many perish the thought because of stories they've heard, or confusion between past and current laws.
While you're not protected under the U.S. real estate laws you've come to understand, additions and modifications to Mexican real estate laws, as well as the ability to use U.S. Title Insurance and U.S. finance institutions have made it easier and more comfortable for foreigners to purchase property throughout Mexico. By following some of the guidelines below, you can avoid confrontations and misunderstandings. For more information on any of the topics below, download the Arizona Department of Real Estate's Consumer Guide.
Types of Property
Real Estate Professionals
Some of the biggest myths about buying property in Mexico include:
Foreigners can't own real estate in Mexico.
In most of Mexico, any foreigner can own land outright with what's called fee simple title, the same kind we have in the United States. Only in the restricted zone - 50 km (31.05 miles) from the ocean and 100 km (62.1 miles) from the borders - is it true that foreigners can't hold fee simple title. Puerto Peñasco is in that area, so these limitations apply. By using a Bank Trust (Fideicomiso), prospective land owners can bypass the limitations of a fee simple title, and engage in the process of purchasing foreign land in the Puerto Peñasco region.
An American must have a Mexican partner (who has at least 51% ownership) in order to own real estate in Mexico.
Under the new Foreign Investment Law of 1993, a Mexican corporation can be owned 100% by foreigners, and the corporation can buy and own any property with fee simple title, as long as its use is non-residential.
A Bank Trust is a lease agreement.
A Bank Trust is NOT a lease. Under a Bank Trust, or "Fideicomiso," the buyer has all the rights of ownership: the right to buy, sell, lease, use, bequeath, improve, transfer, and encumber. A lease grants only the right to use. Anything built on the land automatically becomes the landlord's property.
The Mexican government can take away property at any time.
The Bank Trust is established by the government and gives foreigners the same rights of ownership as Mexican citizens. The only difference is that they never receive the actual fee simple title. It is held in trust for them by a bank, although the deed to the trust is not an asset of the bank in which it is held. The term of a bank trust is for 50 years, and is renewable in perpetuity.
Types of Property
In Mexico, there are basically five types of property available to foreigners for purchase.
Subdivision: By acquiring a fee simple interest, one earns the right to purchase property in a subdivision, depending on the location of the property. The permit acquired is registered through the Public Registry of Property for the jurisdiction in which the property is located.
New Construction: By acquiring a construction permit from the local city government, a foreigner earns the right to build a new residence. The builder is responsible to obtain the title to the parcel of land, the permit, and hire the contractor.
Resale Property: Purchasing resale property is possible by acquiring a Bank Trust, depending on the location of the property.
Condominium: Purchasing a condominium is possible by acquiring an interest in a properly recorded condominium regime. Condominium regime's are public documents that have been notorized by a Mexican legal notary and are not legally obtainable until construction is complete.
Timeshare: Purchasing a timeshare is possible by acquiring timeshare rights in a property. Timeshare rights (as opposed to real property rights) are contractually acquired interests to use property according to the terms of the purchase contract. Through the Mexican Federal Consumer Protection Law, buyers have the irrevocable right to cancel all timeshare purchase contracts, within five days of signing the contract in question.
Fractional: "Fractional" or "Interval Ownership," is often referred to as "Equity Sharing." Fractional ownership offers all of the pluses of whole ownership without all the hassle. People can now truly buy only what they will need or use. Even the most ambitious traveler typically only makes it down to Puerto Peñasco one or two weekends per month, making Fractional Ownership the most cost effective and useful option.
Formalities for Purchasing Property in Mexico
To properly purchase land in Mexico, there are a number of documents and formalities that you must go through to achieve actual ownership. Each one of these is necessary to guarantee that the process is legal, and can hold up in a Mexican court of law.
The most important document a buyer must obtain is a bank trust, or Fideicomiso. Under a bank trust, a Mexican bank holds the legal title to the property for the benefit of the buyer. The buyer, as beneficiary, has all of the rights of ownership including the ability to use, rent, modify, improve, and sell the property. Under present law, bank trusts are created for fifty-year terms, renewable indefinitely.
Once a site is found, a Mexican appraisal is used to determine the taxes for closing. The taxes will be based on the greater of the appraisal value or the purchase price. Buyers must not under-report the purchase price to the Mexican Public Notary.
In order for a purchase to go through, the buyer must formalize the purchase before a Mexican Public Notary. Under Mexican law, only Notaries are authorized to prepare and record a property deed. Notaries are attorneys appointed by the state government to specialize in various matters.
Once the purchase has been formalized, a buyer will ensure ownership rights against the seller, and any other challenging third parties by recording all property transfers at the Public Registry of Property. The Public Registry of Property is the central recording entity for all public documentation concerning property.
Real Estate Professionals
While Clifton Meridian only employs fully licensed real estate professionals, buyers who wish to work with a local professional should conduct business exclusively with real estate professionals that are registered with the state under the Sonoran Law for the Registry of Real Estate Professionals. Because you are not protected under U.S. law, it is important to deal with someone that understands Mexican law, and how foreign land ownership works.
Just like in the U.S., if a property is listed for sale with a real estate agent, that real estate agent is typically compensated by the seller. If both parties have a real estate agent representing their respective interests, agents will split the commission.
It is not required that the agent representing the seller split the commission with the buyer's agent. Typically, when two agents are involved, both enter into a contract enforcing a fair commission split.
While many agents subscribe to MLS in Mexico, MLS does not operate in exactly the same fashion as does its U.S. counterpart. It is for this reason that you will want to find a licensed and reputable real estate agent.