LIVING
BETTER – RENTING – BUYING – BUILDING – BUYING MEXICAN PROPERTY – REAL ESTATE PROFESSIONALS - FINDING YOURS – HOW MUCH – NEGOTIATING – OWNERSHIP – FINANCING – CLOSING – TITLE INSURANCE – RECOURSE – SUMMARY - RESOURCES
The Forbes-Douglas 2003
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
Retirement in
If you are researching retirement
in
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
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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
§
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
§
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
§
Financing the Purchase of
Property in Mexico A discussion of an areas in which the Mexican context is very different
from the
§
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
1:22 WHAT THE 1917 MEXICAN CONSTITUTION SAYS
4:70 OWNERSHIP CONCLUSION
CESION DE
DERECHOS FIDEICOMISARIOS
12:60 ESCROW AND EARNEST
MONEY
12:70 RECORDING YOUR
ESCRITURA PUBLICA
APPENDICES: a. Internet Resources
Enjoying the
Mexican beachfront or colonial hillside town, you've decided to put down roots
in
You hear the
story again and again in
Destinations
include:
The perennially spring-like
http://www.ajijic-chapala.com/ ,
The Nayarit coast and
http://www.banderasbayregatta.com/about.html
http://www.dcarealty.com/banderasbay.htm
Historic, cobblestoned San Miguel de
Allende about 130 miles north of
http://www.internetsanmiguel.com,
http://www.san-miguel-house-rentals.com
http://www.sanmiguelguide.com/),
Upscale
http://www.vallarta-adventures.com/
Clubby Cabo San Lucas at the southern
tip of the
http://www.loscabos-tourism.com/cabo/
The Costa Maya,
http://www.allaboutcancun.com/
http://www.cancunpropertiesonline.com/,
http://www.casablancayucatan.com/)
http://www.tourbymexico.com/morelos/cvca/cvcafram.htm
http://creativeartsmx.itgo.com/
http://www.allaboutmazatlan.com/
The http://www.allaboutmazatlan.com/ south of
Jalisco,
http://www.alexandratravel.com/oaxaca/pac_lands.html
http://oaxacalive.com/askmaria/messages/2744.html
Puerto Penasco (Rocky Point) in
http://www.puerto-penasco.com/
http://www.rockypointmexico.com
http://www.penasco.com/mexico.html
and
http://www.sancarlosmexico.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
Seven million
North Americans travel to
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.
Purchasing
real estate in
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
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
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
Foreign
purchasers should be aware of the same basic issues that any prudent buyer
would consider when acquiring real estate in the
AS in the
If you are
thinking about buying property, consider renting first to see if
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
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
At
the present time there is no general use of title
insurance in
Property
insurance is available in
In the past,
real estate transactions in
Business
deals are processed
slowly in
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
The Mexican
peso is expected to remain stable. Couple this with continued
foreign-investment law reforms and
Most
real estate transactions in
Another consideration: can the property you are thinking of buying, be readily
sold should you decide to return to the
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
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
.
You will find
that you will enjoy your ownership more if you take the time to learn how to
source reliable information.
Article 27 of
While
only citizens and nationals of
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
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
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.
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
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,
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.
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
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
The
Constitution proclaimed that all land in
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
You have
decided on a long-term residence in some enchanting area of
Renting allows
you to try first and then decide.
There
are many unique areas in which to live in
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
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
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
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.
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.
In 1993, the
law regarding leases in
As each state
in
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.
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
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.
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.
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
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.
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.
The steps in
buying a lot and building a home in
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).
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
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
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.
It is
sometimes now possible to mortgage a home in
In recent
years, American and European builders have come to
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.
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 "
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.
In the past, if an American
company or individual received rental income from real estate located in
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
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
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.
Even as a
tourist you may buy real estate in
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.
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
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.
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
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
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
Foreigners are
granted the right to own real property in
The real
property conveyance process in
Their
acknowledgment and certification procedure provides "judicial
certainty" to the authenticity of the process. The
land conveyance and notarial system in
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.
The process of
buying real estate in
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.
This is beginning to change. In
addition to numerous homegrown realty companies, there are several recognizable
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.
·
Non-Restricted Zone: Foreigners may directly own real
property located in the interior of
·
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.
·
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
·
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.
·
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
·
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
·
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
·
Market Valuation: Buyers may contract an
·
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
·
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.
