The Forbes-Douglas 2003 32

 LIVING BETTER RENTINGBUYINGBUILDING BUYING MEXICAN  PROPERTYREAL ESTATE PROFESSIONALS - FINDING YOURSHOW MUCH NEGOTIATING OWNERSHIP FINANCINGCLOSINGTITLE INSURANCERECOURSE SUMMARY - RESOURCES

The Forbes-Douglas 2003

Mexico Real Estate eGuide 

Introduction and Welcome

Welcome to the electronic book

The Forbes-Douglas 2003 Mexico Real Estate eGuide

 - a powerful tool for informing yourself as a foreigner dealing with real estate in Mexico.

Retirement in Mexico has become a good option for many Americans looking to retire early or wanting to experience a higher standard of living on their limited retirement income.

             If you are researching retirement in Mexico, you know it offers you a comfortable cost of living and quality of life, while only a 2 or 3 hour flight to many major cities in the southern U.S. Being further south, means that the weather on Mexico’s Pacific Coast is balmier than in Florida or Southern California.

This section explains the E-Book, what is in the package, and how to use it.

You can navigate through this guide by:

Clicking on the blue underlined links that look like this. Most of these links are internal to the guide and will take you to another page within the guide, but you will also find many links that lead to related or interesting web sites (if you are online).

Pertinent Spanish language websites have been included.  We encourage you to investigate these by use of your school Spanish or the many translation services available.

The Next and Previous options allow you to go the next or previous page in the E-Book.

The Back and Forward options allow you to retrace your steps through the E-Book. In other words, they take you, step by step, through those pages that you've already viewed.

If you are looking for information about a particular topic you can use the Search function, or look at the overall Table of Contents. To access these functions quickly, simply click on the Toolbar button.

The guide is divided into fourteen numbered sections, most of which have numbered sub-sections.  Each section relates to a different topic, and contains a number of pages. You can flip between the sections using the tab buttons near the top of the page (the current section is shown on a white tab - for example you are currently looking at the Introduction section). On the left of each section is a menu to navigate around that particular section.

                                     Here is a list of what each of the sections is about:

§         Living Better for Less in Mexico     A general introduction for the foreigner to how title to property is exchanged in Mexico.

§         Rent?    The advantages of renting while exploring.

§         Buy a resale home?     The supply is greater and remodeling/refurbishing is inexpensive.

§         Build your dream home?     And it can be a great investment.

§         Buying Real Estate in Mexico.

§         Real Estate Professionals       What you need to know about the various professionals who can help you in the real estate acquisition process: Real Estate Agents, Notarios Publicos, other attorneys, bank trust departments.

§         Finding Your Home Base in Mexico       Learn about RESALE HOMES, RESIDENTIAL LOTS, SUBDIVISIONS, CONDOMINIUMS, TIMESHARE

§         How much will you pay?     A guide to the newcomers to Mexico should understand the basics of property evaluation in the Mexican context so they can determine a realistic value of existing homes and lots

§         Negotiating for Real Estate in Mexico      A basic guide to negotiating for real estate or any other arrangement in Mexico where you will find the Latin side, using more formal courtesy and manners, can be so charming as to disarm your side in the negotiation.

§         Holding Title to Real Property on Mexico     This section provides a through treatment of how you as a foreigner can own property in Mexico - even in the "restricted zone."

§         Financing the Purchase of Property in Mexico    A discussion of an areas in which the Mexican context is very different from the U. S. or Canada.

§         Closing Your Purchase    The full discussion on the most critical aspect of your purchase: NOTARIO PUBLICO, OTHER ATTORNEYS,  CONTRACTS, COSTS, ESCROW, TITLE INSURANCE,      RECORDATION.

§         Title Insurance      The new factor in the equation.

§         Recourse     Your options for recourse if, after all your due diligence, something goes wrong.

§         Summary: Insuring a Successful Transaction       A reminder of the principal steps to a rewarding Mexico real estate experience.

§         Appendices:     Internet Resources  

                                The Foreign Investment Law in English

 

COMPLETE TABLE OF CONTENTS

                                                1:00  MAGIC MEXICO: LIVING BETTER FOR LESS

                                                 1:01  BACKGROUND

                                                 1:02  FIRST CONSIDERATIONS

          1:10  WHY BUY IN MEXICO NOW

          1:20  WHO MAY BUY WHERE

           1:22  WHAT THE 1917 MEXICAN CONSTITUTION SAYS

          1:23  BANK TRUST FIDEICOMISO

                                                 1:24  ZONING

          1:30  HISTORY OF LAND OWNERSHIP

                                                 RENT-BUY-BUILD?

 2:00  RENTING

           2:10  ADVANTAGES OF RENTING

           2:20   DISADVANTAGES OF RENTING

           2:30   LEASING LAWS

 3:00  BUYING A RESALE HOME

           3:10  ADVANTAGES OF BUYING

           3:20   DISADVANTAGES OF BUYING

 4:00  BUILDING YOUR DREAM HOME

           4:01   ADVANTAGES OF BUILDING

           4:02    DISADVANTAGES OF BUILDING

           4:10    THE BUILDING PROCESS

           4:20     PLANS, PERMITS

           4:30     MEXICAN CONSTRUCTION

           4:40   THE FEDERAL ZONE

            4:50    PROPERTY TAXES

            4:60    TAXES ON RENTAL INCOME

            4:70    OWNERSHIP CONCLUSION

 5:00  BUYING REAL ESTATE IN MEXICO

          5:10  THE REAL ESTATE BUYING PROCESS

          5:20  OWNERSHIP IN THE RESTRICTED ZONE

          5:30  DIFFERENT PRACTICES

          5:40  THE PROCESS

          5:50  SOME REAL ESTATE DEFINITIONS FOR MEXICO

          5:51  PROPERTY OWNERSHIP IN MEXICO

          5:52  INSTRUMENTS FOR PURCHASING PROPERTY

          5:53  SAFEGUARDS FOR PURCHASING PROPERTY

          5:54  TYPES OF PROPERTY

          5:55   CLOSING COSTS

          5:56  FINANCING OPTIONS IN MEXICO 

          5:60  SOME POINTS TO REMEMBER

                                       6:00  REAL ESTATE PROFESSIONALS

           6:11  THE REAL ESTATE INDUSTRY IN MEXICO

           6:12  DUTIES

           6:13  FINDING A RELIABLE AGENT

           6:20  NOTARIO PUBLICOS

           6:21  MORE THAN A “NOTARY PUBLIC”

           6:22  A REPRESENTATIVE OF THE STATE, BUT…

           6:23  UNDERSTANDING THE NOTARIO’S POSITION

           6:30  OTHER ATTORNEYS               

7:00   FINDING YOUR SPOT IN MEXICO

          7:20  RESIDENTIAL LOTS        

          7:30  CONDOMINIUMS

          7:31  KNOW YOUR CONDO R&RS

          7:32  THE ASAMBLEA ANNUAL

          7:33  BUYING A UNIT UNDER CONSTRUCTION OR IN        

                   A NEW DEVELOPMENT

          7:34  BOARD OF DIRECTORS/COMITE DE VIGILANCIA

          7:40  TIMESHARES

8:00  HOW MUCH WILL YOU PAY?

          8:10  TAX VALUE APPRAISAL

          8:20  INVESTMENT VALUE

          8:30  REPLACEMENT VALUE APPRAISAL

          8:40  RESALE HOME APPRAISAL

                                    9:00  NEGOTIATING FOR REAL ESTATE IN MEXICO

                                 10:00  HOLDING TITLE TO REAL PROPERTY IN MEXICO

          10:10  FEE SIMPLE            

          10:20  BANK TRUST FIDEICOMISO

          10:21  FIDEICOMISO BANK TRUST

          10:22  TRUSTEE FEES

          10:23  MECHANISMS OF THE TRUST

          10:24  BANK LETTER

          10:30  OWNERSHIP THROUGH A CORPORATION

                                    11:00  FINANCING

                                    12:00  CLOSING YOUR PURCHASE

                                                12:10  THE TIME FRAME      

         12:20  GOING TO THE NOTARIO PUBLICO

         12:30  CONTRACTS YOU MAY USE

         12:31  PROMISE OF SALE/PURCHASE OR

                       CESION DE DERECHOS FIDEICOMISARIOS

         12:32  CONTRACTO DE COMPRAVENTA

         12:33  DEPOSITS

         12:34  THE ESCRITURA PUBLICA DEED

         12:40  CHECKLISTS FOR BUYER AND SELLER

         12:50  PAYING THE CLOSING COSTS

         12:51  TRANSFER TAX

         12:52  COST OF THE FIDEICOMISO

         12:53  CAPITAL GAINS TAX

         12:60  ESCROW AND EARNEST MONEY         

         12:70  RECORDING YOUR ESCRITURA PUBLICA     

                       DEED

                                              13:00   DO YOU NEED (CAN YOU GET) TITLE                                                                     

                                                INSURANCE? 

                                               13:11  NAFTA AND THE FIL

                                               13:12   A SIMILAR SYSTEM

                                               13:13 THE FUTURE

                                               13:14  TITLE SEARCH AND INSURANCE IN MEXICO

                                               13:15  POLICY GUARANTEES

                                               13:16  HOW TITLE INSURANCE WORKS IN MEXICO

                                               13:17  BASIC PROTECTION

                                               13:18  TITLE INSURANCE OPTIONS AVAILABLE

                                               13:19  COVERAGE

                                               13:20  TITLE REVIEW

                                               13:21  FREQUENTLY ASKED QUESTIONS

                                               13:22  TITLE POLICY ISSUE

                                               13:23  THE NEED

                                               13:24  INSURING FOREIGN INVESTMENTS                                                

                                   14:00  RECOURSE

                                   15:00 SUMMARY: FOR AN EXCELLENT EXPERIENCE   

                  APPENDICES:    a.   Internet Resources  

                                                 b.  The Foreign Investment Law

 

 

 

            1:00  MAGIC MEXICO: LIVING BETTER FOR LESS

Enjoying the Mexican beachfront or colonial hillside town, you've decided to put down roots in Mexico and "save money" by buying in. Invest a significant amount of time before investing in Mexican real estate. Get to know the terrain, its problems and advantages. Work hard to understand the area, the people and the real estate values. Get the assistance of someone that speaks and reads Spanish fluently so that you don't miss legal nuances and idioms. Even though you may have bought and sold real estate in the United States, the Mexican experience is a totally new.

You hear the story again and again in Mexico: We went for a visit and ended up buying. There are 100,000-400,000 Americans who have been lured by the beauty, the serenity and, not least, the prices, to become homeowners in Mexico.

                           Destinations include:

 The perennially spring-like Lake Chapala near Guadalajara in Jalisco

  http://www.chapala.com,

  http://www.chapalaguide.com/

  http://www.ajijic-chapala.com/ ,

The Nayarit coast and Bay of Banderas north of Puerto Vallarta     

              http://www.cbpuntamita.com/ ,

              http://www.banderasbayregatta.com/about.html

              http://www.dcarealty.com/banderasbay.htm

              http://maranacove.com),

Historic, cobblestoned San Miguel de Allende about 130 miles north of Mexico City;

              http://www.internetsanmiguel.com,  

              http://www.san-miguel-house-rentals.com

              http://www.sanmiguelguide.com/),

Upscale Puerto Vallarta on the Pacific coast of Jalisco 

              http://www.mexicoland.net/,

              http://www.vallarta-adventures.com/

              http://www.vallarta-info.com/

              http://www.go2vallarta.com/);

Clubby Cabo San Lucas at the southern tip of the Baja California peninsula,

              http://www.allaboutcabo.com/

              http://www.caboland.com/

              http://www.go2cabos.com/

              http://www.loscabos-tourism.com/cabo/

              http://www.cometocabo.com

The Costa Maya, Yucatan, Cancun

              http://www.cbdomus.com,   

              http://www.allaboutcancun.com/

              http://www.gocancun.com/

              http://www.cancunpropertiesonline.com/,  

              http://www.casablancayucatan.com/) 

Cuernavaca,

            http://www.tourbymexico.com/morelos/cvca/cvcafram.htm

            http://creativeartsmx.itgo.com/

Mazatlan, 

            http://www.maztravel.com/

            http://www.allaboutmazatlan.com/

            http://www.go2mazatlan.com/

The http://www.allaboutmazatlan.com/ south of Jalisco, 

           http://www.tomzap.com/

           http://www.alexandratravel.com/oaxaca/pac_lands.html

           http://oaxacalive.com/askmaria/messages/2744.html

Puerto Penasco (Rocky Point) in Sonora

           http://www.puerto-penasco.com/

           http://www.rockypointmexico.com

           http://www.penasco.com/mexico.html

 and

San Carlos in Sonora

           http://www.sancarlosmexico.com/

           http://www.sancarlosbay.com/

           http://www.sonorabay.com/

Most of the time there are no problems. But occasionally press accounts raise questions about just how safe it was to buy land in
Mexico. Buyers simply need to apply the same due diligence they would anywhere else. It is true that if a deal sounds too good to be true, it probably is - but away from the tourist areas there are some amazing possibilities.

Seven million North Americans travel to Mexico every year. Figures indicate that there are as many as 400,000 Americans and Canadians who have retired to Mexico, be it on a full-time or part-time basis. You can successfully join their ranks by informing yourself and always doing due diligence.

There are very few consumer protection laws here. You buy a house "as is". There are no disclosure requirements. There are no mandatory inspections. Get the picture? You are responsible to become an informed buyer. Don’t count on your Realtor to point out any of the negatives. We all learn painful lessons through this process. Do your homework! And, be ready to accept the fact that you’ll learn as you go. Don’t let a few surprises sour your attitude. It’s a beautiful country with kind people. Just be careful and get good help.

                          1:01 BACKGROUND

Purchasing real estate in Mexico has changed dramatically over the recent years for non-Mexican nationals. Beginning in 1993, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area known as the restricted zone 100 kilometers along all borders, 50 kilometers along all coastlines, and all of Baja California.

In the Foreign Investment Law (FIL) of 1993 the enactment of this law, some 95 percent of the economic bans on foreign ownership in Mexican companies have been liberalized. Although foreign investment is still not permitted in some Mexican industries, FIL has greatly enhanced the outlook with respect to commercial property in Mexico’s restricted zone.

Not only is there no requirement for foreign concerns to have Mexican partners in Mexican companies, there also has been removal of the legal mandate that title be held by a fideicomiso (Mexican bank trust), eliminating the annual trust fee to the bank. In residential transactions within "restricted zones," title still must be vested in the fideicomiso, which provides property entitlement and not an ownership guarantee.

As these changes move closer to full reality, property transfer in Mexico remains basically traditional through a land registration and title certification process. While fundamentally sound, the Mexican property transfer system has inherent limitations that are troublesome in an active market. The same kinds of title defects can arise in Mexico as in the U.S., among other potential title hazards unrelated to American jurisdictions.

Prospective buyers outside of Mexico's borders seeking to buy tourist property, - including housing developments, 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. Buying in Mexico is both like and different from buying property in the United States, and it is unwise to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country.

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.

AS in the U. S., there have been many documented transactions in which buyers 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 procedures for the conveyance of the real estate.

                          1:02 FIRST CONSIDERATIONS

If you are thinking about buying property, consider renting first to see if Mexico and the community that you have chosen are right for you. During that time, talk to others to see what their experiences have been. If you do choose to buy, you will need to work with a reputable notario publico (real estate lawyer); typical notario publico fees are 3%. You will find real estate offices throughout Mexico, but remember real estate agents are only beginning to be licensed or regulated; make sure you work with one who is well recommended.

Something to consider is buying land and then building your home from scratch. This can cut the cost of purchasing a home in half. If you choose to build you will need a reputable engineer and architect, and you will need to supervise the work on a daily basis.

In many areas of Mexico, the construction is all by hand since there are no pieces of heavy construction equipment available.

The cost of living in some remote areas like Cabo San Lucas, where almost all goods must travel a long way, can be just as high as in the U.S. But quieter and less flashy places like the Lake Chapala area, home to maybe 10,000 American and Canadian retirees, are easy on the wallet.

At the present time there is no general use of title insurance in Mexico, although some American companies are providing coverage in some resort areas of the country. For the American title insurance that  is available for Mexican real estate the cost depends on whether the property is covered by a "master title commitment".

Property insurance is available in Mexico and the rates are relatively low.

In the past, real estate transactions in Mexico were all cash deals. More recently, different types of financing are becoming available.

Business deals are processed slowly in Mexico. It may be necessary to make personal visits to resolve details that one might think could be handled by telephone. As is the case in other countries, some Mexicans may not approve in general of the sale of their lands to foreigners. Be a good neighbor.

                          1:10   WHY BUY IN MEXICO NOW?

The North American Free Trade Agreement (NAFTA) http://www.nafta-customs.org, technology, and sweeping changes in Mexican politics have forged a closer relationship between the U.S. (especially the Border States) and Mexico. The climate for real estate business is inviting for retirement homes, second homes, or commercial real estate investments by Americans and Canadians.

The Mexican peso is expected to remain stable. 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 that many see an abounding opportunity in Mexico's real estate market

Most real estate transactions in Mexico are above board. The fraudulent deals are fairly rare and definitely not the norm. Any transaction done with a notario publico should not have any problems, as he or she is legally responsible that everything is in order. People who buy real estate in Mexico often invest their life savings in their "dream" retirement home, and everyone should be aware of Mexican laws and be cautious.

Another consideration: can the property you are thinking of buying, be readily sold should you decide to return to the
United States or your native country?


Most real estate brokers and developers are honest and above board but should their sales techniques be like those of a "time share" salesman pressing for "an impending happening close" for the transaction, be careful.

Some basic safeguards on real estate purchase do not yet exist in
Mexico as they do in the United States or Canada. There is no credit bureau to check on the developer's financial condition. It may be difficult to locate liens, and title insurance is only recently becoming available in limited areas.

For the typical person off the street, you need a notario publico to hold your hand right from the first steps of the transaction--a title search takes him at the most a few days. If there is any potential problem, the notario publico will not foul his good name and will let you know immediately.

Chances are that you will never have a problem when buying real estate in
Mexico. Just be diligent in doing your "homework" and be a little more cautious!

.

You will find that you will enjoy your ownership more if you take the time to learn how to source reliable information.

 

                          1:20  BUYING REAL ESTATE IN AND OUT OF THE RESTRICTED ZONE

                          1:22  WHAT THE 1917 MEXICAN CONSTITUTION SAYS

Article 27 of Mexico's 1917 Constitution forbids foreign ownership of coastal real estate and provides restrictions for all foreign ownership elsewhere in Mexico.

While only citizens and nationals of Mexico may freely acquire real estate in Mexico, foreigners may be granted the right to own real property only under very specific conditions. The current conditions are contained in the Foreign Investment Law of the United Mexican States, published in the official Gazette of the Federation dated October 27, 1993.

The Mexican Constitution prohibits direct ownership by foreigners of property within fifty kilometers (approximately thirty-one and one-quarter miles) of the seacoast and one hundred kilometers (about sixty-two and one-half miles) of Mexico's international land boundaries - the prime areas for retirement and/or vacation homes and apartments. As noted above, there are laws to allow or encourage foreign investment throughout Mexico.

In coastal and border areas (the restricted zone) foreigners can have the use of property placed in trust with a Mexican financial institution. Under such a trust agreement, a bank is the trustee, or actual titleholder, of the property.

The foreign buyer is the beneficiary of the trust having all rights to use, enjoy, and sell the property, but is not considered the legal owner of record and his exercise of his trust rights depends on the specific wording of the trust agreement from which he benefits. All trusts must have the approval of the Secretary of Foreign Relations (http://www.sre.gob.mx/) before final documentation can be delivered to the beneficiary.

It's called "restricted" because the only way a foreigner can buy any property within these limits, is with a special Permit from the Mexican Federal Government (automatically given in the bank trust), through a Bank Trust, in which the Bank is the Legal owner of the property, and the buyer is given the Rights to use it. At present, this Bank Trust is being legally granted for a period of 50 Years.

When you buy within the Restricted Zone, you only acquire "Derechos de Uso" (Rights to use), but you're also allowed to build, to remodel and of course, to sell it (giving notice to the Bank). Furthermore, if you want to rent it out", you can do so by following the instructions given by the Secretaria de Hacienda (Tax Revenue Service http://www.shcp.gob.mx/english/index.html).        

Article 27 grants the Mexican Nation ownership of the land and water within the territory and provides that the Nation shall oversee the transfer of ownership rights to individuals, by creating private property.

Section I of the article grants the right to acquire directly the dominion of land only to Mexican individuals and companies. It also gives the State the power to grant the same right to foreigners, subject to the condition that these foreigners agree before the Ministry of Foreign Relations to consider themselves as Mexican nationals regarding the acquired property. They may not invoke the protection of their country of origin with respect to the same. If the covenant is breached, all rights to such property shall be reverted to the Nation.                  

Outside the Restricted Zone, a foreigner can acquire any type of real estate as any Mexican National, holding the property as a direct owner complying with Mexican law.

Foreigners (non-Mexican) are able to purchase directly in Mexico (escritura deed) rural or urban land in the interior of Mexico with certain limitations on specific agricultural tracts. In the restricted zone, a Trust Deed is used. These protected areas include 100 kilometers along all natural borders, 50 kilometers along coastlines, and all of Baja California.

A foreigner legally in the country under any kind of permit can buy property. A minor detail (http://www.sre.gob.mx/  Secretaría de Relaciones Exteriores, Flores Magon 1 anexo, Tlatelolco, México, D.F.) or any of its delegations in the States of the Republic. This is an agreement to be considered as a Mexican citizen in connection with the property, meaning that diplomatic protection from a foreign government will not be invoked, and that the alien will submit to the jurisdiction of the Mexican courts in all cases, under the penalty of losing said property.

Another alternative is to purchase non-residential property through a Mexican corporation which can be, under certain conditions, 100% foreign-owned, with a provision in its by-laws that the foreigners accept to be subject to Mexican laws and agree not to invoke the laws of their own country. In other words, under said conditions, foreigners can acquire, directly, properties destined for tourist, commercial and industrial use.

                          1:23  BANK TRUST FIDEICOMISO

In the restricted zone, title can be held in one of two ways: (1) the Mexican bank trust is for residential or non-residential property. (2) A Mexican corporation can hold non-residential real estate. Foreign nationals can be the sole and exclusive stockholders of the corporation that holds the title to this nonresidential property within the restricted zone. If you hold property on the interior as residential and claim is as a residence in Mexico, you may be eligible to waive capital gains tax.

                           TRUST HISTORY

It is necessary to understand the background as to why and how bank trusts (fideicomiso) were created for foreign ownership of Mexican real estate. In the middle of the nineteenth century, Mexico lost large amounts of land to the United States when it invaded its neighbor.

The Mexican government sought a way to stop further loss of their territory. They did this by prohibiting, in the Mexican Constitution, foreign acquisition of land along the borders and coasts of the country. A restricted zone was created.

Verify with a notario publico that the property you would like to buy has no mortgage and that the seller has paid the real estate property tax and water bills.

                          1:24  ZONING

While zoning restrictions may not be common in commercial and residential neighborhoods, certain areas may have building codes to preserve colonial flavor. For instance, downtown Morelia has enforced a historical building preservation code for the past hundred years. Puerto Vallarta has stricter zoning than some U.S. cities. Private land ownership may be barred in forested areas, natural protected areas, reserves, biospheres and other environmentally protected areas. That beautiful isolated mountaintop or bucolic site may be out of reach for the same reasons a chunk of the Grand Canyon is.

                          1:30  HISTORY OF LAND OWNERSHIP

Historical antecedents have limited large land-holdings in agricultural areas. Size, irrigation, and productivity limit the amount of farmland, which can be owned by a single entity.

The 1910 Mexican Revolution was rooted in unequal land distribution: 1% of the Mexican population controlled 97% of the land. In response, the revolutionary government expropriated large land-holdings, outlawed latifundios, and created communal lands, or ejidos, occupied by rural peasant farmers. This concept dates back to Mayan times.

Under the Mexican Constitution, only Mexicans have the unlimited right to own freely land. Foreigners have the right to own real property, provided they do not invoke the protection of their home government. This means that Mexican courts, treating foreign landowners the same as Mexican nationals, will decide any dispute concerning land ownership.

Foreigners have no legal recourse to the legal system of their homelands. This is done to prevent the historic recurrence, prevalent in Latin America in the past 200 years, of a capital-exporting country meddling in the sovereign affairs of another nation to protect a private party's economic interests.

The Constitution proclaimed that all land in Mexico would either be ejido (communal) or owned by Mexican nationals only. Communal ejido land was given to every village in Mexico and could not be sold.

Some seventy years after the enactment of the 1917 Mexican Constitution, these small communal ejido plots of land were seen as less productive and unable to compete in the market economy. In 1992, the Constitution was amended to loosen the tightly controlled ejido system, make it more productive, and to provide ejido members with greater access to capital. The new law allowed some ejido lands to be rented out or sold under certain restrictions.

To lessen the restricted zone limitation, the Mexican Congress has implemented a system whereby Mexican banks acquire the property and place it in trust for the sole "use and enjoyment" of a beneficiary. This right includes the right to re-sell the property at fair market value any time during the trust. Terms of the trust usually extend to 50 years, renewable in 50-year increments with relative ease. The buyer may choose the bank that will handle his trust, and may want to shop around to determine where he can get the lowest fees.

As a practical matter it may be best to use a bank your notario is accustomed to working with and recommends.

North American banks have traditionally been reluctant to provide mortgage financing on trust property due to their inability to obtain title together with potential difficulties with foreclosing in a foreign country. Mexican banks have not entered the field due to a lack of available capital. Purchases have therefore been limited to investors with sufficient resources to buy real estate without need for financing.

                           NAFTA (http://www.nafta-customs.org/)

It used to be that the government was not happy about foreigners buying Mexican land, and that attitude is still somewhat prevalent. The North American Free Trade Agreement (NAFTA) has made it so North Americans can (except on the coasts) buy property outright and receive a fee simple title. The property is yours to keep, sell or will to your children, just as in the United States. On the coast expatriates receive a trust deed, in which case a bank holds the deed; the property is still yours. Trust deeds are granted for 50 years at a time and are renewable. Investigate carefully! There have been problems in the past with gringos buying property from people who do not actually own it.                                  

   RENT, BUY, BUILD?

You have decided on a long-term residence in some enchanting area of Mexico. Shall you rent, buy, build? This section helps you explore your options.

            2:00  RENTING

                           2:10  Advantages of renting:

Renting allows you to try first and then decide.

There are many unique areas in which to live in Mexico. Some folks choose to live within the traditional Mexican villages, more isolated from the Gringo community. Others choose high-security gated communities. Some prefer the energy and hubbub of the downtown areas; others want a more quiet, secluded location.

 Some rely on local transportation and others bring their cars with them, allowing more options in choice of location. Some prefer to be down by the shore and others prefer a hillside view. Some even prefer to live in cities like Guadalajara  (http://www.allaboutguadalajara.com/)-- a city of six million people.

Many people who rent move at least once if not twice before settling in to their ideal place. Others come down here for a few months and decide they don’t like it and move back to the States or Canada. You may not even want to buy a home and simply choose to rent instead, which is what many North American expatriates do. Rentals can be found by word of mouth or through local newspapers.

 Be careful about entering into leases. Mexicans do not look fondly upon tenants subleasing, something you definitely want to have the right to do. Make sure this right is firmly stated in your rental agreement. You will also find that rentals often come completely furnished with everything from utensils in the kitchen to artwork on the walls, not to mention a maid and a weekly gardener.

 Some rental management companies are difficult to work with -- even difficult to find. Others do a fine job. See if you can talk to previous tenants or neighbors to check before you sign on the dotted line. Older houses often have maintenance needs which a new renter may have difficulty managing. It may be advisable to hire a third party to check out the plumbing, electricity, appliances and water.

Renting allows the flexibility of weekly and monthly rentals or a longer-term (up to five years) lease. If you decide Mexico living is not for you, there’s no need to sell your property back home. If you decide you want to travel for an extended period of time, you can often sublet your home or apartment (make sure your contract allows this).

Generally, the first month’s rent is required along with a deposit. If there is a telephone in the rental, then a telephone deposit will also be required. Many rentals include the gardener. The renter is typically responsible for the maid and utilities.

Rental prices typically vary from $200 to $2000 per month depending on what you want and where you want to live. Rentals are at a premium during the two high seasons (November to April and July to August).

Normal rental values are something like 1% per month of the property value. A $200,000 property would likely rent for $2,000 per month. One-year contracts are common, with one- and three-year renewal options with predetermined rate increase formulas.

Normally, a cosigner is required, and a one or two-month rental deposit can be applied to the last month's rent. The tenant usually pays for utilities, water, gas, telephone, cable TV, and condominium maintenance fees.

Bed & Breakfasts and Trailer Parks

Two other options for short term living lakeside are Bed and Breakfasts and trailer courts if you have a trailer or recreational vehicle.

                           2:20   Disadvantages of Renting:

Almost all rentals come furnished. The furniture and decor may not be to your liking. If you rent during the high seasons, choice is limited and you’ll probably have to settle for less than you want.

Because Mexican landlord-tenant laws, which vary from state to state, are tenant-oriented, making eviction extremely difficult and costly, most leases tend to be written to protect the landlord. In some areas, Mexican landlords prefer to rent to foreigners --- not so much for higher rental income as for the foreigner's ignorance of landlord-tenant laws.

 

                          2:30   LEASING LAWS

In 1993, the law regarding leases in Mexico City (Federal District) was modified in order to expedite the lawsuits against the tenants, with the resulting benefits for all.

As each state in Mexico has different laws regarding leases, it is advisable that a lawyer or a reputable real estate broker be consulted before signing any agreement.

TERMS

The normal and basic terms of a lease agreement are:

(1)One year contracts are common, particularly in housing. Commercial and industrial properties are normally leased for longer terms with predetermined formulas to adjust the rent annually.

(2)A co-signer or a bond is necessary in many cases.

(3)A deposit equivalent to 1-2 months rent is normally required.

(4)Generally, refurbishing is responsibility of the tenant.

(5)All utilities as well as condo maintenance fees, telephone, cablevision and other optional services such as special area security, are usually paid by the tenant.

             3:00  BUYING A RESALE HOME

                           3:10   Advantages of Buying:

There are more homes available for purchase than for rental. And, if you find a home you like in an area you love, it is very inexpensive to have improvements made to your home. You can furnish the home and landscape the gardens to your taste.

 Often, existing homes are sold furnished, so you can move right in and take your time refurbishing and redecorating. Other homes can be "bare bones" and will require some investment before you move in.

It can be easier to buy but you need to be careful purchasing property in Mexico. Work with a reputable Notario publico and a reputable real estate firm. Do your homework. Get recommendations. Locals typically know who is honest and who is not. You can buy property either through a bank trust or directly.

The economy is reasonably stable here now and both home and land prices have steadily increased over the past few years. Property taxes are almost non-existent and you may sell without paying Mexican capital gains if you own the home for 24 months while having an FM3 or FM2 Visa http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm.

                           3:20   Disadvantages of Buying:

Homes here are usually purchased with cash. Until recently, financing a home was not an option because of the high interest rates. Some owners (Americans or Canadians) will offer terms; but this is uncommon. Homes range from $16,000 to over $1 million. Most gringos purchase homes in the $60,000 to $250,000 range. Like anywhere else, the higher the price, and the better the view, amenities and quality of construction. The prices seem very cheap to Californians, but not necessarily to Mid Westerners.

Homes tie you down. Depending on the market and time of year, it may be difficult to sell your home and recoup your investment. If you buy a house and then discover you don’t like the location or your neighbors, your options are limited. If you travel frequently, you’ll need to find either renters or someone to look after your property. As in any country, a vacant house is an invitation to robbery.

There are very few consumer protection laws here. You buy a house "as is". There are no disclosure requirements. There are no mandatory inspections. Get the picture? You are responsible to become an informed buyer. Don’t count on your Realtor to point out any of the negatives. We all learn painful lessons through this process. Do your homework! And, be ready to accept the fact that you’ll learn as you go. Don’t let a few surprises sour your attitude. It’s a beautiful country with kind people. Just be careful and get good help.

            4:00  BUILDING YOUR DREAM HOME

                           4:01   Advantages of Building:

Like anything else, if you buy low and sell high, it’s a good investment. Land values have been skyrocketing, but with diligence it’s still possible to find fairly priced lots and build your own dream home. You’ll go through the agonies of the building process, but you’ll likely have a home, which will be worth, much more than you paid. The construction process is very different in Mexico; but there are good contractors and good architects to help you.

Go on tours of homes and understand what you want. Depending on your skill and background in building homes, you can do-it-yourself or hire competent people to assist you. Make sure you are here while the work is being done. It is absolutely necessary to supervise the work on a daily basis. There are no short cuts here.

                          4:02   Disadvantages of Building:

Because of differences in Mexican and American culture things just don’t get done there the way we think they are supposed to. It always takes longer. Be prepared for delays in getting materials and labor. Do your homework. Most important, talk to several references and look at the quality of work.

                           4:10  THE BUILDING PROCESS

The steps in buying a lot and building a home in Mexico are not that different from other countries. The two basic rules to follow are: (1) Remember everything is based in Mexican Law. (2) Never assume anything. Check and double-check. If you can't do this checking yourself, choose someone you trust who can show you evidence that the details are being followed that are critical to a successful outcome.

Land is measured in meters, so square feet don't mean anything in the process here. You can convert to footage for your own information, but all pricing and designing is done in meters.

When purchasing land, you will want to have a proper sales contract, which may include a requirement of a topographical survey (as well as a current Federal Zone study if the property is adjacent to a body of water or adjacent to a road).

                    4:20  PLANS, PERMITS

In some areas the Urban Panning Office establishes the allowed use of the land. For example in a few areas there are certain enforced guidelines for use, height and density requirements, which may be different from another colonia (neighborhood). You must check and get the information in writing.

Many architects also work as the general contractor. Sometimes one architect designs and another is the general.

The contract to build should include: detailed construction drawings and specifications, establishment of an escrow (fight for this) for re-lease of funds at certain points of construction, pricing (cost plus or fixed price), a time for completion with penalties for failure to do so, bonding or a guarantee by the builder. An attorney who has a good reputation and experience in real estate construction should do this contract.

The construction supervisor and builder/architect should carefully oversee that the construction plans and details are being followed.

Depending on where you build, a construction permit from the city might require the construction plans, proof of payment of property taxes, the escritura of the property, and an ecological impact report.

If the federal zone is going to be used for decks, pools, or any encroachment, federal authority must be obtained from Mexico City. Owners adjacent to the beaches or rivers will want to apply for and obtain the right of the concession for the federal land adjacent to their property.

It is very important to be sure that he builder has proper IMSS insurance (http://www.imss.gob.mx/) on the construction workers in case of accidents during building. Otherwise, you may find yourself financially responsible for any on-the-job injuries. When the construction is complete and proper notice is given, the finiquito, or letter of settlement for insurance coverage, should be issued. In Mexico, this insurance is called Seguro Social and is issued by the government.

If the property is to be a private residence, the owner should be sure he has documentation of the costs of the construction and cost of the lot. The owner should also obtain an FM3 through the Department of Immigration (http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm). The FM3 is necessary to establish residency requirements in order to be eligible for avoidance of capital gains tax upon sale.

                     4:30  MEXICAN CONSTRUCTION

It is sometimes now possible to mortgage a home in Mexico; for years, buying property was strictly a cash transaction. Mortgages are now available through Mexican and American banks, but they can be expensive. Mexican construction is not the same as in the United States. There are no building codes, and most homes are essentially made out of concrete (often mixed in a wheel barrel with a shovel) plastered around a wire cage.

In recent years, American and European builders have come to Mexico, and construction standards are rising for new homes (most have arched ceilings, tile floors and are quiet charming), but older homes may have less than quality construction. Make sure you know what you are buying!

                          4:40   THE FEDERAL ZONE

For those lucky people that bought oceanfront property, please be very much aware that you'll have to pay a yearly "Federal Fee" for the use of your little bit of Federal Zone (20 meters inland from the highest tide mark). In the event that that you haven't built anything on your property yet (if you only bought a piece of land), you will still have to pay this Fee to the Government. Not many people know that and most Real Estate salespersons don't tell you anything about it.

The Federal Zone belongs to the Nation and not to the government! The government only administers it and issues "concessions" or permits for its use. The concession holder will have to pay for the "rights" to use the area, but this person will never have "exclusivity" over any land within the Federal Zone, even if he pays for such rights. The law states that anyone can enter such area and enjoy what it has to offer.

Usually when there's talk of the "Federal Zone", we're referring to the beaches and coastal areas. In these cases, and even if a property owner has paid for the rights of the FZ, he still cannot stop the general entrance of the folk that want to make use of the beach, etc.

Always check with the office in charge of the Federal Zone. They are usually located in the City Hall building.

                          4:50  PROPERTY TAXES

Every year you will need to remember that the property tax is due. Pay in January or February to save on penalties or interest. The tax is low compared to what you may be use to paying. The bill is paid at the Office of Catastro. The receipt is the official "del impuesto predial." Your receipt will have an account number for the property. Without this reference number, you will have difficulty asking for the bill for payment.

You will not receive a reminder or a bill in the mail. You or someone you delegate will go to the tax office to obtain the bill in order to pay it. In most areas the predial (property tax) is 0.1% of the assessed value, paid annually. The taxable value of the real estate is determined at the time of sale.

                         4:60  TAXES ON RENTAL INCOME

In the past, if an American company or individual received rental income from real estate located in Mexico, such rentals were supposed to be subject to a 21% Mexican withholding tax, imposed on the gross rental income without deductions. Under the treaty, the U.S. lessor now has a choice of how to be taxed by Mexico. First, if no election is made, the rentals are still subject to a 21% Mexican withholding tax. However, if so desired, the American lessor can make an election to be taxed in Mexico on net rental income (rents less allowable deductions) at the regular graduated rates of tax (up to 34%). The net rental income election, once made, is binding on all future years.  It is not entirely clear whether the election must be made for all Mexican real property owned by the lessor, or whether a separate election is available for each piece of property

In most cases the net rental income election will produce a lower Mexican tax.

 So, if you rent out your home,  you need to know about taxes. The IVA is the sales tax that is charged on all goods and services. The amount of sales tax varies by state: 10%-15%. The person receiving payment for the service or product that you are buying collects this tax. It is the responsibility of the person receiving the income to collect the sales tax and pay it to Hacienda  (http://www.shcp.gob.mx/english/index.html), the national tax authority similar to IRS. This means you as the person receiving the rent.

If you are ever in the position of renting your home or conducting some type of business activity in Mexico, you should register with Hacienda. You will be issued a tax number (RFC) on an official permit or cedula.

When you are purchasing services or goods for your business, you will want present your cedula and ask that the receipt be made out in your tax name and number. A factura is an official receipt, which can be tax deductible. Unofficial receipts are not deductible, even though the expense may be in the correct category to be deductible against income.

The factura should be numbered and have the name, address and RFC number of the company/person that is giving you the receipt. The iva or tax may be shown separately. The cost of the product or service will be totaled at the bottom of the factura. Look for the date the facturas were printed and the date that they expire. A lot of business is done in cash and an official factura becomes a record of the amount of tax that is payable to the government.

For example, a receipt for cleaning supplies that may be deductible cannot be used unless you have the RFC number and details of the merchant from whom you have bought the goods. You will want to go to an approved printer, and he will require information from you about your business status, in order to agree to print the facturas for you. The person/company you are paying for services or goods will receive the original receipt or factura, and you will turn a copy into your accountant.

Keep cancelled facturas, as you have to account for the total number issued to you from the printer. You are required to pay tax if you earn income, including rental income in Mexico. If you earn income, you will owe iva and income tax. You can use allowable deductions if you get proper receipts.

You will need to file with Hacienda, in most cases, monthly. If you are earning rental income, you may also be required to collect a room tax. Interview and hire a good accountant to help you do the reporting properly. Paying taxes properly is a subject that is complex and the tax code changes. You want an accountant that stays current with the law, and will furnish you monthly reports.

                           4:70  OWNERSHIP CONCLUSION

Even as a tourist you may buy real estate in Mexico. Depending on location, this may be owned through a Mexican bank trust or in your own name. With a bank trust (fideicomiso) it is simple to transfer title upon sale through a Mexican notario publico. Beneficiaries may be named in case of death. A Mexican will is not required.

Should you own property in you own name, a deed called an escritura publica, must be prepared by a Mexican notario publico. In some states in Mexico it is now possible to name beneficiaries in the deed, but if this is not the case it is well to have a Mexican will prepared to avoid expensive legal fees and probate at the time of death.

            5:00  BUYING REAL ESTATE IN MEXICO    

                           5:10  THE BUYING PROCESS

A bank trust fideicomiso involves three main elements: a) The Trustee (the Bank) acting as the Fiduciary Institution b) The Fideicomitente (the Seller) c) The Fideicomissary (the Buyer or beneficiary).

Please note that although we'll be using the terms "Buyer" and "Seller", as well as "Cession of Rights," the legal terminology for them are: Seller = Assignor, Buyer = Assignee & "Cession of Rights" = Assignment of Rights.

Both parties (Seller & Buyer) will have to go before a Notario publico to have him draw up all the legal documents required for this transaction.

In Mexico, a notario publico  has to be an attorney at law, and notaries can only act within the limits of the district they are in, and they are only allowed to deal with matters within a specific Municipality. Every State has its own "Codigo Civil" (Civil Code) and, in some instances, there are conditions that are exclusive to that state.

As the Buyer is the one who pays the Notary's fees, he/she may choose the notario publico they want to work with. However, due to the fact that a Notary is the Representative of the State, he/she must act impartially and cannot represent any of the parties. Therefore, the Notario publico must counsel both parties (Buyer & Seller), explain the legalities of what they are doing, and interpret and write down their intentions.

                           EXAMINE THE DOCUMENTS

A buyer should always ask the seller for a copy of the public deed (escritura publica) vesting title to the real estate. The buyer may request a copy of the 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 adeudo) from the local taxing authority.

                           GO BEYOND THE NOTARIO SEARCH

The notario publico is responsible for the title search in Mexican transactions. However, the notario publico typically only examines the current deed and a current lien certificate, resulting in the small possibility of an incomplete title history of the property. A foreign purchaser always has the option of hiring Mexican counsel or an U.S. title company to provide an opinion on the status of title.

                           5:20  OWNERSHIP IN THE RESTRICTED ZONE

Title to all real estate in the restricted zone being acquired by foreign purchasers can only be legally vested and recorded in one of two ways. One is in a Mexican bank trust (fideicomiso) for all residentially declared property. The other is in a Mexican corporation (which can be foreign owned) for all nonresidential real estate.

 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 Relations (http://www.sre.gob.mx/) 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 event of a title defect. Foreign buyers should consult U.S. or Mexican counsel regarding real estate transactions.                                                                                                                 

                          5:30  DIFFERENT PRACTICES

              U.S. and Canadian citizens should be aware of the differences and possible risks in purchasing real estate in Mexico, and should exercise extreme caution before entering into any form of commitment to invest in property there.

               Investors must recognize the absolute need to obtain authoritative information and to hire competent Mexican counsel when contemplating any real estate investment. In some areas Mexican laws and practices regarding real estate differ substantially from those in the United States and Canada.

Foreigners are granted the right to own real property in Mexico only under very specific conditions. Whether investing through a trust mechanism in border and coastal areas or by outright purchase in Mexico's interior, U.S. citizens may experience title challenges resulting in litigation. Title insurance is virtually unknown and untested in Mexico. In addition, Mexican law sometimes recognizes squatters' rights.

The real property conveyance process in Mexico, like any other civil code system in South and Central America, and many other countries in the world, is reliant upon individuals to transfer ownership rights. These highly educated and "hand picked" public notary's have the obligation, right and privilege to consummate all real estate transactions within their given territorial jurisdiction.

Their acknowledgment and certification procedure provides "judicial certainty" to the authenticity of the process. The land conveyance and notarial system in Mexico is a good one.

 However, we must never lose sight of the fact that it is a system reliant on the performance of various people, not just the public notary. Sellers, buyers, agents, surveyors, property recorders and municipal employees all come into the mix. Human beings, though not intending to do so, make mistakes.

                           5:40  THE PROCESS

The process of buying real estate in Mexico is similar to that in the U.S. The following chart will help to make that clear.

U.S. ……………………………..……    ……..Mexico

Purchase Contract…………….…… ……….Promise to buy or Promise of Bank Trust

Details of offer and financing options……... Details of offer

Accompanied by earnest money…………. Accompanied by down payment

Contract & earnest money in Escrow…….. Documents handled by Notario

(a neutral 3rd party) ……………  …………(a neutral party representing the state)

………………………………………………Down payment to Notario or to seller

Escrow instructions………………………. purchase-sale agreement

Deed of Trust (for financing)…………….. Rarely financed

or Fee Simple Title ……………………….Fee Simple Title or Bank Trust (for all …………………………………………….. foreigners) or Fee Simple Title (for                 …………………………   …………………Mexicans)

TWO CAVEATS:
(1) SEEK OUT RELIABLE ASSISTANCE 

              In the more developed area where they exist, find a reliable real estate agent who can navigate the process. Get a recommendation or check with the nearby chamber of commerce. Mexico historically does not have a real estate licensing process and anyone can sell real estate.

            This is beginning to change. In addition to numerous homegrown realty companies, there are several recognizable U.S. names in the business: Century 21  http://www.century21mexico.com/c21ingles/index.asp,

 Coldwell Banker  http://www.puertopenasco-realty.net/,

http://www.coldwellbankermex.com/english/principal.html,

http://www.chapala.com/,  http://www.cbpuntamita.com/  http://www.cbriveras.com/   http://www.cbcostadeoro.com.mx/  http://www.cbdomus.com/

Re/Max   http://www.ajijic-chapala.com/

 and Realty World.