\
·
Negotiability of Costs: Closing
costs in
·
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.
v
Bank Financing: Real estate financing in
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
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
9. Purchasing
real estate within the coastal areas of
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
The
real estate industry in
The only
national professional real estate organization in
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
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 (
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.
Ideally,
buyers should expect and require that any real estate professional hired to
assist with the acquisition of property in
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.
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.
Ultimately, foreign buyers get to the point where they are
ready to have the transaction consummated and take title
to the property. In
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.
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
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
In
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
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
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
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
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
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.
For
additional assurance that your interests are being protected, it is often
advisable to hire your own lawyer. However, different from the
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!
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
A TYPICAL STATE SUBDIVISION REGIME-SONORA
(http://www.cgeson.gob.mx/servicios/leyes/Norm)
For developing
subdivisions in
There
follows here the process in the State of
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
In the case of
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
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
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
Although
development considerations continue to improve in
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.
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
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.
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.
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
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
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
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
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
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.
A very
important part of the home search process is determining the value of a
prospective purchase. It is helpful for newcomers to
In many areas
of the world, the appraised Tax Value (Catastro) is the same as the Commercial
Value (selling price). In
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
Because homes in
Another way of
determining the Commercial Value of a property is to look at a rental
income/sales price ratio. Common in the
In
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
1 METER = 3.3
FEET
1 SQUARE METER
= 10.76 SQUARE FEET
1 HECTARE =
2.4 ACRES
1 ACRE = 4100
SQUARE METE
VARIABLES:
A
(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
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,
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.
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
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
COURTESY
In negotiating
for real estate or any other arrangement in
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
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
Like
many transactions in
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
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
POSSIBLE TITLE
DEFECTS
The
land registration and title certification process in
Moreover, little if no legal recourse is afforded the purchasing
public against the public notario publico who closes all real estate
transactions in
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.
When you buy
property outside of the Restricted Zone, meaning any other place within the
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.
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,
1. It
encourages the flow of foreign capital into
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..
Any
foreigner or Mexican National can constitute a Fideicomiso through a Mexican
bank in order to purchase real estate anywhere in
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
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!
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
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.
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
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
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
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
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 Q: What about condominiums or houses located in 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 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 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. |
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.
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
THE FUTURE
The future of
financing in
For
now, real estate transactions in
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
The promise to
pay is considered to have originated in the
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.
You may be
present at the closing transaction or do it through an agent with
representation (power of attorney valid according to Mexican laws).
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
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.
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
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
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
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
Most real estate transactions in
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.
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.
Keep in mind
that SPANISH is the OFFICIAL language of
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
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.
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
PRE-AGREEMENT
CHECKLIST FOR BUYER IN
1. Understand and
follow the Mexican law concerning real estate purchases.
2. Obtain the advice and services of a
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
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
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
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.
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".
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
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.
Since
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.
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.
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
(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
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
Two such terms
are escrow and earnest money deposits (depositos condicionales). In the
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
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
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
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
The North
American Free Trade Agreement (NAFTA) and the Foreign Investment Law (FIL) in
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.
The land
registration, property recordation and title certification process in
Title searches
in
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
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
Title policies
are becoming available on real estate in
Little or no legal help is provided to the
purchasing public against the notario publico who closes all real estate
transactions or against
A title
insurance policy issued on property located in
During the
next several years, the title insurance industry should expand its importance
in
Title
insurance will rapidly increase the flow of foreign capital into the country
and will help contribute to
Title
insurance in
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
Title
insurance is in its infancy in
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
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
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.
A
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
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 (
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,
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
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
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
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
Both
types of policies insure commercial and residential properties throughout
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.
(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
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
(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
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.
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.
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
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
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
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
Others are
peculiar to Mexican law such as unrecorded land use agreements or the claim for
unpaid water bills. In
The standard
policy terms afford coverage over the unique risk created by laws in
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
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
A: The policy
coverage is virtually identical to the offshore policies currently being
offered by other
Under Mexican
law, it is illegal for a Mexican person or a Mexican entity (such as the
Mexican subsidiary of a
The theory
behind this approach is that if the insurance contract is issued in the
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.
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
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.
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.
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
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
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
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
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),
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
•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/>.
•University of
Texas,
<http://www.lanic.utexas.edu>. "Superb site with
links to everything about
•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
•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
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
•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>.
•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/>
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
•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
•Latin America Traveler,
<http://www.goodnet.com/~crowdpub/>. “A
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
Consulate
General of
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:
Internet
Law Library: Laws of Other Nations:
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