 The broker's commission, paid by the seller, will typically be from 5% to 7% of the purchase price.


(2) EJIDOS
              Be careful in buying in communal farming areas known as ejidos. It's something like buying on an Indian reservation. There's no deed - you buy the right to use it, but the future is uncertain.  That's what happened to the Americans in Baja California Norte who lost their homes.

               And avoid putting money into projects that aren't yet built. Permits are required to sell subdivisions, but developers don't always get them.

                          5:50  SOME REAL ESTATE DEFINITIONS IN THE MEXICAN CONTEXT

                          5:51   PROPERTY OWNERSHIP IN MEXICO

·         Non-Restricted Zone: Foreigners may directly own real property located in the interior of Mexico.

·         Restricted Zone: Foreigners may indirectly own real property located in the restricted zone through renewable fifty-year bank trust (fideicomiso). The Restricted Zone comprises all property within 50 kilometers (31 miles) from the coast and 100 kilometers (62 miles) from the international land borders.

·         Commercial: If the property will be used for commercial purposes, foreigners may incorporate a Mexican business entity, which can obtain fee simple title to the commercial property, even in the restricted zone.

5:52   INSTRUMENTS FOR PURCHASING PROPERTY IN MEXICO

·         Bank Trust: 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 the equivalent of all of the rights of ownership including the ability to use, rent, modify, improve, encumber and sell the property.

 An additional advantage of a bank trust is the ability to name substitute beneficiaries. Under present law, bank trusts are created for fifty-year terms, renewable indefinitely. Buyers may also assume existing trusts using certain precautions.

·         Contract: There are no set forms used for purchase offers in Mexico. A purchase offer, once accepted by the seller, becomes a contract.

·         Notarios Publicos: A buyer must formalize the purchase before a Mexican Notario publico. 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 (including real estate transactions). Notaries are also responsible for collecting taxes at closing.

·         Property Registry: The Public Registry of Property (Registro Publico de Propiedades) in each municipio (county) is the central recording entity for all public documentation concerning property. In order to ensure its ownership rights against the seller and third parties, a buyer must record all property transfers at the Public Registry of Property for the jurisdiction in which the property is located. (Timeshare acquisitions are the lone exception to this recording requirement.) Notaries typically handle registration.

·         Valuation for Taxation Purposes: Buyers must obtain a Mexican appraisal to assist in determining the taxes for closing. Depending on the area, the taxes may be based on the appraisal value or the purchase price. Buyers must not under-report the purchase price to the notary.

                              5:53   SAFEGUARDS FOR PURCHASING PROPERTY

·         Disclosure Statement: Buyers should request that the seller provide a property disclosure statement. This document provides information concerning the current physical, legal and economic condition of the property.

·         State Development Approval: Buyers should request a copy of any applicable Mexican state and municipal development authorizations in order to ensure compliance with local laws and ensure proper and timely completion of the development construction.

·         Escrow: In most states the Notario Publico, in effect, acts as a "Holding agent" for the involved parties and for this reason there have been few escrow companies in Mexico. In the U.S. escrow is the means by which the buyer deposits earnest money with an escrow agent and for later delivery to the seller once the title transfer process is complete. Some Mexican banks are beginning to offer escrow services.

·         Ideally, buyers should require that any deposits or earnest money be placed in a neutral escrow account and should not pay any portion of the purchase price until the ownership or trust is transferred in the buyer’s name. Although growing in importance, escrow is not commonly used in Mexico at this time. Consequently, verify the identity of anyone claiming to be an escrow agent.

·         Due Diligence: Buyers should inspect the condition and suitability of the property with an independent investigation and due diligence before committing to a purchase. Buyers should also verify all relevant information that could affect the price or the decision to purchase, or both.

·         Title Insurance: If available, buyers should consider a title insurance policy that will indemnify the buyer against damage or loss arising from a defect or lien upon the title to the property.

·         Attorneys: Buyers should consider employing a Mexican or U.S. attorney separate from the notario who specializes in Mexican real estate transactions to handle the legal aspects of the purchase. Realistically, real estate attorneys other than notarios are not common in Mexico.

·         Market Valuation: Buyers may contract an U.S. or Mexican appraiser to determine the market value of the property in question.

                            5:54   TYPES OF PROPERTY IN MEXICO

·         Subdivisions: Purchasing property in a subdivision is possible by acquiring a fee simple interest or the beneficiary interest in a trust, depending on the location of the property. This is registered at the Public Registry of Property for the jurisdiction in which the property is located. If the subdivided lots are being offered for sale in the U.S., the seller may have been required to produce a public report.

·         New Construction: Building a residence is possible by acquiring a construction permit from the local city government (municipio). A builder must obtain title to the parcel of land, obtain a construction permit and hire a building contractor. (See the IMSS note above.)

·         Resale Property: Purchasing resale property is possible by acquiring fee simple interest or the beneficiary interest in a trust, depending on the location of the property.

·         Condominium: Purchasing a condominium is possible by acquiring an interest in a properly recorded condominium regime. A condominium regime is a Mexican legal notario publico document that is not legally obtainable until construction is complete. As a word of caution, buyers are commonly asked to make nonrefundable deposits to fund construction. This practice entails significant risk considering that buyers must make a payment without the existence of the condominium regime designed to protect the buyer.

·         Timeshare: Purchasing a timeshare is possible by acquiring timeshare rights in property. Timeshare rights (as opposed to real property rights) are contractually acquired interests to use property according to the terms of the relevant timeshare purchase contract.

              The Mexican Federal Consumer Protection Law provides that buyers have the irrevocable right to cancel all timeshare purchase contracts (including resale timeshare contracts), within five days of signing the contract in question.

             Cancellation entitles the buyer to full reimbursement of any amounts delivered to the seller. Timeshare rights vary but are generally not ownership interests.

\                              5:55  CLOSING COSTS IN MEXICO

·         Negotiability of Costs: Closing costs in Mexico are generally more expensive than in the U.S. Closing costs are the joint responsibility of the buyer and seller, unless otherwise agreed. Consequently, buyers should be aware that payment of closing costs is negotiable.

·         Buyer’s Costs: Buyers customarily pay the following fees: 1) two percent transfer tax based on the higher of the sale-price or appraised value; 2) appraisal fee; 3) trust bank fees; 4) notario publico fees; 5) trust permit fees; 6) title insurance premiums; and 7) deed recording fee. Fees for real estate professionals and attorneys should also be taken into account when calculating costs.

·         Seller’s Costs: Sellers customarily pay the following fees: 1) certification of the absence of tax liability; 2) certification of the absence of liens; and 3) capital gains tax on the sale. Fees for real estate professionals and attorneys should also be taken into account when calculating costs.

·         Timing of Payments: Buyers should request an estimate of closing costs before signing any offer to purchase. Most transaction costs must be paid in advance of closing. Pre-closing costs include trust bank fees, trust permit fees, some notario publico fees, document fees (including certifications of the absence of tax liability and other liens), and appraisal fees.

·         In order to reduce the possibility of paying costs for uninsurable property, buyers may seek an acceptable title insurance commitment on the property before paying any transaction costs.

                            5:56   FINANCING OPTIONS IN MEXICO

v      Bank Financing: Real estate financing in Mexico is difficult to obtain and very expensive when available. As a result, most transactions are handled on a cash-only basis. Qualifying buyers may find U.S. mortgage companies willing to finance 70% of the purchase price for a second home in Mexico.

               There are also a growing number of Mexican banks willing to finance under certain circumstances. Irrespective of any financing agreement, buyers should require that title to the property (or a beneficiary interest in a trust) be transferred into buyer’s name at the time of closing.

·         Seller Financing: Sellers may be willing to finance all or part of the purchase price. The buyers, however, should require that title to the property (or beneficiary interest in a trust) be transferred into the buyer’s name at the time of closing.

·          If not, buyers should be aware that all payments made prior to acquiring title transfer run several risks.  These include: risk of liens on the property by the seller subsequent to the purchase; risk of losing to seller’s creditors in case of insolvency or bankruptcy of the seller; risk of potential title defects; and risk of multiple sales over the same property. 

·         Also, there is the risk of future litigation; risk of not obtaining a good and provable record of payments made and allocation and cost of taxes upon transfer, among others. Buyers should also be aware that title insurance is not available if title is not transferred.

·         Types of Finance Transfer: Please consult your real estate attorney to review the options on providing security to the buyer and seller in a financed purchase. The most common options are issuance of a mortgage, guaranty title trust or a title retention sale.

·         These three means all require the participation of a Mexican notario publico and registry of the resulting document at the corresponding Public Registry of Property.

                          5:60  SOME POINTS TO REMEMBER: 

1. Buyer or Seller Beware. There is little compulsory licensing in Mexico of real estate agents. AMPI   (,http://www.ampi.com.mx/) the Mexican association of real estate professionals, has no regulatory authority. It works to regulate and elevate their degree of professionalism in the practice of real estate in Mexico but any compliance is voluntary.

2. Title insurance is available (but expensive) through US-based title companies in some areas.  Currently, title insurance issued by Mexican companies is in its infancy.

3. Sales contracts, to be legally binding, must be recorded before a notario publico. To bind third parties to a contract, the contract must be filed with the public registry.

4. Oceanfront or river front properties are typically adjacent to the Federal Maritime Zone. If there is use of and/or construction in this zone, there is need for a concession, authorizing the use of this federal land. A formal agreement has to be in place and annual payments made during the term of the concession agreement.

5. Market appraisals are not common.  The appraisals, charged by the notario publicos as part of buyer closing costs, is only for tax evaluation purposes.

6. There are a few Mexican and American companies offering real estate mortgages. Terms and conditions vary by lender.

7. Be sure to get an accurate estimate of closing costs before you decide what your overall expenses are going to be in purchasing real estate.

8. Determining how and where to send money into Mexico is not simple. In order to escrow or hold purchase funds, a company or individual must be properly licensed and empowered by the law to hold and disburse these funds. These types of companies or individuals are rare.

9. Purchasing real estate within the coastal areas of Mexico is not simple. It is not like buying in the United States or Canada. Do not assume anything. Ask questions, and then more questions.              

           6:00  REAL ESTATE PROFESSIONALS

                          FINDING PROPERTY

In some of the more popular areas to find the required property, for lease or for purchase, you may be able to contact a reputable real estate company or a relocation firm. In others, be prepared to go house hunting by combing the desired areas on the lookout for lease signs or by going through all classified advertisements in the newspapers. If available, use brokers benefiting from a MLS System.

Buyers who wish to secure a commitment from a real estate professional and see everything that is available on the market should consider entering into a contract with the real estate professional that promises compensation to the real estate professional in a minimum amount and provides for a credit against that obligation for any compensation paid by the seller or listing real estate professional.

Any contract should state the real estate professional’s legal obligation to the buyer.

Historically in Mexico, anyone can offer real estate for sale.  A few states (Sonora and Jalisco, for example) are implementing some form of license laws regulating real estate brokerage and sales. Search out a reputable and established real estate company. Commissions are usually about 7% of the actual sales price, although they may be higher in resort areas.

                          6:11   THE REAL ESTATE INDUSTRY IN MEXICO

The real estate industry in Mexico is similar in many ways when compared to that of the United States, the most advanced in the world. It is developing quickly taking advantage of today’s technology and seems to be paralleling the system as it exists in the U.S.

The only national professional real estate organization in Mexico is the "Asociación Mexicana de Profesionales Inmobiliarios" or "A.M.P.I." (Mexican Association of Real Estate Professionals). This organization is somewhat similar to the National Association of Realtors (NAR) in the United States.

Critics of AMPI assert that some of the Real Estate Brokers/Agents formed a legal unregulated Mexican association, where anyone that sells Real Estate can become a member. Not all brokers or agents are members.

Also, AMPI does little to keep an eye on its members, and neither can it do anything if one of them does something wrong. In some places, agents with rather shady reputations have become members just so they could use the Association's letterhead and logo.

Nevertheless, it is clear that efforts are being made to raise the level of professionalism.

                          LICENSING

At this time, there are few Government license laws regulating real estate brokerage and sales in Mexico. The state of Sonora (bordering Arizona) implemented in 2002 a licensing law based on that of Arizona. But, in most cases, anybody can offer properties for sale and, therefore, caution should be taken to search out an established and reputable real estate company. A potential buyer may want to check with the local Chamber of Commerce Associations or prominent law firm.

                          MULTIPLE LISTING SERVICE

A couple of electronic multiple listing services (MLS) are now operating in Mexico, this service should soon be widely offered with the state of the art technology, measuring up to the highest standards found in the United States.

In those few areas (Lake Chapala, Puerto Vallarta) where there is an established Multiple Listing Service, buyers should work with a real estate professional who is a member of that organization. MLS in Mexico does not operate in exactly the same fashion as in the U.S., but it promotes ethical and fair dealing and encourages cooperation among real estate professionals.

FRANCHISING

In 1989 CENTURY 21  Mexico, S. A. de C. V. http://www.century21mexico.com/c21ingles/index.asp established in Mexico the first real estate Franchise System wherein "Each CENTURY 21 Office Is Independently Owned and Operated". More than 80 CENTURY 21 franchise offices are now open to the public in more than 38 cities, making it the major real estate network in the country.

This multinational corporation has helped to establish performance standards throughout the real estate industry, thereby benefiting the industry itself as well as the consumer.                           

Buyers should be aware that Mexican real estate professionals do not generally carry liability or errors and omissions insurance. Consequently, buyers should exercise caution.

          Registry: Where state registration exists buyers should conduct business exclusively with real estate professionals that are registered with the state and that have complied with required training.

                           6:12   DUTIES

Ideally, buyers should expect and require that any real estate professional hired to assist with the acquisition of property in Mexico will insure that the following takes place:

1) that all payments, including earnest money, be placed into a neutral escrow account;

2) that the purchase be handled in a manner to facilitate the acquisition of title insurance;

3) that the purchase funds not be released until the transfer of title or trust has been recorded in the buyer’s name;

4) that the purchase offer be prepared according to the buyer’s specific instructions;

5) that the buyer be provided a full estimate of any fees and costs associated with the transaction;

6) that the real estate professional assist the buyer with all negotiations;

7) that the real estate professional provide frequent progress reports throughout all stages of the purchase transaction; and

8) that any purchase be contingent on a final due diligence review, including professional and personal inspection of the property prior to closing;

9) that the real estate professional recommend, when necessary, consultation with persons that can assist in the transaction (civil engineers, architects, attorneys, bankers).

Most of these Brokers ("corredores" in Spanish) leave all the paperwork and practically everything else in the hands of the Notary. If the Notario publico makes a mistake (whatever it may be), they wouldn't know how to point it out or, simply put how to ask any legal questions.

                           6:13   FINDING A RELIABLE AGENT

Look for reliable real estate people. Seek out others who have bought for recommendations. Many brokers have caused serious problems because they promise things that they cannot deliver. That does NOT mean that ALL foreign or Mexican Real Estate people can't be trusted (as with most people and things, there are always good ones!) It only means that one has to be very careful, (look for the "good ones"), and has to use one's common sense with them.

 We often recommend that you "talk" to other people. Remember that NOT everybody knows about the laws, Bank Trusts, etc. Some of the many, many problems related to Real Estate in the past (and still very much alive today) were caused by "information" people got from acquaintances or friends - information that was not always right.

 And although most people try to be friendly and helpful, they are not always, or necessarily, correct - especially when it comes to Legal Matters. Always look for people that have already HAD positive and good experiences. And if you don't find any, ask your own government representative to suggest what to do and to whom to talk.            

                          6:20  NOTARIO PUBLICO

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 property involve the participation of the notario publico.

                           6:21   MORE THAN A “NOTARY PUBLIC”

Although the title seems to translate to the American office of “notary public," the notario publico's training and 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 the property 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.

                           6:22   A REPRESENTATIVE OF THE STATE, BUT…

As representatives of the state, however, notarios do not actually insure title to the real estate nor do they have any legal responsibility for title defects. 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.

 It is not necessarily true that title insurance is unnecessary because the notario publico acknowledges and "signs off" on all aspects of a transaction and that Mexico has few title problems, so coverage is not needed.

Along with the notario publico as a key component in the Mexican system of land registration and title certification is the Registro Publico de Propiedades (registry of the property), the latter being the counterpart to the American county clerk’s office. The notario typically is an attorney with extensive real estate experience.

The notario publico has governmental responsibility for legal admission of all real estate transfers, preparation of documents, creation of wills, filing mortgage documents, certifying corporate entities and other legal processes.

The notario publico also approves the preparation of the transfer deed and a title search of the property. The public registry is the central recording location for all public documents. Copies of all property documents can be provided by the registry, along with the certificado de libertad de gravámen (certificate of no liens), which shows liens or encumbrances affecting a particular property.

Recourse in Mexico for a title defect can only be sought by initiating suit against the seller through a civil proceeding. Little, if any, protection or restitution is offered the buyer against the notario publico(notario) or public registry regarding loss from title defects.

In Mexico’s title assurance system provided by the notarial certification process losses are rare but buyers have little opportunity for compensation if a loss occurs. The notario publico is not obligated to help with resolving a title problem.

Recourse against the notario publico for a mistake by the notario publico or anyone else is not grounds for repayment - unless there is proof of fraud, gross negligence or known misrepresentation in a Mexican court. The court system is a slow, expensive and arduous process that most try to avoid.

In addition to the notario in many cases you should have your own competent legal counsel. Just as you'd carefully protect yourself when making your first real estate deal at home, don't let your guard down in Mexico.

Fully warned, go ahead and reap the pleasure of Mexican property ownership. While your up-front costs may be higher than you contemplated, you'll benefit from significantly lower property taxes and utility bills. And you'll feel like a real part of Mexico as a property owner.

The Notario Publico is an attorney representing the Mexican government. He is responsible to both the buyer and the seller to insure the legality of the contract, and to the government for the collection of taxes and capital gains for the real estate transaction.

The Notario Publico finalizes the real estate contract and records the transaction with the Public Registry. A real estate agent may be involved in the transaction, but it should be remembered that realtors in Mexico are not licensed or regulated as they are in the United States.

                          6:23   UNDERSTANDING THE NOTARIO’S POSITION

The Notario Publico charges a fee for his services and the bank charges a fee as well if a fideicomiso is involved.  These fees should be competitive and are based partly on the value of the property. Typically, a realtor will work with one Notario Publico who will work with one bank, but there is no reason why the buyer can't shop around, compare fees, and select her own bank and Notario.

A Notario publico has the obligation to see that there is no damage to any one of the parties involved in a transaction. In the case of those contracts that do not have a special "penalty clause,” and the amount of the Deposit covers the "penalty.” 

If the Buyer backs out, and there is NO other provision for it in the contract, it's the Notary's obligation to talk to the parties and have them agree on the amount to pay as "penalty" from such deposit.

For that reason, any doubt that you may have about anything concerning the transaction you're about to execute, ask him about the legality and the fairness of it and be sure that you understand well what he explains.

 If you don't speak Spanish, and the Notario publico doesn't speak English, have someone that you trust with you, who can translate for you. And don't be afraid to ask if you don't understand something!

A notario is a lawyer with a position similar to that of judges in the U.S. In the U.S. anyone can post a bond, pay a fee, and become a notary public. But a Notario in Mexico has several years of apprenticeship after his legal training and must pass a very difficult examination.

Notarios are appointed by the governors of each state and there are very few of them. Their functions are a combination of real estate lawyer, tax assessor and IRS auditor. It is they who close real estate transactions, like escrow officers in the U.S., but with expanded powers. Since the Notario is a neutral party, buyers can hire their own lawyers if they need representation.

The notario publico is a government appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus insuring their proper transfer.

Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all taxes involved.

In connection to real estate transactions, the Notario Publico obtains the following official documents which the law requires for any transfer:

A no-lien certificate from the Public Property Registry based on a complete title search.

A statement from the Treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.

An appraisal of the property for tax purposes.

                          6:30  OTHER ATTORNEY?

For additional assurance that your interests are being protected, it is often advisable to hire your own lawyer. However, different from the U.S. is the fact that the notarios publicos are the main real estate attorneys in Mexico. Determine whether you need a separate attorney.

 In some cases a second attorney will delay the transaction, charge you unnecessary high fees, and have absolutely no bearing on the situation, as it is not of his area of competence. For many real estate transactions you do not need another attorney. The notario is completely capable and legally authorized to carry out the transaction. In other cases a separate attorney will be an absolute necessity.  Investigate!              

           7:00  FINDING YOUR SPOT IN MEXICO

                         7:20  RESIDENTIAL LOTS

Mexican real estate has sometimes been developed informally to the detriment of the foreign (and domestic) purchaser. This is the fault of both the developers and gullible, uninformed American purchasers and not the Mexican system.

The "margarita syndrome" (as it is often referred to) or "trust me, everything will get done but it takes time in Mexico" should not be used as a prudent basis of acquisition by foreign buyers. The Mexico of today is not unlike the United States when it comes to the development of real estate.

                          A TYPICAL STATE SUBDIVISION REGIME-SONORA               

                                             (http://www.cgeson.gob.mx/servicios/leyes/Norm)

For developing subdivisions in Mexico, as in the U. S., there is formality in law, approval of intended development, requirements of compliance with authorization by local municipalities and the state government. A public report helps to form a more informed buying public, and to avoid future acquisition nightmares.

There follows here the process in the State of Sonora as an example of typical Mexican State regulations for the development of residential subdivisions. Some states have none. Some (Jalisco) have more.

Under Article 27 of the Mexican Constitution, there are three (3) recognized property types in the country. Article 27 defines them as private, social and public property. In 1976, the government of Mexico established the Human Settlement Law for the regularization of land development and, in essence, to eliminate property development chaos. Each state in Mexico is allowed its own development regime and subsequent requirements.

In the case of Sonora, there is the Law of Urban Development for the State of Sonora (La Ley de Desarrollo Urbano Para el Estado de Sonora). It is commonly referred to as Urban Development Law 101.

The procedure to authorize the development of a subdivision ("fraccionamiento") is specified by the Office of Urban Administration (http://www.siue.gob.mx/administracion%20urban) Secretary of Urban Infrastructure and Ecology for the State Government of Sonora (Direccion de Administracion Urbana, Secretaria de Infraestructura Urbana y Ecologia ("SIUE"), Gobierno del Estado de Sonora).

                           APPRAISAL PROCESS

Typically, the process to receive approval for an intended residential subdivision is as follows: Initially, the developer must take the necessary steps to obtain a land use License from the city council ("ayuntamiento") or local municipal authority.

This process includes (1) submission of an environmental impact study on the land to be developed, (2) deeds of ownership on the property ("escrituras"), (3) a land plan of the tract, and (4) a location map of the overall property.

The developer must also submit a draft or blueprint ("anteproyecto") of the proposed development. The city council will then present the draft of the proposed project along with the land use certificate, deeds, location map and land use plan, including a layout of the lots and blocks of the subdivision to SIUE.

At the same time, the city council or municipality will facilitate and obtain the feasibility of potable water service, drainage and electrical service for the proposed subdivision from the appropriate municipal agencies by presenting the land use license and the land plan of lots and blocks to the respective authorities. The developer will then receive initial approval for the intended subdivision from the city council or municipality.

                           FORMAL PLAN

Once initial authorization is granted, the developer must then submit a formal executive development plan and all required documents to the city council or municipality according to Article 129 of Urban Development Law 101 of Sonora. The local authorities will present the project again to SIUE with the calculations of water and sewer use for review, revision and approval.

Additionally, the municipality will submit the calculations for electrical usage and street lighting to Mexico’s Federal Electricity Commission ("Comision Federal de Electricidad") for their possible revision and subsequent approval. After a satisfactory review of the general project plan by the authorities, the developer will be authorized by way of formal agreement with the municipal president or mayor which will establish the obligations and the time period required to complete the proposed subdivision.

                           PUBLICATION

After the developer donates 15% of the overall land as required to the local municipality (which is generally utilized for common areas, green belts and/or schools) and pays the development fees as mandated, they must publish the subdivision approval in the "Boletin Oficial" (http://www.sonora.gob.mx).

The Boletin gives the public notification and government approval of the intended development. Lastly, the developer must record the agreement in the Public Registry of Property along with the unilateral declarations of intention to develop the property with copies going to the local tax assessor office, the treasury department and to SIUE.

                           RECENT YEARS

In recent years residential development in Sonora has made a significant change for the better. No longer are most developers starting subdivisions without first obtaining the necessary approvals. Some have even gone to the point of having complete authorization and publication of the intended project prior to beginning their lot sale process (coastal lots can not be conveyed to foreign purchasers until bank trusts can be obtained).

Although development considerations continue to improve in Mexico, it should be a prudent and informed buyer that knows what to look for in residential acquisitions.

There should never be any reason why a buyer does not ask certain basic questions that can provide more comfort and security when contemplating a residential purchase. In short, ask the developer if they have an approved subdivision and ask for a copy of the published authorization.

Also ask them if the property (lot or residence) will be conveyed to a fideicomiso or an escritura publica deed at the time of sale. If not, one should inquire as to why and try to better understand the outstanding development issues that may exist on the subdivision. In the end, you’ll appreciate the peace of mind that comes with knowing you bought a "legal" piece of Mexican real estate and not being in the uneasy situation of wondering when you’ll acquire good and enforceable title.

      7:30  BUYING A CONDO IN OR OUT OF THE RESTRICTED ZONE

Condominiums are a large part of the real estate inventory in many areas. The price range is wider; so more people can afford this form of real estate. Condominium ownership can require less overseeing by the owner. Some areas have declared a moratorium on new buildings; while growing areas have a number of new projects to choose from. Supply differs in one area to the next.

To protect condominium owners, some states in Mexico have revised their Civil Code to provide a comprehensive description of what condominium ownership means, and how owners can protect their interests.  Here we take the Jalisco state code (http://www.oficinaonline.com/prominmobiliar/n) for our example.

                          7:31  KNOW YOUR CONDO R&RS

It is to the owner's benefit to be knowledgeable in the rules and regulations. It is a mistake to assume that the rules and laws for condominiums are the same everywhere.

The code defines a condominium regime legally and imposes responsibilities and limitations of ownership.

Each condominium unit represents a percentage of the total individual ownership as well as a percentage of the undivided common areas.

                           ESTABLISHING THE REGIME

The developer has to establish a condo regime legally. The public document setting out the rules and regulations for the owners, includes: a description of the buildings, the percentages of individual units in relation to the whole, and the amount of common area. The city requires a warranty from the builder that he will finish the building.

The condo regime also sets out the rules and regulations for the owners to abide by. The owners may amend the rules and regulations. The rights of the owners to use the common areas, within the described purposes, is as essential as the owners' rights to enjoy their private area.

The most fundamental responsibility of the individual owner is to pay his maintenance fees.

Everything that has been said about the steps to take when buying property is applicable to condo buyers as well. At this point, we will add the following additional information and suggestions. Laws vary by state.

The following is a general treatment based on the Jalisco law.

Buying a condo may introduce you to some new words and meanings that you may not be familiar with, such as: Asamblea, Comite de Vigilancia, Board of Directors, Bylaws, etc.

                           7:32  THE ASAMBLEA ANNUAL

The Asamblea Anual (Annual Meeting) is called for ALL the owners. Together and only during this Asamblea, these owners constitute the Supreme Organ (or Authority) of the building.

All the decisions that must be taken in order to have the building run smoothly, legally, etc., have to be taken and decided upon by the owners attending such "Asamblea".  One has to pay attention to what the bylaws of your building say about it. Some Bylaws will only let the owners attend the Asamblea if their maintenance fees are all paid up. Others may say something else!

 They will constitute the orders to be followed by the Administrator, under the supervision of the Comite de Vigilancia (Security Committee) or Board of Directors.

It is strongly recommended that every owner should be present at the Asamblea. Any and every problem that the building may have, every situation that has to be corrected, every increase in the cost of maintenance, etc. etc., has to be discussed and resolved (decided upon) at the Asamblea. If, for whatever reason, you can't or don't plan to be there, be aware that you're leaving all the decisions about your INVESTMENT in the hands of others.

  If you cannot attend the Asamblea, you may ask your Fiduciary trust bank to draw up a Power of Attorney to grant to another person that will be there. Just be sure that he/she represents you properly and follows your instructions, if any. You have to request that from the bank in writing, and the person that will represent you will identify him/herself with a valid I.D., and present such Power of Attorney before the Asamblea begins.

By law in many states, this Asamblea (Meeting) has to take place at least once a year, and every legal owner must be notified according to the Civil Code of the State they are in, or to the Bylaws of the condominium.

                           THE COMITE DE VIGILANCIA

Amongst the various important decisions taken at the Asamblea(s), are the ones to name the Comite de Vigilancia (Security Committee) or Board of Directors, and the Administrator, as well as any increases that may be needed in the maintenance payments.

A legal Asamblea is one where at least 51 % of the owners are present.  Otherwise, it's not legal and any decision taken in it can be legally contested.

Another important point to know is that at the Asamblea, ONLY the "business" or "topics" inscribed on the agenda can be discussed. If there is a "topic" on the agenda called "various", there may be a discussion about whatever may be brought to the floor (that was not on the agenda), but NO decision whatsoever can be taken with respect to any of the topics discussed in that category.

 It can be postponed to the next year or, if it's important enough and the majority so decides, the owners may reconvene. This time, it will be for an Asamblea Extraordinaria (Extraordinary Meeting) that will take place at the time they decide... but that's all they can do.

In many condominiums, notice must be given 30 days prior to the Asamblea, and must be made public through notices posted in the building, as well as by Certified Mail sent to each owner. Please check your own bylaws!

                           THE BANK TRUST

The Fiduciary trust bank may be present at the Asamblea and can represent owners that couldn't attend. Its presence may enable the needed Quorum of 51 % to be reached, but it will depend on what the Trust of each condominium says about its right to vote in any of the cases presented to the Asamblea.

There may also be cases where the "owners" (Fideicomisarios) will have to instruct the Bank in order to represent them at the Asamblea.

All the cases presented at the Asamblea must be approved or denied by no less than 51% of the owners present or legally "represented.” At some Asambleas Extraordinarias, in which the owners must rule on special cases, a minimum of 75% of the owners present must approve (or disapprove) the motions.

Example: if they want to change the Bylaws. The percentage varies according to the Bylaws of each condominium, and that's another reason why we keep stressing the importance of always reading and checking the Bylaws of the condominium you are in.

                          A QUORUM

If a Quorum cannot be reached even with the presence of the Fiduciary trust bank, and regardless of it, and if the Meeting is held and decisions are made, then any owner may, if he/she wishes to do so, go before a Judge and complain about the illegality of the decisions taken due to the fact that there was No Quorum. This complaint can be presented as a group, or individually.

In these cases, they will have to have the Power of Attorney from the Fiduciary trust bank, in their name. Any other document that they may present will not be valid.

The only way for an "owner" to understand all these provisions is to be well informed about his/her Bank Trust documents, as well as the Bylaws of the building. If one isn't interested in being well informed, then no one will be able to solve any of the problems that may come along, either for the building or for the individual owner.

                          THE ADMINISTRATOR

The members of the COMITE DE VIGILANCIA (Security Committee) are voted upon by the owners present at the Asamblea. They are the ones that will ensure that the decisions taken at the Asamblea are followed completely by the Administrator. The Committee is made up of volunteers.

Legally, the Committee can only supervise the work of the Administrator. It cannot become involved in the running of the building! Also, each of its members has to have a Special Power of Attorney from the Fiduciary Bank in order to be able to occupy any of these posts.

                          7:33  TO BUY A UNIT UNDER CONSTRUCTION/NEW DEVELOPMENT

Go to the Notario publico with the Seller and the Promise of Sale Contract, sign it in front of the Notario publico and get his/her signature and stamp with his/her seal on it.

This way, if by any chance the Seller does not complete the building, or the development suffers constant "delays", or they want to increase the price, or come up with any excuse and pretense to extricate themselves from the deal, etc., you will have a Legal Document with Legal Security. And you could always bring a legal action against them.

You can also ask them to deposit a Bond with the Notary, in the same amount you paid to them. This will allow you to recover your deposit in case they back out for whatever reasons they may use.

On the other hand, have also a separate Penalty Clause, similar to the one when buying any property, so that in case that you yourself cannot go through with the deal, the amount you should pay is less than the amount of the Deposit or Advance Payment you gave

                    7:34  THE BOARD OF DIRECTORS/COMITE DE VIGILANCIA

It's very important that everyone attend those Asamblea(s) where the Comite de Vigilancia (Security Committee) or Board of Directors and Administrator are to be elected.

Candidates for the Comite de Vigilancia or the Board should possess some understanding of administration and accounting, or at least an open-mind and common sense, as well as a desire to learn about the different laws, customs, and systems of the place in which they are living.

In many cases, their members can also make or break a condominium, as they are the ones responsible for seeing that everything runs efficiently. More specifically, they must ensure that the operation of the condominium is conducted according to the various laws in effect, and in keeping with generally accepted accounting procedures. Also, keep in mind that they are the ones that are supposed to "keep an eye" on the Administrator.

                           LAW CHANGED IN  1995

Again, using the State of Jalisco as example, its Civil Code changed in 1995. In the condominiums that were started and functioned under previous civil codes, the Comite de Vigilancia was a group of owners that would only supervise.

On the other hand, the Jalisco Civil Code in effect today states that these condominiums should add some procedures that appear in the 1995 version, while continuing to apply the other articles of the law and procedures in accord with the civil codes in effect when they were constituted.

In the condominiums constituted after 1995, the Comite de Vigilancia became the Board of Directors, whose members had some rights and legal powers for some judicial acts of the law, which the Comite de Vigilancia did not and still does not have.

The administrator - is the General Manager responsible for running the building and doing everything that the word "management" implies. In Mexico, he also has the legal power (given to him by the Asamblea) to deal with most legal matters.

                           KEEP AN EYE ON THE ADMINISTRATOR

Owners should always look into the honesty, professionalism, ethics, etc., of the person in charge. If, for whatever reasons, a new Administrator has to be hired, he/she should always be found among the prospects that have good recommendations from other jobs they've held, experience with the laws concerning condominiums (as well as others), and a good knowledge of accounting. Needless to say, he/she should be honest, reliable, hardworking, someone that can get along with the owners... and, preferably, someone that really speaks Spanish!

An Administrator, or General Manager as some people call them, can make or break a condominium within a very short time. Pay close attention to - and supervise - the way he/she behavees.

If you've ever heard "horror stories" about administrators "misusing" their legal power... you can believe them! The only possible comment about these situations could be: "Where were the members of the Comite de Vigilancia or Board of Directors?"

Both are responsible!

That's why all the owners should attend the Asamblea (Annual Meeting). It's an investment you have not just a party you were invited to.

                          THE BYLAWS

The bylaws are legally established at the time the first owners get together to organize the administration and management of the building. They MUST be included as part of what is called the "Acta Constitutiva del Regimen de Condominio" (The Condominium's Constitutional Act). These Bylaws are based on the laws of the state, municipality, etc., and include all the suggestions and wishes the owners express in order to have "order" and common grounds for everyone.

                          7:40  TIMESHARES

U.S. citizens should be aware of the risks inherent in purchasing time shares in Mexico, and should exercise extreme caution before entering into any form of commitment to invest in property there.

Investors must recognize the absolute need to obtain authoritative information and even  to hire competent Mexican legal counsel when contemplating any real estate investment. Mexican laws and practices regarding real estate differ substantially from those in the United States.

In resort areas, time-share hawkers are rampant. Beware of the high risks involved, because Mexican law provides very little legal protection to the timeshare owner. If you absolutely must invest in a time-share, do so with full warning and preferably with a stateside company. And be warned that the resale market is extremely poor.

           8:00  HOW MUCH WILL YOU PAY: APPRAISALS

A very important part of the home search process is determining the value of a prospective purchase. It is helpful for newcomers to Mexico to review the basics of property evaluation so they can determine a realistic value of existing homes and lots. The best way to compare the prices of several dramatically different homes with a degree of accuracy and fairness, is to ascertain a realistic appraisal value for each of the properties. There are several different types of appraisals:     

                           8:10   TAX VALUE APPRAISAL

In many areas of the world, the appraised Tax Value (Catastro) is the same as the Commercial Value (selling price). In Mexico, the Catastro Value is set by the county (municipio) appraiser (without onsite property inspection).

The Catastro value of all properties is a fraction of the Commercial Value. While the Catastro value is used by the notario publico to determine closing costs and the annual tax payment (Predial), it is not effective for comparing Commercial Values.

                          NEIGHBORHOOD COMPARATIVES

In the U.S. real estate values are frequently decided by "comps", the actual recent selling prices of homes in the same neighborhood. This system works very well in planned subdivisions where all of the homes are represented by a few models.

 Because homes in Mexico are so distinctly different, one from another, even in the same neighborhood, this method of appraisal is seldom used, except in the case of resale properties in a developer's subdivision.

                           8:20   INVESTMENT VALUE

Another way of determining the Commercial Value of a property is to look at a rental income/sales price ratio. Common in the United States is the formula of (Monthly rent x 96 months = sales price).

 In Mexico, due to low maintenance costs and taxes, durable construction, and mild climate, the formula is generally adjusted to (Monthly rent x 132 months = sales price). You can determine a fair and accurate rental value for any property, if you want to check the Investment Value.

                           8:30   REPLACEMENT VALUE APPRAISALS

This is the preferred system of determining the Commercial Value of properties. A replacement value appraisal is determined by adding the value of the lot to the depreciated value of the construction, adding as needed for special amenities.

LOTS--MEASUREMENTS:

As Mexico uses the metric system, much of the information you encounter will refer to meters, square meters and hectares. Following is a short refresher course for easy comparisons:

1 METER = 3.3 FEET

1 SQUARE METER = 10.76 SQUARE FEET

1 HECTARE = 2.4 ACRES

1 ACRE = 4100 SQUARE METE

VARIABLES: A LAKE CHAPALA EXAMPLE    

      (http://www.chapala.com,  http://www.chapalaguide.com/,        http://www.ajijic-chapala.com/ )

Several variables affect lot prices. The more desirable the location, the higher the price of the raw land. For example, in the Lake Chapala, Jalisco area of Mexico, ninety per cent of the homes and lots purchased by North Americans are located between the western limits of Chapala and the village of San Juan Cosala.

The desirable area follows the highway from East to West and includes several small subdivisions in addition to the neighborhoods and villages of Riberas del Pilar, Mirasol, Chula Vista, San Antonio Tlay, La Floresta, Ajijic, Villa Nova, Rancho del Oro, and the Racquet Club.

Land values in this area range from $25.00 USD to $100.00 USD per square meter. Lots with no view, in areas with few amenities and low maintenance will be at the low end of the scale. As the location improves geographically-into the center of the village, or higher on the mountain with more view, or in a neighborhood with larger homes, or at lakefront, or a commercial location along the highway, the price escalates.

                           IMPROVEMENTS

Lots which include improvements will generally be priced proportionally higher, to cover the price of these amenities or construction. A lot may include some of the following: water permit and street connection (la toma), retaining walls, terracing walls, landscaping, driveways, compacted building platform, or any construction, i.e.: gates, underground water storage (el aljibe), storage sheds (las bodegas), septic system (fosa septica), well (pozo de agua), or sewage system connection in the areas where this service is available.

It is prudent to be extraordinarily cautious when offered land which does not currently receive water from a recognized source. Do not depend on the well across the street, or the water from the neighbor, unless this is offered in writing. Land without water has very little value.

                          8:40   RESALE HOME APPRAISAL

To appraise an existing home, all of the improvements are added to the cost of the lot along with the cost of all construction.

The value of new construction in the Lake Chapala area, for example,  currently ranges from about $40 USD to $60 USD per square foot. Homes in Mexico are measured from roof edge to roof edge, and include all construction, even garages, terraces, and sheds, in the total construction, unless noted otherwise. Most foreign visitors are accustomed to considering only the areas of a home that are heated and cooled in the total square footage.

Multiply the square footage by the average cost per square foot. Add the lot and included amenities from the lot section.

From this total, subtract approximately 1% per year of age to allow for obsolescence of style and general wear and tear. Major defects or extremely dated properties would require a larger depreciation deduction.

To this figure, add a value for a satellite system ($1500 USD), pool ($10,000-$18,000 complete), telephone line ($200 USD), pressure system ($700 USD), water purification system ($500 USD), pumps, furnishings, appliances, and other amenities

To this figure, add some space to allow the owner to negotiate with the buyer, and finally, add the standard 6-7% commission on homes, (10% on lots or commercial property) plus sales tax (IVA-15% on the commission).

This figure will be somewhere near the asking price of the property in question. Occasionally, visitors encounter homes that seem, even in light of this information, "overpriced". Buyers should make an offer that they feel reflects the value of the property as they perceive it.

                           RESALE HOMES

Existing homes will range from re-sales that are just a year or two old, to a number of 15 to 30 year-old homes, the "fixer-uppers" frequently sought out by smart buyers. They realize that due to lower cost of construction labor, they can easily redo and update these still sound and sturdy homes.

It is hard for newcomers to realize just how low labor costs are in Mexico. A master mason who creatively lays brick, ceramic tile, or marble earns about $100-$150 USD per week. By utilizing the wonderful native building materials-brick, marble, stone, Mexican ceramic tile, the building or remodeling costs will be a fraction of what would be expected in the U.S. or Canada.

                 9:00  NEGOTIATING FOR REAL ESTATE IN MEXICO

                            COURTESY

In negotiating for real estate or any other arrangement in Mexico you will find the Latin side, using more formal courtesy and manners, can be so charming as to disarm your side in the negotiation.

You should use the first meetings in the negotiations to learn and judge the character and personality of the people involved. It is also important to learn to adjust and be compatible with the way business is done in Mexico. Taking the time to learn this information will be of great help later.

Good negotiators want to know the names and titles of their opponents. They also want to know about the other side's business or personal backgrounds.

There is a hierarchy of power in the group to be used to one's psychological advantage. The less senior members of the team arrive to do the set up and opening remarks or discussion. The powerful member of the team will make an appearance or speak later.

The beginning of the meeting will involve a period of casual conversation and keen observation. To rush this part of the process will be negative to the other side, even considered rude.

                           COMMUNICATION

You may wish to talk in concrete terms, making all intentions and feelings perfectly clear. The Mexican negotiators do the opposite, deliberately being ambiguous in order to leave their position open to various interpretations, creating more "options." They may say that they do not understand a point and ask for further clarification, when they really do understand.

On the other hand, if they do not understand, they may not ask for clarification, in order to not lose face. Be aware that you need to verify that there is understanding of issues as you go through them. Don't always look for conclusive answers. A firm "no" is not likely. "Maybe" or "let's discuss it later', will be more typical. Conversely, "yes" is not a final answer, either.

The challenge you will have is to narrow your differences so as to understand the other side. Good rules of thumb are to be well-prepared, calm, polite, appreciate silence, and look relaxed.

If you are not truly bilingual, you will need to rely on someone you trust to help you with the interpretation of the meanings of the words and inferences being used. You should use as your interpreter someone who understands the nature of the business being discussed as well as someone who is loyal to you. Not understanding the language well opens you up to misinformation and manipulation.

Don't talk down to the other side and don't expect them to appreciate any comparison to how thing are done differently in your country. You are not in your country but theirs. Don't be afraid to bring up legal issues as soon as the informal, personal, getting-to know-you preliminaries have taken place.

                          PRICES IN DOLLARS

Because of the greater inflation on Mexico, the seller may want the price to be established in dollars  It would be to your advantage to have the price in pesos.  Negotiate!  Payment may be made by wiring funds from a U.S. bank to a Mexican correspondent bank in the U.S. or to a casa de cambio.

Like many transactions in Mexico, closing may not proceed as rapidly as in the U.S.

                           FIXTURES

Because telephone lines are purchased by each customer, the buyer will need to determine whether phone service is included in the real estate purchase. Light fixtures and garden statuary which generally stay with the property in the U.S. are often not part of the real estate purchase in Mexico. Find out what's included and what's not to avoid surprises when you take possession.

                10:00  HOLDING TITLE TO REAL PROPERTY IN MEXICO

Land titles are symbolic because the title is what a purchaser gets when he purchases real estate rather than actual delivery of the property. It is highly important that a purchaser have the best assurance possible that his title is good, unencumbered and free of flaws.

Knowing little or nothing about titles, most real estate buyers rely on the advice of others. It is conceivable that a title could be completely lost irrespective of the customary assurances available. Foreign purchasers of real estate in Mexico face the same dilemma.

                           POSSIBLE TITLE DEFECTS

The land registration and title certification process in Mexico is a good one, a system similar by definition to that of the American "Torrens" concept. However, any title defect that can occur in the US can also occur in Mexico.

Moreover, little if no legal recourse is afforded the purchasing public against the public notario publico who closes all real estate transactions in Mexico or against Mexico's public registry of property concerning title or lien defects, omissions, gaps in ownership or recording errors.

Where available, a title insurance policy issued on Mexican property may be considered to provide a comfort and security benefit to foreign purchasers against title pitfalls resulting in eventual Mexican lawsuits and monetary losses.

                         10:10  FEE SIMPLE OWNERSHIP: OUTSIDE OF THE RESTRICTED ZONE

When you buy property outside of the Restricted Zone, meaning any other place within the Mexican Republic, you acquire what is called "Derechos Reales" (Real Rights) in the Mexican legal system, just like any Mexican national. This is fee simple status.

You won't need a Bank Trust, but you will still need a permit from the Secretaria de Relaciones Exteriores (Secretary of Foreign Affairs). Besides that, all the other steps for the transaction are about the same, including what is said about renting out your property.

                          CONDOS

Also note that in case you own a condo outside of the Restricted Zone, as there is no bank to represent anyone, you'll still have to have a majority of 51% of the votes at the Asamblea in order to make everything legal regarding any decisions taken.

The only difference between a condo within the restricted zone and one outside of it is that there is no bank trust needed outside of the restricted zone, and the possible advantage of this difference concerns the payment of capital gains taxes.

Everything else written about condominiums within the restricted zone applies to all condominiums. PLEASE read the bylaws of your condominium carefully, until you understand them and know what it's all about! (The "Regimen de Condominio" is a Legal Regime.)

                           CAPITAL GAINS TAX

If you own property (not including undeveloped lots) outside of the Restricted Zone, and you can prove that it has served as your private residence for at least two (2) years prior to the sale, the fiscal law exempts you from paying capital gains taxes. If you cannot prove it, you will have to pay up. This exemption only applies to individual taxpayers, not corporations.

                          10:20   FIDEICOMISO BANK TRUST: RESTRICTED ZONE

A foreigner can own Mexican coastal property in the restricted zone indirectly through a fideicomiso bank trust. Legal title to the property is held by the bank, as trustee, and beneficial use is held by the property buyer.

Even in non-restricted areas, the fideicomiso may be used by foreigner landowners and Mexicans alike for the same reasons that trusts are created in this country. Under the fideicomiso, multiple or successor owners can be named. The costs of establishing the fideicomiso are not great: an initial set-up cost is based upon a percentage of the property value, and annual trustee fee is charged.

The restricted zone provisions seemed desirable when the constitution was written in the revolutionary times of 1917.  Later in  the twentieth century, Mexico realized that it needed foreign investment so the government developed the use of a trust in the restricted zone. The two advantages of the trust for Mexico are:

1. It encourages the flow of foreign capital into Mexico.

2. Foreign ownership in the restricted zone is held in a trust institution, which must have a permit from the Secretary of Foreign Relations. Through the use of the trust, there is compliance with the Mexican constitution in regard to non-Mexican ownership of real estate..

                          10:21  FIDEICOMISO BANK TRUST

Any foreigner or Mexican National can constitute a Fideicomiso through a Mexican bank in order to purchase real estate anywhere in Mexico. To do so, the buyer requests a Mexican bank of his/her choice to act as a trustee on his/her behalf.

The bank, as a matter of normal course, obtains the permit for the foreigner from the Ministry of Foreign Affairs to acquire the chosen property in trust. You have the right to transfer the title to any other party, including a member of your family.

Some banks offer a little information on their websites: Banco Bital (http://dsrefa01.bital.com.mx/aptrix/bitalinternetpub.nsf/Content/P_Fideicomiso,)  ScotiaBankInverlat

(http://www.scotiabankinverlat.com/personal/serv_fidu/PERSONAS_fiduc.htm.)

                           BANK LEGAL OWNER

The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary who has all the benefits of a direct owner, including the possibility of leasing or transferring his/her rights to the property to a third party or to a pre-appointed heir. During this period, the foreigner is considered as a Mexican National.

The buyer never receives the actual title. Realistically many homeowners in the U.S. never receive title to their properties either, because they sell or refinance their homes long before the 30-year term of their loan is complete.

The trustee is responsible to the buyer beneficiary to ensure precise fulfillment of the trust, according to Mexican Law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary. Fideicomisos are not held be the trustee as an asset of the bank.

For practical purposes, even in unrestricted zones many foreigners and Mexican Nationals, for that matter, prefer to hold their property under a Fideicomiso.

                           RENEWAL TERMS

The bank is required to check ownership and insurance, and to verify that the property is free of liens. A trust is granted for a 50-year period. The trust is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which he may submit an application to renew the trust.

 If property is purchased that already has a fideicomiso, the existing trust may be transferred to the new owner and will be good for the remainder of its 50-year period, or the trust may be renewed. If property is already in a fideicomiso, probate and transfer tax are avoided when the property is transferred.

Depending on the sales price,  there is a fee of about US$350-$1500 (varies from bank to bank) to obtain the fideicomiso and an annual fee as well. To initiate the fideicomiso with a notario, you will need your accepted purchase offer, a photo ID and 10% of the purchase price. Monetary transactions are handled through the bank.

                          FEES

The best bank to have your Bank Trust with is, as with everything else, the one that gives you the best service, at the lowest cost. All banks should apply the same laws, but not all offer the same service or the same fees.

                As with most things related to the purchase of property, and everything related to this business, ask around and try to find out who has the lowest fees and gives the best service. Check with other owners, find out if they are happy with the services their bank provides... and if the fees they are paying are among the lowest.

BENEFICIARIES

The Bank Trust offers one advantage that should not be taken lightly: In it, you can name one or several "substitute beneficiaries" who, in the case of the death of the principals, and upon presentation of the Death Certificate to the bank, will acquire the rights to the property. There is a small fee to be paid to the bank for this change of principals.

The advantage of the Bank Trust in this case is that it avoids probate. If the Last Will and Testament is the only document that proves who the heirs or inheritors are, the latter would have to hire a lawyer to go to court, present their case, and wait for the judgment by virtue of which they will be legally accepted as legal inheritors or beneficiaries. We know that if we have to do that, it will not only take time and money, but even cause grievances, as most foreigners don't understand the Spanish language, especially when it comes to legal matters, and hiring a lawyer.

Don't ever buy a property that doesn't have an Escritura (Deed), regardless of the promises made by the Seller or the agents. As a last resort, ask a Notario publico if whatever papers the Seller has are legal enough for you to get a NEW ESCRITURA. Only the Notario publico can give you a legal answer!

                           10:22  TRUST FEES

Each year your bank trust administration fee is due on the anniversary of the date of the trust. The official bank receipt or factura has its own internal account number. This is not the same as the number of your escritura.

The bank trust account number is important for you to use when you are making any contact with the bank. Your responsibility is to make the payment on time without advance notice. You will want to keep records of when and where your trust and tax payments are to be paid. You want an official receipt for these payments.

The bank can charge other fees in addition to their yearly one. In the case of death of one of the primary beneficiaries, the bank should issue a letter acknowledging the current beneficiary. The original trust continues.

                           NEGOTIATE THE FEES

Bank Trust  fees are the charges for the annual maintenance of the trust and have continued to increase each year. When the escritura is ready at closing, it can be too late to negotiate or modify any of the terms. If you let the bank give you a boilerplate agreement that gives them the right to increase their fees under terms that they alone can interpret, you can be the unwitting victim of increased and unnecessary costs.

If the fees the bank charges are a percentage of the value of the property, they can set the value, not you. If the annual fees are based on inflation, it should be US inflation, as the banks most commonly charge in US dollars. Late charges and interest can be charged, with no notification required by the bank.

Fees that the bank can charge for signing a power of attorney to allow you to represent yourself in a legal matter, should be spelled out in the agreement. There should also be a cap on the bank charge for reviewing and singing other documents as requested by you.

                          CAN THE BANK REFUSE TO SIGN?

The bank can refuse to sign documents if fees, fines or interest have not been paid on the trust. This refusal should only apply in the case of the sale of the real estate. Other than a sale, the bank should not be allowed to refuse to sign requested documents. To refuse to do so, repudiates the role and responsibility the bank has as your fiduciary or trustee of your property rights.

                         10:23  MECHANISMS OF THE TRUST

             A Fideicomiso bank trust is defined for real estate purposes as a transaction between a Mexican bank and foreign individual or firm investing in areas otherwise restricted to foreign investment, with the bank serving as a trustee or legal owner with respect to a certain real estate property interest and the investor serving as the legal beneficiary of the trust. The bank holds the title to the property in trust for the beneficiary who retains the exclusive right to use and control of the property.

As a trustee, the bank acts on behalf of the beneficiary in transactions involving the property, including the decision to transfer, assign or otherwise dispose of his or her interest in the property. The trust is essentially a contractual arrangement which, in most respects, is identical to the type of trust used in North America. Trusts are established for an initial 50-year periods and can be renewed.

                           CHANGES IN 1993

New rules governing foreign investment through Real Estate Trust were put into effect in 1993. These rules provided the stability and protection of legal certainty for foreign investments. While a Mexican bank holds title to the property in these transactions, the bank is legally obligated to follow terms outlined in the trust documents that comply in all areas with the request of the foreign investor who is the trust beneficiary.

                          YOUR RIGHTS

As the beneficiary, the foreign owners have a personal and exclusive right to use, occupy and possess the trust property, including the right to build upon it, subject to applicable construction and zoning regulations. In addition, the beneficiary may transfer or assign his/her beneficial interest to any person and may keep the profits from the sale of the property according to the instructions given to the trustee, subject to applicable tax laws and expenses of sale.

Foreigners that decide to invest in real estate in Mexico agree, because of such action, not to invoke the protection of their governments with respect to real estate ownership.

                          10:24  BANK LETTER

The bank holds the property in trust and you are the beneficiary. There will be occasions when you need a letter from the bank authorizing you to take a certain action on your behalf. An example is the right to vote or give your vote to a proxy in the yearly condominium meeting (asamblea annual).

The parties to the trust are: The Trustee (Fiduciario) which is the bank or credit institution holding the real estate, the Trust Settlor who is the legal Mexican person appointed to sign for the trustee, and the Beneficiary (Fideicomisario) who is the person named as the beneficiary of the trust.

The foreign beneficiary, in order to have the trust granted, agrees to be considered a Mexican citizen and abide by the laws of Mexican regarding real estate ownership. The foreign owner agrees that he shall not invoke the protection of his government in matters pertaining to the ownership of real property in Mexico.

The term for trusts being issued now is 50 years, and can be renewable for an additional 50 years. If all the requirements of the permit have been complied with, the request is made to renew by the interested parties within 90 days prior to the expiration of the first term.                

A trust has the benefit of the bank "overseeing" the deed. If two or more persons are listed, and are listed as "and/or", upon the demise of one the property automatically goes to the other(s) and probate is avoided. The importance of the designation "and/or" cannot be understated as this allows either to sell the property and does not required the agreement and signature of all.

                           TRUST INSTITUTED BY NOTARIO

The "fideicomiso" or trust is established by a Notario. Because of the large number of foreign-owned properties in certain areas of Mexico, establishing a trust has become a routine procedure. It is not a complicated process, and standard forms are utilized. 

FREQUENTLY ASKED QUESTIONS

Q: Are the permits that Article Twenty Seven requires of foreigners hard to get?

A: The foreigner applying for permission to buy land must prove his immigrant status in Mexico. Non-residents and tourists can buy land through a trust. If the foreigner resides in Mexico, he can acquire directly the property as long as it is not within thirty-one miles from seashores or sixty-two point five miles from the borders.

Q: What about condominiums or houses located in Acapulco, Puerto Vallarta, Cancun, or any of the resorts of Mexico'?

A: The Constitution forbids direct ownership by foreigners inside thirty-one miles from the sea or sixty-two point five miles from the borders. However, they have always been permitted to buy on a trust basis. In this type of purchase, a bank is the trustee, or owner, of the real estate. The beneficiary, having all the rights to use, enjoy and sell, is not considered the owner of record. This is not a violation of what the constitution forbids. The trust is established for thirty years and can be extended for one additional thirty year period.

Q: Are time shares legal to obtain by foreigners in Mexico?

A: It is legal for the foreigner to obtain a time share as long as he does not reside in that time share permanently. The foreigner must obtain a copy of the property ownership when he buys the time share and club memberships are illegal.

Q: What happens if a foreigner decides to sell after some years?

A: He may do so, and he should profit by an increasing value.

Q: Can the foreigner rent or sublet his apartment in these condominiums or trusts?

A: Yes, he may rent to anyone he desires, keeping the rent for periods not exceeding ten years.

Q: What happens if the beneficiary dies?

A: At the time the trust is set up, a substitute beneficiary is named. This person has the same rights as the first beneficiary in case of his death. No Will need be probated in this case.

Q: How is a trust set up?

A: The trust agreement is drawn up before a notary public. The Ministry of Foreign Affairs and the Commission on Foreign Investments must have approved the operation, with the trustee requesting this authorization. The participants in the transaction are the seller who must have clear title to property, the bank as trustee, and the buyer or beneficiary of the true, or his representative.

Q: How much does it cost to buy properly in a trust?

A: There are expenses for the authorization from the Ministry of Foreign Affairs, the registration in the Registry of Foreign Investments, and the fees of the notary public. The bank charges one percent of the amount of the transaction for the preliminary studies and the drawing up of the agreement. The total expenses for the transaction should be between 11-1/2 percent and 12-1/2 percent. In addition, there is a yearly fee of one percent of the property value charged by the bank for its services as trustee.

Q: What are the responsibilities of the beneficiary?

A: He must pay the trust annual fees punctually. Also, he must pay property taxes, water, and other utility bills when due.

Q: Is it true that the new law that regulates foreign investment is against new investments?

A: Not at all. The new law is not only fair, but even positive in the sense that now everybody knows where he stands. In the long run, it is going to create a better atmosphere for mutual respect and understanding. Prospective foreign investment from now on will require permission from the Commission of Foreign Investments.

Q: Can foreign investors come to Mexico and buy an established industry?

A: As long as they acquire forty-nine percent (49%) of that corporation, there is no required permit.

Q: What activities are reserved to Mexican citizens?

A: The new law dictates that in radio and television, urban and inter-urban transportation, gas distribution, and forestry, only Mexican individuals, or Mexican corporations with a clause that forbids any foreigners to own shares, can participate.

Q: Which are the activities where capital is welcome?

A: In almost every thing else.

Q: Are the percentages to be owned by foreigners inflexible?

A: No. In those fields where foreign investment is permitted the National Commission on Foreign Investment might decide to increase the percentage if it is in the national interest.

Q: What happens with investments already made by foreigners not linked with foreign centers of decision?

A: Foreign residents not linked with foreign interests or with foreign centers of decision are considered equal to Mexicans with respect to investments and are not subject to any percentages.

Q: What should you do when buying a home?

A: After you make the decision to buy, a first-class notary public of your choice should take charge. It is customary for the buyer to select the notary public. The Public Registry of Property has to be checked to ascertain if the property in question has any liens or encumbrances and if the title is in good legal standing. The notary does this and also presents the application to the Ministry of Foreign relations when a foreigner is the buyer. If everything is clear, then the sale proper takes effect. It is also recommended that you hire an attorney to review the contract.

 

                          10:30  OWNERSHIP THROUGH A CORPORATION ANYWHERE

If a foreigner is purchasing non-residential property in the restricted zone, the acquisition can be done through a Mexican corporation. Under certain conditions, the corporation may be 100% foreign-owned. Again, the foreigners must accept that they are subject to Mexican laws and agree not to invoke the laws of their own country in matters of real estate ownership.

The purchasers also agree that the real estate acquired will be registered with the Secretary of Foreign Relations and will be used for non-residential purposes. In this way, foreigners can directly acquire commercial, tourist or industrial properties.

Property owned by a corporation is commercial property and will have much higher water, electric, telephone, and tax rates.

In a corporate transaction there is usually a preliminary sales agreement or an "agreement to agree". The preliminary sales agreement includes the price, terms, and closing date. A formal sales agreement is executed at the time of closing. The buyer should be cautious about making any initial deposits.

                          COMMERCIAL USE

The laws allow a foreigner to own 100% of a Mexican corporation which can have its name directly on a deed of land in the restricted zone, but they must show some commercial use for the property. Renting the property for some of the year has been deemed a commercial use. The advantage here is the saving of the trust set-up and annual fees, but there are charges for setting up a corporation and some annual costs are incurred there too.

Lastly, there are long-term leases around too in the restricted zone. Generally they should be avoided as the foreigner does not have as much protection as they do with Fideicomisos. With leases, you need to check out thoroughly if the person leasing to you has the right to do so, and has undisputed title to the property.

         11:00  FINANCING

Historically, due to lack of capital markets and high Mexican interest rates, most transactions were made in cash. In 1993 and 1994, the Mexican economy picked up to such an extent that annual inflation went down to one digit and interest rates were more or less accessible.

Banks introduced attractive mortgage programs and, consequently, sales proliferated throughout Mexico. Due to the devaluation in December 1994, the situation reverted and the few banks that offer mortgages do so at such high variable interest rates that very few buyers are in a position to take advantage of them. As of 2003 the market seems to be ready to open again.

                          THE FUTURE

The future of financing in Mexico is moving towards a secondary mortgage market, which should open up international financing resources to possible desirable mortgages at reasonable rates.

For now, real estate transactions in Mexico are generally cash transactions, with limited cases of owner financing available. The high cost of money (interest rates) within the Republic has historically made financing properties unattractive; however, the recent appearance of mortgage company services from the United States makes financing an option.

This is a development that has the potential of greatly influencing the real estate industry, mortgage capital and title insurance are now being made available to Americans acquiring property in Mexican resort destinations.

                          U.S. MORTGAGE  COMPANIES

There are now several American mortgage firms offering financing for values up to 70% of the appraised trust amount. Interest rates vary yet most are between 2% and 3% above the prevailing U.S. rate for amortization terms up to 15 years. A trust is itself sufficient collateral and a simple notation is made on the Mexican trust to protect the lender.

The promise to pay is considered to have originated in the USA or Canada for legal purposes. Documentation is in English yet all Mexican transactions must be done in Spanish.

The introduction of mortgage capital shows a vote of confidence in Mexican resort destinations. Property values in these areas have shown stability despite the devaluation of the peso in December '94 when interest rates rose to a high of 60%. Because such property is greatly influenced by tourism, many view real estate in these resorts as being largely insulated from the greater Mexican economy. Home prices have risen an average of 5% a year and market conditions are favorable for increased investment.

As the Mexican economy opens under NAFTA, new domestic sources of financing are becoming available, but high mortgage interest limit the creation of the traditional 20- or 30-year mortgages Americans have considered the norm.

         12:00  CLOSING

You may be present at the closing transaction or do it through an agent with representation (power of attorney valid according to Mexican laws).

                          12:10  THE TIME FRAME

How long the purchase process takes, from the beginning to the end, will depend on several factors:

a) Whether both parties live in the same place (Puerto Vallarta, San Miguel de Allende, Chapala, etc.), and whether the Seller's papers are all legal and ready at hand (in case of a foreigner, the Bank Trust with the original Escritura (Deed), plus the bills, etc.)

b) Whether both parties agree to do it (payment and delivery) as quickly as possible.

c) And, of course, whether the Notario publico promises to do it quickly and you keep calling him constantly to remind him!

If all these factors are positive, it may take as little as 3 to 5 weeks (not counting statutory holidays in between, etc.)

It seems that the process takes longer in some areas. It does often seems to depend on how often you call the Notario publico and sort of "induce" him to do it faster. With all the Notarios, however, there is always one secretary that is the head of the other secretaries who deal with all the paper work. She will really be THE person to ask, and ask, and ask as it will be up to her to have things finished promptly.

Once the final payment has been made and the Escritura (Deed) has been signed before the Notary, he will deliver to the Buyer a preliminary and stamped copy of such "Escritura". He will keep the original in a special ledger as he will have to register it in the Capital of the State. After it has been registered, the Notario publico will deliver a Certified Copy of it to the Buyer. It takes approximately 4 to 6 weeks to get it back and in the hands of the Buyer.

                           CHECK OFTEN

Check often with the Notario publico to see if it has already arrived. If you do not expect to be in the country at that time, let the Notario publico (or his Secretary) know who will be picking up the Escritura (Deed). Do this personally (if possible bring the person), bring a letter with those instructions, and have the copy stamped at the Notary's office to confirm its receipt.

The Seller (or his Representative) must bring to the Notario publico the Original Escritura (Deed) or Cession of Fideicomissary Bank Trust Rights, and will have to present to him/her any identification that can prove his/her identity.

All foreigners (whether Buyer or Seller) will have to present as proof of who they are, a Passport or any Official Document with photo, as well as the Legal Immigration Document that was used to enter the country (Tourist Card, FM2 or FM3  http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm).

Most real estate transactions are "opened" after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required in order to transmit the offer to the seller. If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or a notario be consulted from the opening of negotiations and before signing any papers or handing over any money.

In some areas it has been common practice to deliver to the seller, as an advance payment, the equivalent to a 20-50% (including the initial deposit) of the total price upon signing the purchase-sale agreement. This agreement should contain a penalty clause applicable in case there is a breach of contract by any of the parties.

                           ENFORCEMENT

However, if you must go to court to enforce a contract, you will find it an even slower, longer, and more costly exercise than in the U.S. It is far better that monies be held in escrow until the escritura is recorded. But normally, when signing the escritura or official deed certified by a notario publico, the balance is paid and the property is delivered.

A "closing" should not take more than 45 days. In certain resort areas the custom of using "escrows" is being implemented. In many areas the notario publico acts as an informal escrow holder, but some states bar the notario from this. He should have searched the title record and verified all documents and filed a notice at the public registry. You must investigate what is the situation in your area.

                         12:20  GOING TO THE NOTARIO PUBLICO

                         TWO WAYS

Although it is usually done at the Notary's office, this Promise of Sale can be done in two different ways. Sometimes, the parties decide to do it privately, and when the time comes they go to the notary.

a) The most common procedure takes place at the Notary's office where the parties will write down the document in Spanish (transcribing the wishes and agreements that both parties may have already written) and sign it. The Buyer will have to bring two (2) witnesses with him to testify to this act. The Notario publico only certifies the signatures, and there is a small fee charged for that.

b) In the second method, one does the same as above, but the Notario publico will sign and stamp the document with his Seal, and this will be registered before the Public Registry. There is no need for witnesses in this procedure.

The advantage of this second option for the Buyer, is that it offers better protection. Once this document is registered, the Seller CANNOT sell the property to anyone else.

The chances for any possible "hanky panky" on his part (like selling it to someone else, changing the price, etc.) are avoided. Of course the price charged by the Notario publico is different and higher, (as taxes have to be paid), but there is also greater security in doing it this way, a Legal Security which gives the Buyer a legal instrument in case there is a need for it.

Doing it the other way (just having the document signed by the Seller, the Buyer and the witnesses), the Buyer would have to bring a civil action against the Seller in case of any wrongdoing on the latter's part, and that would cost more time and money.

                           ALL BILLS PAID

            The Notario publico will tell the Seller when to bring in all the receipts (water, gas, electricity, telephone, etc.) showing that everything has been paid up to that day. In the case of electricity and water bills, they will have to ask each company for a letter of "no adeudo" (no debt).

              If they live in a Condominium, the Administrator will write a letter stating that ALL maintenance costs have been paid. Where there is a private telephone line involved, the last paid receipt should be handed in. Both parties may agree as to who will pay the current expenses for services that still have to be billed, because they will be coming after the signature of the Deed.

IF USING A BANK

The buyer should have the Bank Representative(s) chosen by the Buyer that will have the Trust, present him/her with the documents that authorize them to represent the bank, as well as to sign the necessary documents and the Escritura (Deed) when the time comes for it;

v      Legal Appraisal of the property. (This has to be performed by a government-authorized institution or person);

v       Registering the Deed at the Public Registry;

v      Transfer of title (Transmision Patrimonial);

                          THE STEPS TO CLOSING

              In order to obtain the deed for your property, you will work with the public Notario Publico to complete the following steps:

(1) Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a no-lien certificate and tax statement from treasury Department (Hacienda). Additional checks are made to ensure there are no outstanding water bills or municipal taxes.

Obtain a permit from the Ministry of Foreign Affairs to establish direct deed ownership or the Establishment of Bank Trust or Fideicomiso.

Obtain the appraisal for the assessed valued of the property for tax purposes.

(2) Prepare all documents for both buyer and seller.

                           THE CLOSING

When all of these items have been completed, the buyer transfers the remaining funds due into the escrow account (hopefully) and the Notario publico presents the legal transfer papers to be signed. The Notario publico is the attorney of record and the unbiased, official representative of the government.

The Notario publico has a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view. The buyer and seller need not be present at the closing, but may be represented via a power of attorney. The buyer chooses the notary, as he pays the notario publico fees.

Closing costs are paid by the buyer, and to some extent depend on the value of your property. They include a transfer tax, legal Notario publico fees, a property registration fee, fees for the tax certificate, title search fees and property appraisal, as well as miscellaneous clerical expenses.

DOCUMENTS FOR THE NORTARIO
              The notario publico will need from both parties, including spouses, to the transaction: proof of full names, marriage certificates, proof of dates and place of birth, official identification with a photograph, such as passport or driver's license, and your visa to prove that you are in
Mexico legally.

The notario publico will need from the seller: 1) his deed; 2) Up-to-date tax receipts, water bills, subdivision (fraccionamiento) fees, and any other public utilities bill, paid up to the date of sale. The notario publico will determine capital gains taxes through an official appraisal (Avaluo).

           The capital gains tax, if any, is owed by the seller. However, through mutual agreement, the buyer may pay it. Make sure you know how much this will be--the notario publico will inform you of the cost before the transaction, almost to the cent. The buyer ordinarily pays notario publico fees incurred, which also must be completed when the title is signed over.

Lastly, the notario publico must register the escritura in the Registro Público de la Propiedad (Public Registry of Properties). This should be done promptly, as the transaction is not valid until registered. A normal time frame for this is around two-four weeks.   

                          USE A NOTARIO  

It can not be overstressed that you should insist on making all real estate transfer agreements before a notario publico. It is the Notario Publico who, in effect, acts as a "Holding agent" for the involved parties and for this reason there are few escrow companies in Mexico. Do not be pressured by someone who says that you need to put money down right away.

Before giving any type of down payment or committing yourself to a deal, take a copy of the actual escritura (which should be given to you by the seller with no argument if everything is in order) to the notario publico to check the deed's validity. When you have negotiated a real estate purchase and reached an agreement, go to the notario publico to begin the purchase process or the equivalent of "opening escrow." The buyer chooses the notario publico.

The closing process takes between 30 to 45 days. The buyer’s closing costs are usually about 6% of the purchase price. 2% is for sales tax and about 4% is for other fees such as title search, attorneys fees, and filing of legal documents.

                           WHEN BUYING FROM A DEVELOPER

If buying property from a developer, have the notario publico check to see that he has his permits for the development and for construction. A beautifully engraved certificate or formal letter promising a deed at some future time is not a deed, but merely a possibly unenforceable sales contract.

            Have the notario publico determine that the land is not ejido land (communal agricultural land). The right to use this type of land can be purchased, but always a risky deal, as it is not your property, you are only allowed to use it.

TITLE INSURANCE

At the present time there is no general use of title insurance in Mexico, although some American companies are providing coverage in some resort areas of the country. Where it is available, perhaps the best way to protect yourself is to get title insurance from a reputable company.

 Most Mexican companies don't sell it, but Houston-based Stewart Title Guaranty does http://www.stewart.com/international/internat and Fidelity National Financial (parent to Chicago and Fidelity Title  http://www.titleinsurancemex.com.mx/produc_t.) does through the Mexican company Grupo National Provencial  http://www.gnp.com.mx/Clientes/homegnp.nsf.

The insurance runs about $4 to $7 for every $1,000 of property value, versus $3 to $4 in most of the U.S. In some areas as much as 70% of properties have some degree of unrecorded encumbrance, like unpaid taxes or an easement that surprises the buyer. Usually the problem can be solved with a little time and money.

                          12:30  CONTRACTS YOU MAY USE

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 notario publico 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 have a notario of his choice 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 might have a different notario assume this responsibility.                

After the offer you have made on the property you have selected has been accepted the closing process begins. The offer to purchase is validated by a deposit (perhaps 10%), in an escrow arrangement if possible. The balance is usually payable upon the signing of all papers at the office of the notario.

                           12:31  PROMISE OF SALE/PURCHASE (OR "CESION DE DERECHOS    

                            FIDEICOMISARIOS")

Once the Seller and the Buyer have agreed in principle to go ahead with the deal (verbally or in writing, as the case may be) on property in a fideicomiso, they should draw up a document called a "Promise of Sale or Cession of the Fideicomissary Rights," in which they both express their agreement to execute this transaction.

“Cession of Rights" is when the Seller already has a bank trust, and the remaining time of such trust is agreeable to & accepted by the Buyer. (Example: the trust was for 50 years, and there are still 45 years left in the trust ) However, due to the fact that not ALL trust documents contain the clause about the possibility of ceding the rights to other persons, one would have to check if the clause is included in the trust or, not.

 With some exceptions, Notaries almost always recommend having a new trust drawn up, as the time and cost of the "cession of rights" is about the same.

                          12:32   CONTRACTO  DE COMPRAVENTA

Keep in mind that SPANISH is the OFFICIAL language of Mexico so that ALL legal documents have to be in Spanish. If you're asked to sign any document in any other language, it is strongly recommended that you have it translated into Spanish. Whatever legal steps you might have to take later on, you will have to have the translation or an interpreter.

In this Promise to Buy/Sell, the notario publico will list ALL the CONDITIONS to which both parties have agreed. Not all notarios draw up the same type of document, with the same clauses, but they should ALL contain the following information at the very least:

                          CONTENTS

a) Description of the property (the Seller will have to present the ORIGINAL Escritura (Deed) or Bank Trust (whether he/she is a Mexican "national" or a foreigner), containing ALL the information about the property, location, measurements, etc.

b) The price that has been agreed upon.

c) The contents included (if any) of such property (telephone, a list of the furniture, etc.) The telephone line belongs to the telephone company (Telmex) so there must be a separate letter stating that the property is being sold and the telephone line is going with it. With that letter, the Buyer will make a new contract with Telefonos de Mexico, the monopoly that owns all telephone lines.

d) The date of the FINAL payment and in which form it will it be made: Cashier's Check, Cash, Bank to Bank Transfer, etc.

In this last case, both parties will have to be aware of the consequences should either of them fail to comply with their commitments; on one hand, the transfer and deposit of the balance amount in the Seller's bank; and on the other, the actual signature of the Escritura (Deed).

Always ask the Notario publico which is the best and safest way to do this. When the total amount is to be paid in "installments", the amount of each payment and their due dates must be documented, as well as the Buyer's right to use the property before the total amount is paid, without acquiring any legal rights to it (if such be the case).

e) The amount of the DEPOSIT to initiate the transaction. This should be no more than 10% of the total price, as there is no reason for a higher percentage - unless the Buyer and the Seller agree to it. Watch out for those "brokers" who ask for more! A Bank Draft or personal check can pay this deposit.

f) A Penalty Clause in case one of the two parties should back out of the deal. This is the way in which most contracts have been written up to now. The word "Deposit" might be changed to "Advance Payment" (amount that will be applied to the total payment), and be totally separate from the Penalty Clause, which would be in an amount considered fair and just by both parties.

 g) Each and every one of the other conditions agreed upon by both parties.

                          CONTRACTS IN FORMAL SPANISH

. Mexican contracts use very formal Spanish, and are different from conversational Spanish. You will find also that the registration of documents is very strict. Changes by initialing or scratching out cannot be made. Only original documents are considered valid. Sometimes, a certified copy by a notario publico is accepted. Many times you have to show the original document and the certified copy in order to get an approval.

                           FOLLOW UP

Following up after an agreement requires manners, greeting the person and asking how they are, before you plunge into the business at hand. Following up after agreement is reached is important. You need to know that the details in the contract are being followed. When you are encouraging this ongoing follow-up, don't show impatience or anger. Continue to use good manners to successfully negotiate an agreement through the entire process is an important test of your ability to live successfully in Mexico.

                         12:33  DEPOSITS

The practice has been that, if the Buyer backs off, he/she loses the full amount that was paid as a deposit. This is the case even though it is also written that if the Seller should back out, he/she would have to return the deposit plus an additional sum equal to the amount of such deposit. In reality, only the buyer gives a check for the deposit covering the advance payment, which is also used as the "penalty".

Remember that sometimes the amount of the deposit can be fairly high: i.e.: 10% of the price of a house or condo that may cost up to $250,000. US (or more). That could represent up to $25,000 US dollars! That amount, as a "penalty" is abusive and improper

                           PENALTIES

Both parties should agree on an amount as penalty in case one of them backs out (independently of the Advance Payment). Once this amount is agreed upon, BOTH parties should write out their checks (in the other's name), covering such amount.                        

Both checks (deposit & penalty) should be KEPT in trust by the Notario publico, so that regardless of which party may back out, both would be covered. If it's done this way, such Penalty would "pay" for any damages or grievances that either party could have, and it would be FAIR for both. Otherwise, it's only the buyer that looses.

Ideally, the notario publico should keep the Deposit (Advance Payment as well as the amount of the penalty) and act as a third party escrow holder. At the time of the "signing" of the Escritura (Deed) and of the Final Payment, they will be delivered to whoever is entitled to it.

                          12:34  THE ESCRITURA PUBLICA

The deed (escritura) is prepared from the purchase-sale agreement. The escritura, as well as all closing documents, is in Spanish. English translations are courtesy translations, only. Prior to closing, the notario publico examines the documents of the seller to verify title. A search of the public records is done to determine further status of the title and the existence of liens against the property.

The notario publico is responsible for the collection and payment of property taxes and government transfer taxes. If a seller owes capital gains, that is determined by the notary. This tax is collected and paid by the notary, when due.

The escritura, or public deed, names the seller conveying and the buyer receiving the property, in addition to the legal description. The terms of any bank trust (fideicomiso) agreement are incorporated into the escritura. There should also be a description of the metes and bounds of the land, and a plat. In the case of construction, there should also be a floor plan or footprint of the building on the land.

A buyer might also receive a copy of any building permit and evidence that utility services on the property have been paid to the date of closing. At closing, the notario publico meets with the buyer and seller to formalize the transfer by requiring appropriate signatures upon execution of the deed. The escritura is then recorded with the public registry where the property is located

                          12:40  CHECKLISTS FOR BUYER AND SELLER

PRE-AGREEMENT CHECKLIST FOR BUYER IN MEXICO

1.       Understand and follow the Mexican law concerning real estate purchases.

2.       Obtain the advice and services of a U.S. or Mexican notario publico, a Mexican real estate agent, a title insurance company and/or an appraiser.

3.       Obtain a property disclosure statement from the seller, if available.

4.       Obtain a copy of existing public deed (escritura pública) complete with recording information.

5.       Request a copy of any existing commitment for title insurance on the subject property (these will be more common in a few years). Obtain a current commitment for title insurance on your specific property if available in the area.

6.       When dealing with residential developments advertised in the U.S., obtain a Public Report.

7.       Obtain copy of applicable Mexican state/municipal development authorizations.

8.       Obtain a copy of any Covenants, Conditions or Restrictions for the property and any homeowners’ association bylaws, budget and financial statements.

9.       Analyze all risks associated with purchasing property where any infrastructure, building or other improvements have not been fully completed.

10.     Analyze all risks associated with any seller financing. Will there be an escrow account?

11.     Estimate closing costs associated with your purchase.

12.     Complete due diligence, including investigations of title and value, prior to committing to purchase, or make purchase contract contingent on those investigations.

13.     Enter into a written purchase contract in Spanish (official)  and English (courtesy) that defines the details and contingencies of the agreement with the seller.

14.     If possible, place all deposits in a neutral, third party escrow account, pursuant to a fully executed escrow agreement.

15.     Obtain title through a Mexican Notario publico, and title insurance, if available, at the time of full payment.

16.     Ensure proper recordation of the title transfer with all applicable municipal and federal registries at time of title transfer.

PRE-AGREEMENT CHECKLIST FOR THE SELLER IN MEXICO

1.       Understand and follow the Mexican Law governing real estate transactions.

2.       Obtain the advice and services of a Mexican real estate attorney (notario), real estate agent registered in with the state (if required), a title insurance company and/or appraiser.

3.       Complete a Seller’s Property Disclosure Statement.

4.       Consider entering an exclusive right to sell listing agreement with a registered real estate agent who will share commission with other registered agents.

6.       Use a licensed real estate agent in the U.S. to offer the property for sale in the U.S., unless you are offering it by owner.

7.       Have copies of any Covenants, Conditions, or Restrictions along with any homeowner’s association bylaws, budget and financial statement ready for the prospective purchaser.

8.       Locate and obtain an original copy of your ownership document (the public instrument issued through a Mexican notario publico - also commonly known as the deed, trust agreement or title); evidence that you are up to date in payments to your trustee/fiduciary bank (if title is held in a title trust); evidence of payment of your property taxes for the last five years (or certificate from the local authorities stating you owe no property tax); and a certificate from the local Public Registry of Property showing your ownership and no encumbrances or liens.

9.       Consider obtaining a commitment for title insurance on your property through a Title Insurance Company that is active in the market place.

10.     Collect all official receipts pertaining to any improvements done to the property.

11.     Obtain an estimate of closing costs from a notario publico based on an estimated sales price.

12.     Negotiate your purchase agreement in writing.

13.     Obtain a sufficient amount of earnest money and have the buyer deposit it with a neutral escrow agent (possibly the notario) pursuant to a fully executed escrow agreement.

14.     Transfer title to the buyer through a Mexican Notario publico.

15.     Do not expect full payment of the purchase price until title has been transferred.

                          12:50  PAYING THE CLOSING COSTS

To have a "ball park" figure of the total cost of the Bank Trust and all the Notary's fees, you can figure that it can range from 6-10% of the sales price, depending on the area in which you are buying. As we said, this is just a ballpark figure, and the final estimated cost will be presented in writing by the Notary.

Although notaries are regulated by a government authorized percentage that they can charge for their services, total expenses when buying property in the Restricted Zone are higher because the Buyer also has to pay for setting up the Bank Trust. It also depends on the State in which the property is located, as not all States charge the same for the same procedures.

The Seller should be very much aware that if, when he/she bought the property, a false price was indicated in the Escritura (Deed), he/she will run the risk of having to pay more Capital Gains Tax if the new Buyer demands that the real price be indicated in his/her Escritura!

If the property is outside of the restricted zone, and the Seller does NOT have a bank trust, and can demonstrate that he/she has occupied it continuously for two years previous to the sale, he may take advantage of the Law that allows him to avoid paying any Capital Gains Tax at all. If he cannot prove it, the tax rate given above will also be applicable.

The reason for this exemption is that the Fiscal Law states that it can ONLY be applied to individual persons (a Bank Trust is not required outside of the restricted zone), whereas within the RESTRICTED ZONE, the Bank Institution holding the Trust is deemed to be a "corporate person".

                         12:51  TRANSFER TAX

This tax amount is paid to the Notario publico at the time of the signing of the Escritura (Deed), and kept by him/her to be paid to the Secretaria de Hacienda (equivalent to the IRS http://www.shcp.gob.mx/english/index.html), as he/she are co-responsible, together with the Seller, for such payment.               

Closing costs borne by the buyer are considerably greater in Mexico than in the U.S. Customarily, the buyer customarily pays 1) the transfer tax, which can be 1-6% of the appraised value of the land, 2) notario's fees, usually 2-3% of the appraised value. The appraised value used for deed (escritura) purposes is often much lower than the actual sales price.

It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the Notario fees and expenses, and the seller, pays his capital gains tax and the broker’s commission.

                          AMOUNT VARIES

Since January 1, 1996, the federal law regarding the real estate transfer tax, which was 2% for all the Republic of Mexico, was modified in order to allow each of the Mexican States to determine its own tax. The range may be from 1-6%, of the tax appraisal value (generally less than the sales value).

The rest of the closing costs, which exclude the transfer cost mentioned above, may vary from 3-5% of the appraised tax value or more, depending on the particular State. In some states these percentages are applied to the highest value of the following:

(1)The amount for which the property is sold.

(2)The value of the official tax appraisal.

(3)The value designated by the property assessment authorities.

In other states it is simply applied to the tax appraisal amount.

                          12:52  COST OF THE FIDEICOMISO

The bank charges the person desiring the Fideicomiso an initial fee (approx. $350-$1500.00 US) for the drawing up of the agreement and establishment of the trust, plus a percentage according to the value of the property. In addition the bank charges an annual fee (depending on the value of the property) to cover its services as a trustee.

                          12:53  CAPITAL GAINS TAX

Generally, there is no capital gain tax in Mexico for individuals if there is conclusive proof the seller has had the property as his primary residence for the previous 2 years.  Remember that a bank trust is not an individual but a “corporate” person.

Also, in Mexico the concept of capital gains tax does not apply in the sense in which it is determined in the United States. Here, the gain from the sale of the property is considered as normal income at a tax rate of up to 35%. In order to determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:

(1)The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.

(2)Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above.

(3)Commissions paid to real estate brokers by the seller.

(4)The closing costs, including all expenses, taxes and fees paid by the seller.

The Notario will retain the calculated gain after deductions forwarding it to the Mexican tax authorities (Hacienda).

The seller will then deduct this amount against his her annual tax return, which becomes an adjustable tax credit in the U.S.

Owners of property within the Restricted Zone who may have heard it said that if you have an FM3 (Visitor-Rentista), and proof that you have "continuously" lived in your property for two (2) years prior to the proposed sale, you won't have to pay taxes at all: This is not correct!

According to Fiscal Law, ONLY individual taxpayers will be exempted from this payment. As the Deed to your property is in the name of the Bank, and it says so on the receipts of the Property Tax you pay every year, and in the Public Property Registry, you are not considered an individual taxpayer and, consequently, you cannot be exempted from such payment. As the Bank is the Titleholder of your property, and as it is not an individual, the tax is due according to the present interpretation of the law. The Secretaria de Hacienda (Tax Revenue Service http://www.shcp.gob.mx/english/index.html) has officially ratified the application of this Law.

                          12:60  ESCROW AND EARNEST MONEY

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. 

                           ESCROW NOT COMMON

The use of escrows is not the norm in Mexico. Historically, foreign purchasers have given earnest money as contractual consideration to the seller. The notario publico or in some cases, the real estate agent or "broker" involved in the transaction has served as an escrow agent. Real estate brokers usually are not licensed in Mexico and typically do not set up separate accounts for earnest money deposits.

Always check beforehand with the Notario publico to ensure that he is willing act as an escrow holder. If the State law does not allow him to do so, ask him what can be done.

                          CAREFUL WITH DEPOSITS

There will always be "special cases and circumstances" where the Seller will need and will demand that the Advance Payment checks be given to him/her. If the Buyer accepts it, then it's up to him/her, but we think that with the exception of those particular "special" cases, the Advance Payment and Penalty checks should be kept by the Notary.

There are already be a couple of banks that will provide either the "escrow" or other "legal instrument" to use for such deposits, in cases where the Notario publico cannot accept them.

Some Mexican states do not allow Notarios to keep any money at all. Check with yours to see if he/she can keep these deposits or not, and what would they suggest you do in case they can't.

A caveat: If a foreign buyer is willing to give earnest money directly 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 an U.S. title company can provide escrow services with individual interest-bearing money market accounts for each purchase.          

                          12:70  RECORDING THE DEED

You are not required to be at the closing of the sale in the notary's office: you can be represented with a power of attorney.  In any case, the notario publico will have at the closing, copies of the deed or escritura that are signed by the seller and the bank trustee (if any).

You should keep a copy of this document for your records, until you receive the recorded escritura. The original may take weeks to be returned to the notary's office. Your escritura is numbered on the front page and is the reference number in the public records. You need to keep a record of this number (as well as the date the trust, if any is established) and which notario publico transferred the property.

It is not the responsibility of the notary's office to notify you when the public deed is returned. You will need to contact the notario publico to pick up the document or give written authorization to someone to receive it.

                           CAPITAL GAINS TAX

Real estate Tax Reforms in 2002 have made it clear that Mexican citizens claiming residency of a real estate property do not have to pay capital gains. Foreigners, who own through a fideicomiso, do not have this automatic benefit from the new law. Non-Mexicans will have to abide by the notary's criteria for documentation of exemption from capital gains tax. Mexicans and foreigners alike can find that they have taxes due upon sale of land.

                           PUBLIC REGISTRY OFFICE

In Mexico, the office of Public Registry of Property records the transfer of title, encumbrances, and liens, etc. The notario publico has the obligation to obtain a certificate declaring if there are liens (or no liens) of public record. To not obtain this certificate subjects the notario publico to civil and criminal charges.

There is also the obligation by the notario publico to notify the recording office immediately of the transfer of ownership. The Public Registry is the source of public information. Whoever is registered at the Public Registry is the legitimate owner of the real estate. As in the United States, documents are filed in the order in which they are received and this establishes their priority.      

              13:00  TITLE INSURANCE

                          13:11  NAFTA AND FIL

The North American Free Trade Agreement (NAFTA) and the Foreign Investment Law (FIL) in Mexico are causing U.S. individuals, developers, lenders, investors and industrial users to look more favorably at real estate investment opportunities in Mexico.

 The FIL significantly liberalized bans on foreign ownership in Mexican companies. Presently secondary mortgage market and title insurance programs are being developed.

More importantly for real estate, the FIL now allows direct ownership of land in the restricted zone (50 km inland along the coast, 100 km along Mexico’s natural borders and all of Baja California) for commercial, industrial and hotel development provided that foreign ownership is vested in a Mexican corporation, which can be 100 percent owned by a foreign national.

Title to residential properties in the restricted zone can only be held in a Mexican back trust fideicomiso for 50 years and may be renewed upon expiration. With the increase in real estate activity another industry has emerged - title insurance on Mexican land.

Both offshore policies fully under American law and Mexican company issued policies are available.

                          13:12  SIMILAR SYSTEM

The land registration, property recordation and title certification process in Mexico is a system very similar to the recording process and methods used in the U.S. The majority of Mexican states have multiple-recording districts and each municipality has its own recording clerk.

Title searches in Mexico are usually done through a Mexican law firm, and underwriting requirements include a longer history examination than is now common by Mexican standards. The attorneys verify the owner and search for liens, encumbrances and anything else that could affect the title.

After the search is completed, the Mexican law firm prepares its legal opinion on the status of title, which will include the owner of record, easements, liens, restrictions or anything pertinent to the property ownership including all of the documents in the chain of title.

The title process can normally by completed within 30 days. "Ejido" claims or expansions, labor liens, fideicomiso, property regularization and permitted use issues can pose significantly different problems uncommon by U.S. standards and must be examined carefully.

The title insurance underwriter then examines the title opinion to determine the coverages to be issued by the title insurance company. The policy is modeled after U.S. ALTA form policies. Usually, the insured’s chosen jurisdiction for the title policy is their state of residence.

Thus, arbitration is done in the U.S. under U.S. law, rather than in Mexico. The title policy will be issued immediately upon mutual agreement of the title insurance company and the insured as to the covered matters stated within the policy and recordation of the escritura publica/fideicomiso de garantia.

Title policies are becoming available on real estate in Mexico on virtually all property types and geographic locations. Purchasing title insurance for properties located in Mexico is a prudent decision for several reasons. If a title defect should arise and the buyer suffered a financial loss as a result of the defect, no one, other than the seller, has the legal responsibility to pay the buyer back unless negligence or fraud could be proven in a Mexican court of law.

 Little or no legal help is provided to the purchasing public against the notario publico who closes all real estate transactions or against Mexico’s public registry of property concerning title or lien defects, omissions, gaps in ownership or recording errors.

A title insurance policy issued on property located in Mexico provides a comfort and security benefit to foreign purchasers and may prove the only safeguard against title pitfalls resulting in eventual Mexican lawsuits and monetary losses. Without title insurance, a purchaser may be subject to restitution through the Mexican court system if he suffered a financial loss due to a title defect.

                          13:13  THE FUTURE

During the next several years, the title insurance industry should expand its importance in Mexico as development activity increases. This expansion will stimulate the creation of a Mexican mortgage and secondary market system similar to the U.S. Investors in mortgages will need the assurance that titles to the real property backing the mortgage securities are valid and guaranteed by a financially sound institution with unlimited life.

Title insurance will rapidly increase the flow of foreign capital into the country and will help contribute to Mexico becoming one of the fastest growing economies in the world. Already, developers, investors and lenders have come to recognize the role and benefit that title insurance will provide on their properties and collateral.

Title insurance in Mexico is currently available through some very well known U.S. firms: First American Title, Stewart Title, and Chicago Title Insurance. Rates may vary by insurer and, of course, purchase price.

Policy Amount ………………………….. Rate

$0-$100,000…………………………… $1,500

$100,001- $1 million……………………$1,500 + $10 per $1000

$1,000,001- $5 million….$10,500 + $5 per $1000  

$5,000,001- $10 million ……………….$30,500 + $4 per $1000              

$10 million up ………$50,500 + $3 per $1000 above 10 million

 

   13:14  TITLE SEARCH AND INSURANCE IN MEXICO

Title insurance is in its infancy in Mexico. While the Public Registry system operates in much the same manner as in other parts of the world, the actual work is still performed manually. Deeds are handwritten into large books, a computerized system is still a dream and title plants are non-existent. Maps of subdivisions and properties are uncommon or incomplete.

Thus, information available to create a chain of title for a specific property requires a visit to the local public registry office in the municipality where the property is located, and may require hours of laborious research and investigation to determine if the property is private property, who the sellers are, and if there are liens or encumbrances on the property.

Several major United States title insurance companies have entered the marketplace and are now doing searches in certain parts of the country. One Mexican insurance company is also offering a policy.

You need to have a general description of the property, the name of the current holder of title, preferably a copy of the deed, and the approximate amount to be insured. With this information, they are able to investigate the existence of any existing title data and confirm whether or not title insurance will be available for the specific property.

Some think it questionable whether title insurance is unnecessary in Mexico. Those who acquire title in fee simple - in the interior of the country, rely upon the Notario publico to search title. Title search, in this case, may only consists of requesting and receiving a Certificate of No-Liens on the property, which is issued by the Public Registry Department.

Title insurance companies point out that this certificate, plus the Seller’s declaration in the deed that the property is being delivered free and clear of liens and encumbrances, may be the only assurances that title is valid. Should the Certificate of No-Liens be issued in error or due to oversight, or should the seller misrepresent the property, a civil suit against the seller may be the only legal remedy for resolving problems.

Those who acquire property in the Mexican Bank Trust (fideicomiso) have felt comfortable in relying upon the trustee bank to research title. This has also been questioned. Although the title may have been researched, the standard fideicomiso (bank trust) document will have a disclaimer in which the bank will supply a power of attorney to the legal representative of the beneficiary of the trust in order to settle title matters or problems, but the trustee bank will not be the responsible party if, indeed, title problems arise.

                          13:15  POLICY GUARANTEES

A U.S. title insurance policy will guarantee four important matters:

1. That title to the estate or interest described in the policy is as stated therein;

2. That there are no defects, liens, or encumbrances (registered easements, etc.) other than those stated in the policy;

3. That title is marketable;

4. That there is right of access to and from the land.

The standard exclusions from coverage in both the U.S. and Mexico are:

1. Laws, ordinances or regulations restricting the usage of land (zoning, construction, and environmental protection - contamination)

2. Rights of eminent domain - unless recorded prior to date of policy

3. Defects, liens, encumbrances, adverse claims

a. Created, suffered or agreed to by claimant

b. Not a matter of public record but known to claimant

c. Created subsequent to date of policy

4. Taxes or assessments not shown as existing liens

5. Facts, rights, interests or claims not shown by the public records but which could be ascertained by an inspection of the land or by making an inquiry of persons in possession there of.

6. Easements, liens or encumbrances, or claims thereof not shown by public records but could be discovered by a physical inspection thereof,

7. Discrepancies, conflicts in boundary lines, shortage in area, encroachment or other facts in which a correct survey would disclose.

Exclusions from coverage (Mexico only)

Water rights or claims or title to water (All water rights are owned by the Mexican government);

2. All substances and deposits described in article 27 of the Mexican constitution, the dominion of which is reserved to the Mexican government; (i.e.) minerals, petroleum and related hydrocarbons, salt and precious gems;

3. Confiscation or expropriation by insurrection, rebellion, revolution, civil war, military or usurped power, through the efforts of a political, revolutionary constituted government of the nation or one of its sub-entities;

The powerful reasons for obtaining a policy of title insurance, when available, are to insure against error by searchers, fraud and forgery in deeds. If a mortgage or pledge guarantee is involved and the lender is a foreign institution, a policy of title insurance will generally be required in order to make the loan.

Title insurance on Mexican real estate is more than just a title insurance policy. It is a process of in-depth examination concerning title documents, development permits, municipality approvals, paid taxes, plat and survey issues, recordation and registry compliance, along with the overall conveyance or "protocolization" procedure of the public notary.

In order to issue an Owner's Policy of Title Insurance, and assume the inherent monetary liability that comes with the policy issuance, the insuring company must be as certain as possible regarding all of the various elements in the property transfer.

It is true that this is the responsibility of the notario. They have the same requirement of certification. However, not only does a title policy protect against recording errors, liens, encumbrances, encroachments, taxes and boundary line disputes, but also against fraud, misrepresentation, impersonation, secret marriages, incapacity of parties and undisclosed heirs. Even the best of notarios or attorneys may be unable to discover these title problems.

Title insurance policies provide affirmative coverage and endorsements that protect the purchaser against risks that may not be discovered in the title search process. Since title policies are fully negotiable contracts of indemnity, a title company can consider and insure a variety of title matters for the benefit of the proposed insured. A title insurance policy can provide a monetary indemnification on granted rights of "cesion" or permitted use from the government.

An example would be having a concessionary right from the government to construct a swimming pool and deck area that is built on land within Mexico's federal maritime zone.

Though one can not own this property, Mexico can grant the right to use it. How can any one individual, even a notario publico, give these types of assurances that have real dollars standing behind the assurance and that ultimately will protect a buyer in the event of a loss? The process of the title insurance company is to eliminate a future loss by examining all of the relevant issues today.

If given the opportunity, a title insurance company should be able to advise both buyer and seller of the relevant concerns that may be outstanding or in process prior to the consummation of the property conveyance.

The real estate market in Mexican areas popular with Americans is booming. It is an extremely dynamic market growing in both the resort/residential sectors as well as in the industrial and commercial areas. Millions of dollars are being invested in new developments from Los Cabos to Cancun, Tijuana to Reynosa. And with this increased activity is the increased awareness of what can be provided with the title insurance process. It can enhance the salability of property and expedite the closing process.

It gives the non-Mexican purchaser of real estate comfort and security knowing that a major financial institution has examined all of the title matters and issues a title policy with enforcement in the United States.

                          13:16   HOW TITLE INSURANCE WORKS IN MEXICO

There are now offered real property title insurance policies from American companies designed for the purchase, financing and leasing of Mexican real property, registered with and approved by the Mexican Insurance Commission (Comision Nacional de Seguros y Fianzas  http://www.cnsf.gob.mx/).

They are title insurance products sanctioned and approved for use by Mexican corporate entities (domestic or foreign owned), or Mexican Nationals desiring to have the validity and priority of their interest in Mexican real property insured. These policies are also available to citizens of the United States and other countries.

IN MOST CASES U.S. INSUREDS MAY OBTAIN A DIRECT ACCESS ENDORSEMENT PERMITTING PRESENTMENT OF A CLAIM IN THE U.S. WITHOUT HAVING TO GO THROUGH THE MEXICAN COURT SYSTEM.

Two types of policies are offered: Owner and Loan policies: a standard Mexican policy and an U.S. policy modeled after and containing the same basic coverages as the American Land Title Association ("ALTA") policy form.

Both types of policies insure commercial and residential properties throughout Mexico, including beachfront and border properties (restricted zones), issued in either U.S. dollars or Mexican pesos and can be written to insure any recognized land interest in Mexico including direct ownership, leasehold and trust or beneficial ownership (fideicomiso).

The policy insures against loss from defects in title unknown to the insured prior to the date of the recordation of the escritura publica which were not otherwise stated in the policy, regardless of whether the loss results from errors in the Public Registry, errors in the search of the Public Registry or any other cause. Coverage continues for the duration of the time that the insured holds its interest in the real property.

                           13:17  BASIC PROTECTION

(A) Basic policy coverage provides a purchaser/ lessee of real property, or a lender secured by real property, protection against loss in the event that title to the property is encumbered or defeated by the interests of third parties not otherwise disclosed in the policy. Among the risks against which the insured is protected are the following:

Mortgages:

Mechanic's and/or tax liens;

Easements;

Contractual obligations restricting the use of the property;

Adverse possession by a third party.

Agrarian (Ejido) matters

(B) Additional affirmative coverages are also offered upon further research, if required, and payment of additional premium to insure against:

Limitations restricting the dominion of the Real Property imposed by Article 27 of the Political Constitution of the United Mexican States on foreign ownership matters.

(C) Law, regulation or decree of the federal, state or municipal government, including construction, land use and zoning laws that restrict, regulate, prohibit or are related to:
The occupation or enjoyment of the Real Property.
The characteristics, dimensions or location of any
improvement, or
The segregation or separation in the possession of the
Real Property that causes a change in the dimensions.

Legal actions to establish the metes and bounds of the Real Property.

Policies can be written to insure any recognized land interest in Mexico including direct ownership, leasehold and trust/beneficial ownership ("Fideicomiso"). These products offer not only exceptional financial backing but also a form of production and claims handling which are designed to provide maximum protection and convenience.

                        13:18   TITLE INSURANCE OPTIONS AVAILABLE

You should investigate the following options:

(1) United States policies issued directly by Lawyers Title Insurance Corporation, Chicago Title Insurance Company, and First American Title Insurance Company, the top three title insurance companies in the US. These policies are issued only to US citizens or corporate entities, insuring their interest in Mexican land, and are governed by US law. The insurers have the duty to defend a title claim or suit brought in Mexico.

(2) Mexican policies issued by Grupo Nacional Provincial, S.A., (GNP  http://www.gnp.com.mx/Clientes/homegnp.nsf), Mexico's oldest insurance company and reinsured by either Lawyers Title Insurance Corporation, Chicago Title Insurance Company, or First American Title Insurance Company.

These policies are legally available title insurance products sanctioned and approved for use by the Mexican government for Mexican corporate entities (domestic or foreign owned), or Mexican Nationals desiring to have the validity and priority of their interest in Mexican real property insured.

These policies are also available to citizens and corporations of the United States and other countries. U.S. insureds obtain a direct access endorsement permitting presentment of a claim directly to the U.S. reinsurers making the English language version of the policy conclusive as to the rights of the parties.

                          13:19  COVERAGE

With either option protection is provided against loss from defects in title unknown to the insured prior to the date of the policy, which were not otherwise stated in the policy. This is regardless of whether the loss results from errors in the Public Registry, errors in the search of the Public Registry or any other cause. Coverage continues for the duration of time that the insured holds its interest in the real property.

                           13:20  TITLE REVIEW

v      Policies are based on a title examination and legal opinion of title, which typically include a review of:

v      The Property's title documents ("Escrituras") for a period of no less than fifty years,

v      The property's file at the local Public Registry of Property ("Registro Publico de Propiedad"),

v      The Certificate of Freedom From Liens and Encumbrances ("Certificado de Libertad de Gravamenes") issued by the Public Registry of Property,

v      A legal opinion of title by an approved law firm,

v      Research of the Notarial Archives and Archives of the Secretary of Agrarian Reform (where appropriate  http://www.pa.gob.mx/)

v      A physical inspection of the property (where appropriate), and

v      The "Escritura" (Conveyance or Mortgage document) prepared by the Notario publico.

v      The opinion and delivery of a title commitment typically takes 40 days.

                         

                          13:21  FREQUENTLY ASKED QUESTIONS

                          The following are a number of questions and answers concerning the      

                           policies:

Q: Is the policy coverage the same as the coverage of the American Land Title Association (ALTA) policies?

A: The object in developing this policy was to give the customer coverage as close to that afforded by the ALTA owner and loan policies, as is permitted by the requirements of Mexican real property law and insurance law. The format of the policy and the "fine print" elements of the Conditions and Stipulations were kept as close as possible to those appearing in the ALTA policies with which U.S. customers are familiar.

Q: In what respect does the policy differ from the ALTA policies?

A: The most obvious differences found in the Mexican policy are the following:

The insuring clauses of the policy do not automatically include the insurance of "marketability" or of access to the property. The term "marketability" is peculiar to common law jurisdictions and is not found in Mexican law. That is, sellers and borrowers in Mexico do not offer to provide "marketable title".

If it is critical to the purchaser or lender obtaining this policy to know that they can obtain similar insurance on the next transaction, a special endorsement to the policy is available. The question of access is simply more difficult to evaluate in Mexico than it is in the U.S. so this coverage is not automatically included in the policy.

If particular access is an important element of the transaction, special searches can be made and an endorsement can be added to the policy covering access.

The general coverage of the insuring clauses insures against loss arising from various matters, which appear in the Public Registry of Property. That is, the ALTA style policies are not exactly the coverage afforded by the ALTA policy, but rather, are more similar to that afforded by policies available in many parts of the U.S. which insure "recorded title".

Others are peculiar to Mexican law such as unrecorded land use agreements or the claim for unpaid water bills. In Mexico, the practice is to have these matters disposed of or explored by local counsel or by the notario publico as part of the closing. If the transaction involves specific issues of this kind, endorsements can be made available to cover more of these risks.

The standard policy terms afford coverage over the unique risk created by laws in Mexico dealing with agricultural reform and referred to as "ejido rights". The evaluation of this risk is important in every transaction and it requires special searches and legal analysis.

The policy also contains a number of exceptions or exclusions from coverage not found in the standard ALTA policy but which arise from the requirements of Mexican real property law. For example, under the Mexican constitution, all subsurface mineral rights belong to the federal government, not to the landowner, so the purchaser, in effect, gets what would be termed in the U.S. a "surface estate."

Q: How flexible is the ALTA style policy?

A: As indicated above, endorsements can be drafted to be attached to the policy giving a variety of special coverages appropriate to the transaction.

Q: How does the ALTA style policy compare to the offshore indemnity policies offered by other U.S. title insurance companies?

A: The policy coverage is virtually identical to the offshore policies currently being offered by other U.S. title companies involving property in Mexico. The one major and critical difference is the involvement of a Mexican insurance company.

Under Mexican law, it is illegal for a Mexican person or a Mexican entity (such as the Mexican subsidiary of a U.S. investor or a Mexican bank holding property in trust for an U.S. investor) to obtain insurance outside of Mexico if that insurance is available from a Mexican company.

U.S. companies operating on an "off-shore" basis try to insulate all elements of the transaction so as to avoid having any immediate contact with Mexican companies or individuals.

The theory behind this approach is that if the insurance contract is issued in the U.S. to an U.S. investor the question of compliance with Mexican law should not be material. Since the obvious purpose of this approach is to provide indirect coverage to for the Mexican entity, it is not clear whether the Mexican authorities will view this as a violation of the Mexican insurance law.

                           13:22  TITLE POLICY ISSUANCE

To initiate an order, an Application for Title should be completed and returned together with all requested title documents.

After evaluating the Application Form and title documents, title insurance premium quotes will be provided to the proposed insured in an "Order Form for Title Insurance" along with the estimated legal opinion of title fee, the applicable Mexican Value Added Tax (IVA) assessed by the Mexican government (for Mexican policies only), and a 10% non-refundable Order Deposit.

The Order Deposit will be applied to the Title Premium due, provided that a Policy is issued within six (6) months from acceptance by the Insurance Company of the Application form.

Upon receipt of the signed "Order Form for Title Insurance" the Application Fee and estimated legal fees the attorneys will undertake examination of title.

Once the "Legal Opinion of Title" form has been received and examined the proposed insured will receive a Commitment for Title Insurance with a set term (usually 180 days). Should the legal opinion reveal any title defects, said details will be disclosed in the Commitment for Title Insurance as exceptions to coverage.

 It will be the proposed insured's responsibility to either, (1) clear the title, (2) accept title with an exception in the policy, or (3) decide not to go forward with the transaction. The same attorneys may be able to provide assistance in clearing title problems for an additional fee.

Following the closing of the transaction (Escrituracion), the proposed insured must provide the company with a copy of the executed property deed (Escritura) that has been filed and recorded with the Registro Publico.

 Also needed is a Certificate of Freedom From Liens and Encumbrances as of the date the Escritura was recorded showing the property being registered in the name of the new ownership.  The filing and recording of the Escritura may take up to 90 days.

Upon payment of the full premium due plus any other fees and confirmation that no other adverse title matters have been disclosed, the Policy will be issued to the Insured.

                          13:23  THE NEED

Issuing title insurance on Mexican real estate can be expensive at present because title plants are only now being developed. Issuance requires an in-depth examination concerning tide documents, development permits, municipal approvals, paid taxes, plat and survey issues, recordation and registry compliance, along with the overall conveyance or "protocolization" procedure of the notario.

Often, a real estate agent or broker in Mexico may not tell a buyer about the availability of title insurance for Mexican property. Perhaps this is because they don’t think it necessary or the agent or broker is fearful that the transaction may be delayed because of a title company's requirements. Real estate professionals must remember that possession of the property does not necessarily mean good and recorded title to it.

                           13:24  INSURING FOREIGN INVESTMENTS

To issue a commitment and a title policy on Mexican land, Mexican counsel must render a title search and legal opinion. The opinion must describe a transfer history back to 1917, with copies of all documents in the chain of title. A copy of the certificate of no liens, a letter of no affectation and land use certification or municipal permits must also be furnished.

                           BUYING IN THE INTERIOR

If buying in the interior you will use an escritura publica deed. This is the history of the property and will indicate who is the legal owner. The direct Property Deed (Escritura Publica en Dominio Directo) is outright ownership of the property. The buyer is listed on the deed as the direct owner. There is no yearly or administration fee, as there is with a bank trust.

However, with a Direct Property Deed there is a one-time fee for each foreigner who is registered on the deed. The process of receiving permission for a direct deed from Relaciones Exteriores  (http://www.sre.gob.mx/) takes a minimum of two weeks and is taken care of by your notario publico of choice.

In some states, a beneficiary can be designated in a Direct Property Deed. Probate is not longer automatic with a Direct Property Deed and no will is necessary to pass on the property when the owner of record dies if a beneficiary is named. There is no "and/or" designation in a direct deed. For all property owners a Mexican will should be considered. A notario publico can help you structure your will.

                       

             14:00  RECOURSE

Consumer Protection Remedies and Procedures

When dealing with foreign investment in Mexican real estate, Mexican Law provides several different legal actions to compensate for possible fraud or other damage. The present document provides a brief description of one of these remedies: the consumer protection action pursuant to the Mexican Federal Law on Consumer Protection [Ley Federal de Proteccion al Consumidor, hereinafter Consumer Protection Law http://www.profeco.gob.mx/new/html/mjuridic/lfpc.htm>.

Injured parties must file a consumer protection action with the Mexican Federal Consumer Protection Agency [Procuraduria Federal de Protección al Consumidor, hereinafter ‘PROFECO   http://www.profeco.gob.mx/new/html/index.htm.

Complaints should be filed with the PROFECO office in which the property subject to the dispute is located. Alternatively, complaints may be filed in the jurisdiction in which the complaining party or the defendant is located (click here for PROFECO office in the States   http://www.profeco.gob.mx/new/html/delega/delmapa.htm.

In addition, PROFECO provides a specialized helpdesk   http://www.profeco.gob.mx/new/html/servcons/atencion_ext2.htm and complaint form   http://www.profeco.gob.mx/new/html/correo/formato_quejasi.htm for foreigners. Once a complaint is filed, PROFECO mediates and prosecutes the complaint against the mentioned party or parties for all actions covered under the Consumer Protection Law.

The Consumer Protection Law is designed to promote and protect consumer rights and to procure equity and legal certainty between consumers and commercial suppliers (these terms are defined below). Consequently, it provides actions exclusively to parties who purchased real property from a builder, developer or other institutional seller, or through a broker, agent or real estate professional. Parties injured in the purchase of real estate from another individual (non-commercial party) are precluded from using the Consumer Protection Law.

The Consumer Protection Law defines the term Consumer as an individual or corporation that acquires or enjoys property, products or services as the end-user and it defines the term Supplier as an individual or corporation that customary or periodically offers, distributes, sells, rents or concedes the use or enjoyment of property, products or services.

The following paragraphs summarize the complaint procedure, provide the steps required in the process and describe relevant features of the Consumer Protection Law:

Presentation and Content

·         Complaints may be presented in written form, oral form or any other suitable method accepted by PROFECO (e.g. facsimile, email, etc.).

·         Complaints must contain the following information:

·         Name and address of the complaining party;

·         Description of the defective property or inadequate service;

·         Brief explanation of the facts; and

·         Name and address of the supplier of the defective property or inadequate service as stated in the invoice or purchase contract.

Filing Location

·         In general terms, consumers may present claims with the PROFECO offices serving the following locations:

·         The location of the property subject to dispute;

·         The consumer’s residence; or

·         The supplier’s place of business.

          [Follow links to PROFECO offices in various states   http://www.profeco.gob.mx/new/html/delega/delmapa.htm.

Powers of Attorney

·         Consumers may file a compliant through a representative. In such cases, the representative must present a power of attorney signed before two witnesses. If the consumer is a corporation, the representative must present a power of attorney must signed before a Mexican Notary.

·         Consumers who are not fluent in Spanish must obtain a representative or translator.

Procedural Alternatives

·         Pursuant to the Consumer Protection Law, the parties to a consumer protection action may choose either conciliation or arbitration procedures.

·         If the parties chose conciliation, PROFECO will set a hearing date. This agency will then resolve the dispute pursuant to the best interests of the parties. The conciliation procedure may be performed by telephone or other suitable means of communication.

·         If the parties choose arbitration, PROFECO will act as an arbiter and summon the parties to a formal arbitration procedure. The agency will provide a ruling based on the evidence presented in the proceeding.

Procedural Steps

·         In general terms, the consumer complaint procedure follows the steps outlined below:

·         A consumer files a formal complaint with PROFECO;

·         PROFECO provides notice and summons to the supplier;

·         PROFECO sets a hearing date for a conciliation or arbitration;

·         Parties agree concerning procedure;

·         PROFECO provides conciliation measures or issues an arbitrage award;

[Note: If agreement is not reached, PROFECO may initiate an administrative procedure the verdict of which can result in economic sanction, incarceration or a ruling requiring the closing of a supplier’s business.]

Hearing Dates

·         In general terms, PROFECO will set hearing to commence 15 days after the supplier has been notified of the consumer complaint, although an extension may be requested by parties requiring extra time to prepare.

Cooperation with other Authorities

·         PROFECO has authority to request the cooperation of federal, state, and municipal authorities in the various phases of the complaint procedure, including requests for information necessary to identify and locate the supplier. Upon written request, such authorities must provide an answer within fifteen days.

Legal Claims

·         Although the consumer protection remedy does not require court involvement, it also does not preclude the buyer from employing court actions and other legal claims (e.g. breach of contract, misrepresentation, fraud, etc.) in seeking reparation.

         15:00  SUMMARY FOR AN EXCELLENT EXPERIENCE

When you have found the villa, lot or condo, which you want to buy, there are a series of choices that you have to make. The purpose of this list is to emphasize various decisions you should make as you go through the process.

1. You have found the property and now you are ready to make the offer. Someone will need to write the contract. It can be your agent, the buyer or seller or an attorney whom you hire. There are no standardized contracts and they will vary in content and completeness.

An offer to purchase can be a two-tired affair. There can be an "agreement to agree" followed by a binding agreement of sale. To be binding, the sales contract must have the signatures of the buyer and seller witnessed and the contract must be signed before a notary. The offer should be in Spanish with a courtesy English translation.

2. You as a foreigner are going to buy the property in a bank trust in coastal and border areas or a Mexican corporation (for non-residential investment real estate). The first option will be the most common. You have a choice of paying for a new trust, or in some cases assuming the existing one of the seller.

3. The custom in many areas (for example the states of Nayarit and Jalisco) is for the buyer to deposit 10% when there is an executed agreement. There is a wide variance here of how the deposit is handled.

There are title companies from the U.S. that are licensed to receive escrow deposits on Mexican property. The title companies may require that you take out title insurance and there is a fee to have the escrow account. In some cases, the deposit is in the form a cashier's check held by notary. Buy you should not assume that the notario publico serves the same functions as a title company or escrow officer in another country.

There are also Mexican banks with charters allowing them to establish escrow accounts. The funds are held in US dollars for the purpose of the sale. The use of escrow as we know it, has not been a common practice in Mexico.

4. Your contract needs to list the other items you want checked or provided before you close.

5. If you want a new survey of the land, you need to require it and expect to pay for it. Otherwise, the survey and legal description may be copied from the prior escritura, and may be wrong.

6. You, as a buyer, have the choice of  notario publico. Ask around to decide which notario publico you want to use. Many notario publico offices have a bi-lingual contact person on staff. You don't have to be in the dark and unable to communicate about the serious business of buying real estate.

7. The notario publico does a number of jobs in regard to the transfer of property. He does not do everything that you want or think important. Ask questions about what the notario publico job covers and does not cover in the transfer of property. "Assuming" will get you in trouble. You will need to provide the notario publico with the information he requires to start the permit and closing process. You will need to pay him a deposit, usually half of the estimated cost, to start the process.

8. The notario publico has to apply to Mexico City to the Foreign Affairs Department for a permit whether you are to establish a trust in a restricted zone or buy in the interior. A bank in Mexico will be named as the trustee of your property. The notario publico can give you recommendations of who is doing a good job and what the first year's trust fee charges will be.

You, the buyer are the primary beneficiary to the trust. You will also need to give the notario publico names of your substitute beneficiaries in case of your death, as this instrument becomes your will in the disposition of this real estate.

9. The notary's office will notify the parties when you are ready to close. You will need to pay at closing the balance of the closing costs due the notary. The total closing costs can be 5-10% of the purchase price, depending on the prices of the government fees and the amount of the transfer tax.

You will be working off of an estimated closing cost statement until you receive the final one, which should be current as of the day of closing. You should receive a formal receipt of payment from the notario publico for these expenses.

10. The seller will owe fees such as commissions, bank trust cancellation fees, and capital gains. If someone is on their toes, they will check to be sure that the seller is current with all utility payments.

If you have negotiated that the phone line in your purchase price, the seller will need to give you certain documentation to present to Telmex in order to get the line transferred. The notario publico may be required to verify that the water bill and property taxes have been paid.

A no-gravamen certificate should be provided which states there are no liens of record on the property. This certificate is good for only a short period of time, and can expire if the closing takes too long to be completed. A new one will need to be issued. The appraisal for tax purposes is good for a certain period of time only before it needs to be re-ordered.

11. At closing, the seller or his representative should sign the escritura in front of the notary, thereby transferring the property. There should be present a translator (provided by the notary) to explain what the escritura says. The buyer is not always required to be present or to sign at closing.

 If using a bank trust, until the bank trustees sign the escritura, the transfer is not complete and cannot be recorded. The seller expects the balance of his net proceeds to be given to him on closing. The disbursement letter is actually a consolidation of the buyer's money and the seller's expenses paid from these funds.

12. You or your representative will receive a copy of the new escritura at the notario’s office at closing. The completed, recorded escritura will take weeks or months to be returned, with the additional back pages of seals and signatures from the government authorities. Remember that the copy you receive from the notario's office at the signing is not the complete escritura

. The notario publico will hold the original deed at his office until you or someone, authorized by you in writing, receives the document. You should keep the original escritura in a safe place. You can have certified copies made to use when you have to conduct business that requires proof your Mexican residence.

13. If you own property in the interior of Mexico, an FM3 visa  (http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm) will establish the property as your declared residence. To meet the requirements for avoidance of capital gains when selling, you must have an FM3 or FM2 with the address of your residence, listed as your Mexican residence.

14. Be sure you pay your taxes every January and any bank trust fee the month it becomes due. The date on the escritura establishes the date when the yearly fee is due and payable. Don't expect to receive a bill in the mail to remind you to pay either of these fees. It is your responsibility to go to the tax office or bank and make your payment.

15. Renew your FM3 every year in order to keep your permanent residency rights.

Common Sense:

v      You should ask around to find out WHO has already bought property in the area you are interested in and has had good experience including, of course, the fact that they already have their papers in order.

v      If you don't meet anyone, go to your government representative (US or Canadian), who should know about the "good and bad" people.

v      If your "countryman", the one that tries to sell you the property and the one you trust (because he speaks your language), does not speak Spanish, chances are that he/she has NO idea about the laws, bank trusts, etc., etc., and, consequently, you may end up in trouble.

v      That, of course, does not mean that a Mexican that sells Real Estate, just by the fact that he/she speaks Spanish, has to be reliable. Check again with your friends, acquaintances or representatives.

v      You should know that a Notario publico in Mexico has to be an Attorney at Law. That, of course, does not mean that he/she has to be 100% trustworthy and reliable. Again: ask around!

v      Check out the bank with which you're going to sign the Bank Trust. Though all the banks should apply the same laws in the same ways, some are more "flexible" that others with some of the laws, which may lead to problems later on with the Mexican Government. Besides, not all of them charge the same fees and not all give the same service. Keep checking and asking!

v      Keep in mind that you're investing your money so that you should also check the finances of the building (especially if it's a condo) you are buying into, as well as the Administrator, the people on the Board of Directors or Vigilance Committee. Many of the problems that many owners have now are due to the fact that they never did that.

There are very few consumer protection laws here. You buy a house "as is". There are no disclosure requirements. There are no mandatory inspections. Get the picture? You are responsible to become an informed buyer. Don’t count on your Realtor to point out any of the negatives. We all learn painful lessons through this process. Do your homework! And, be ready to accept the fact that you’ll learn as you go. Don’t let a few surprises sour your attitude. It’s a beautiful country with kind people. Just be careful and get good help.

 

APPENDIX A

Internet Sites OF INTEREST – GENERAL INTEREST

Thanks largely to La Red (the Web), Mexico is no longer the tierra incognita it used to be. On the other hand, sorting the best websites and online resources from the chaff can be a frustrating, time-consuming task. For example, enter the term “Mexico” in the average search engine, and you’ll have to sort through at least 234,876 “hits”, some offering real estate in the state of “New Mexico”.

To help you narrow your search down, we have listed some of our favorite web sites . Keeping up with new and changed websites is a major task, however, so your suggestions are appreciated -- don’t be shy; if your own website, or one of your personal favorites isn’t mentioned, let us know.

General Information

MexConnect, <http://www.mexconnect.com>. This site and @migo (Mexico OnLine) <http://www.mexonline.com> are among the oldest and most reliable sources of information on Mexico.


Consulate General of Mexico in New York, <http://www.quicklink.com/mexico/ingles/ing.htm>. Compared to most “official” government websites, this one is definitely worth a second look.

Free Time, “tiempo libre,” <http://www.tiempolibre.com.mx/>.
Mexico City centered.  A weekly “lifestyles” online magazine, in Spanish, with articles on movies, books, dance, music, tourism, nightlife and so on. This is an excellent place to casually hone your Spanish skills.


University of Texas, <http://www.lanic.utexas.edu>. "Superb site with links to everything about
Latin America -- arts and humanities, discussion grouups, magazines, popular culture -- not just the academic areas."  It also has links to Mexican Telephone Yellow Pages and Mexican Zip Codes

Mexican Government Information, < http://serpiente.dgsca.unam.mx/indices/mexico.htm />. A Spanish-only site loaded with official documents, links and many dry but useful resources.

 

Excite Travel, Mexico, <http://city.net/countries/mexico/>. Enough travel and information resource links on Mexico and Latin America to overload a Cray Super Computer. Open the institutional size bag of tortilla chips before you visit this one....

Latin America on the Net, <http://www.latinworld.com/norte/mexico/>. Extensive links to Mexican magazines, media and personal web pages in Spanish and English. A genuine cyber-crapshoot.

Nerd World: TRAVEL, <http://www.nerdworld.com/travel.html>. With a name like “Nerd World” these guys just have to over-compensate by putting up a very good website. I especially enjoy their off-the-wall
Mexico links: including the Tijuana's Industrial Park, the Catholic Church of Yucatan and Fernando’s Home Page. A quick pass at this link-filled site is worth a thousand words.

Weather

Weather Underground: Mexico: <http://www.wunderground.com/global/MX.html>
Current weather conditions for a long list of Mexican cities. Use the handy 'add' button to include any city on your personal weather favorites page.

The Best of Mexico

Baja California Information Pages, <http://math.ucr.edu/~ftm/baja.html#TOP>. This is my kind of site: straightforward, no frills, with lots of well organized, well researched information. Includes road, weather, gas station reports, bus info, hotels, books, tides and so forth. The site is heroically maintained as a non-commercial public service by Fred Metcalf. Well done!

Guide to Mulege and Concepcion Bay Mexico, <http://www.baja-web.com>. Excellent Baja resources, with “high grade” links to equally good Baja sites.(Vee Weber says this site "has grown
to be a monster site of information about all of Baja.")

Mazatlan, <http://www.mazcity.com.mx/> and another Mazatlan site <http://www.maztravel.com/>.

Mexico's Lake Chapala & Ajijic: The Insiders guide to the Northshore for International Travelers. With contributions from experts in anthropology, natural history, language and culture, author and Ajijic resident Teresa Kendrick presents a description of Lake Chapala and its popular tourist and retirement communities that is broad in scope yet also quite detailed.... (Full Review) by Carl Franz

Mexconnect <http://www.mexconnect.com>.


Ajijic, Lake Chapala, Guadalajara, <http://www.ajijic.com/default.htm>.

Puerto Vallarta

•Dave's Puerto Vallarta Site: http://www.mts.net/~dcdonahu/

Puerto Vallarta Mexico Access: http://www.accessmexico.com/

http://www.virtualvallarta.com

Oaxaca, Pacific Coast of Mexico, <http://www.eden.com/~tomzap/> Tom Penick covers hotels, travel, food, surfing, snorkeling, scuba diving, fish, turtles, history, native dances and the Spanish language. Information is also available on the beach towns of Jalisco.

Oaxaca, State Tourist Guide, < http://oaxaca-travel.com/>. This tourist-oriented site manages to overcome its “official” nature and provides some interesting and useful information as well as a good link list: mezcal distillers, folk art, tours, articles, orphanage, museums and more.

San Cristobal Las Casas, Chiapas, <http://www.sancristobal.podernet.com/>. A good community resource site with info on schools, hotels, local newspapers, services, cybercafes, tour operators, airlines, etc.


Mexico Health Profile, <http://www.paho.org/english/mexico.htm>. Information and statistics of special interest to health professionals and traveling hypochondriacs.

 

Magic Bus, <http://www.magic-bus.com/> Mexico & Central America, Bus & Travel Information. A fun home grown site on bus travel in Mexico by Steve... with lots of little tips that he's obviously picked up while traveling the back roads of Mexico by bus.

RV & Camping

RV'ers Online, <http://www.rversonline.org/index.shtml> Rv'ers Online is a treasure house of information about the RV'ing lifestyle. Hundreds of pages of information list how-to projects, free camping places, and just about every conceivable aspect of owning and enjoying an RV (Peoples Guide correspondent David Eidell has a mini-series on RV'ing in Mexico at RV'ers Online), and enthusiatically endorses this non-profit site.

Mexico’s National Parks (GORP), <http://www.gorp.com/gorp/location/latamer/Mexico/pks_intr.htm>.

 

Spanish

The Spanish Language Home Page, <http://www.el-castellano.com/>. A treasure trove for Spanish students, educators, translators and travelers, with links to online dictionaries, language courses, newspapers and literature.

Learn Spanish, <http://www.lingolex.com/spanish.htm>. Useful expressions, live “Espanglish Chat," lots of links to very useful Spanish resources, bookshop and more.

Language Link, <http://www.langlink.com/>, (800) 552-2051. A very reliable broker for academic Spanish programs and language schools in Guatemala, Mexico, Costa Rica, Ecuador, Peru and Spain. Kay Rafool is also an enthusiastic People’s Guide reader and has given us many valuable suggestions.

NRCSA - The National Registration Center For Study Abroad, <http://www.nrcsa.com/>, (414) 278-7410. One of the oldest, largest and most respected booking services for language schools around the world. Includes Spanish, Mayan and Garifuna.

AmeriSpan, <http://www.amerispan.com/>, (800) 879-6640. Spanish immersion and educational travel programs throughout
Mexico and Latin America.

Latin America Traveler, <http://www.goodnet.com/~crowdpub/>. “A
Latin America travel and Spanish language school resource, with a subscription-only newsletter.


Mexican Culture

Indigenous Peoples of Mexico, <http://www.indians.org/welker/mex_main.htm>. Native American traditions, history, art and literature presented by tribe as well as by geographical region.

Mariachis, <http://www.oocities.org/~puro_mariachi/>. This is it! Your all-in-one site for mariachi music, including lyrics, performance dates, history, books, CDs and so forth.

Mexican Dance, Music, Art & Culture Web Sites, <http://www.alegria.org/mxother.html>. A feast of Mexican dance companies, folk dance information and discussion, regional dances, plus links to music, art and culture sites.

 

Internet Sites OF INTEREST – MEXICAN LAW

Electronic Guide to Mexican Law:  a very fine overview of the Mexican legal system that includes a host of links to Mexican legislation, government branches, and offices.  http://www.llrx.com/features/mexican.htm

Mexican Laws in English:  A good collection of Mexican laws in English.  However, this is not a free site.  http://www.mexonline.com/mexicanlaws.htm

National Law Center for Inter-American Free Trade:  this is the best Internet resource for obtaining Mexican legal materials in English; however, many English translations are available only by purchase.  http://www.natlaw.com/index.htm

Consulate General of Mexico in New York:  www.consulmexny.org

Mexican Law:  maintained by Professor Jorge A. Vargas of the University of San Diego School of Law, this site provides contains a brief treatise on Mexican law, brief synopses of major commercial and business laws and recent developments in Mexican law in the areas of business, investment, and international trade, and links to other areas of Mexican law.  www.mexlaw.com

Law Library of Congress: Mexico:  A great site including governmental materials in both English and Spanish, as well as a host of links.   http://www.loc.gov/law/guide/mexico.html

Internet Law Library: Laws of Other Nations: Mexico: http://www.priweb.com/internetlawlib/74.htm

Mexico Online:  A basic overview of the Mexican legal system.  www.mexonline.com

Department of State:  Office of Mexican Affairs:  Official site of the U.S. State Department.  http://www.state.gov/www/regions/wha/mexico_index.html

 

 

 

                   APPENDIX B

THE FOREIGN INVESTMENT LAW OF 1993

As of December 28, 1993, the official date of its entering into force
Mexico has a new federal statute applicable to foreign investments in
that country.  The Foreign Investment Act appears twenty years after
Mexico's enactment of its very first formal statute to regulate,
systematize and codify the rules and legal principles on this matter: 
the "Act to Promote Mexican Investment and Regulate Foreign Investment"
of 1973, now repealed by the new statute.
 
Composed of 39 articles and 11 transitories, the new Foreign Investment
Act provides that until the regulations to this Act are promulgated a
legislative effort which is expected to take about a year the
Regulations to the 1973 Act "shall continue to be in force in everything
not opposing" the new Act. From a legal perspective, the new Act
maintains a very close symmetry both in format and content with the 1989
Regulations.
 
The new Foreign Investment Act does not constitute an isolated legal
phenomenon.  It should be placed within the context of the overall
modernization policies advanced in that nation by the current
administration of President Carlos Salinas de Gortari, in particular in
the economic, legal and international trade areas.  The reader should be
informed, for instance, that the legislative bill of the new Act was
sent to Congress as part of a package containing some fifteen domestic
laws including, inter alia, a decree revising the provisions of several
federal statutes to put them in accordance with the North American Free
Trade Agreement.
 
In the official statement that President Salinas sent to the Federal
Congress accompanying his legislative bill, he expressed:
 
The purpose of this bill for a Foreign Investment Act is to establish a
new legal framework which, in full compliance with the Constitution,
promotes competitiveness in the country, provides legal certainty to
foreign investment in Mexico and establishes clear rules to channel
international capital to productive activities.
 
This Presidential statement underscored the fact that during his
administration the accrued foreign investment was higher than 34 billion
dollars, clearly exceeding the goal of 24 billion dollars originally
proposed for his entire constitutionally established six-year term. 
Having received about ten billion dollars during the first ten months of
1993, President Salinas reported to Congress that the historic balance
of foreign investment in Mexico amounted to some sixty billion dollars. 
Out of this total, he stated, the United States and Canada participated
with 65 percent, the EEC with 19 percent, Latin America with 8 percent
and Asia with over 2 percent. Foreign investment in Mexico has been
channeled to the manufacturing sector (30%), transportation and
communications (24%) and financial services (16%).
 
Furthermore, in his statement President Salinas indicated that according
to the International Monetary Fund, Mexico in 1991 was positioned as the
eighth nation receiving foreign investment at the global level and the
first among developing countries.  He also mentioned that, according to
the U.S. Department of Commerce, Mexico climbed from the seventh to the
second position in the general table of countries receiving investment
from the United States.
 
Contrary to the 1973 Act, the new statute embraces a number of
innovative features, such as: (a) it liberalizes the access to and the
participation of foreign investment to Mexico, streamlining and
expediting the corresponding administrative procedures;  (b) rather than
erecting obstacles to foreign investment, the new Act adopts a clear
promotional attitude aimed at attracting foreign capital to that
country;  (c) it eliminates the imposition of "performance requirements"
upon foreign investors, thus reducing to a minimum the exercise of
discretionary powers from Mexican authorities;  (d) given the benefits
created in favor of foreign investors, the new Act preserves the so-
called "neutral investment", an elastic notion created by the 1989
Regulations; and  (e) the new statute details the functions of the
National Registry of Foreign Investments, in an attempt to avoid the
numerous difficulties and confusions introduced in this area by the
preceding 1973 Act.
 
The new Foreign Investment Act of 1993 formally codifies in a federal
statute the novel legal regime created in this area by the 1989
Regulations.  It appears that the ultimate objective of the government
of Mexico was to dispel the serious concerns raised some time ago by
certain countries, in particular Japan, regarding the fact that the
novel legal regime established by the 1989 Regulations clearly favoring
the attraction of foreign investments may be unconstitutional for being
in violation of the 1973 Act or legally questionable for not having the
force of a federal statute.  Furthermore, the new Act is considered to
be in legal symmetry with the North American Free Trade Agreement in
according national treatment to most areas of foreign investment, save
the specific reservations made in its recently enacted text.
 
The major legal components of Mexico's new Foreign Investment Act of
1993 may be summarized as follows:
 
1.  A number of "strategic areas" (e.g., petroleum, electricity,
railroads, radioactive minerals, etc.) continue to be exclusively
reserved to the government of Mexico, while other important economic
activities (e.g., national ground transportation services, retail
gasoline sales, non-cable T.V. and radio, development banks, credit
unions, etc.) continue to be reserved to Mexican nationals only or to
Mexican corporations with an Exclusion of Foreigners Clause.
 
2.  Minority foreign ownership, ranging from 10% up to 49%, is allowed
in certain economic activities subject to "specific regulations",
without having to obtain a favorable resolution of the National
Commission of Foreign Investments.  Previously reserved to Mexican
nationals, some of these activities include domestic air transportation,
cable TV, fishing, insurance, money exchange houses, shipping, railroad
related services, etc.
 
3.  The new Act requires a favorable resolution of the National
Commission of Foreign Investments for foreign investment to participate
in a larger percentage than 49% in certain economic activities (e.g.,
port and shipping services, air traffic terminals, cellular telephones,
etc.).
 
4.  The new Act establishes more precise regulations (i) for the
acquisition of immovable assets in the national territory by Mexican
corporations with an Exclusion of Foreigners Clause and (2) for the
creation of trusts in the Restricted Zone for the benefit of Mexican
corporations with an Exclusion of Foreigners Clause, foreign natural
persons or foreign legal entities with the Calvo Clause, for residential
and non-residential uses.  Unlike the 1989 Regulations which established
a thirty-year period for the duration of these trusts, the new Act
provides a maximum of fifty years for the beneficiary use of these
trusts, to be extended at the request of the interested party.
 
5.  The new Act enlarged the membership of the National Commission of
Foreign Investments from seven to nine members of the Cabinet, detailing
its functions and operations. It is expected that this Commission
through its "General Resolutions", is likely to continue to play a
decisive role on key aspects of foreign investment matters.