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How to buy in Mexico?

Under the Mexican constitution, foreigners are not allowed to acquire property title in a direct way within the restricted zone, which is the area defined as being within 50 kilometers along coastline and 100 kilometers along borders.

This is by no means a definite restriction that avoids foreigners from enjoying property in Mexico. The Mexican Congress has implemented a system which by means of a Mexican banks foreigners to 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. The preceding makes it possible for foreigners to have same rights as direct owners of a property.

Fideicomiso (TRUST) is a contract binding between two or more parties that include a Mexican bank to provide security and clarity to the fulfillment of its agreements.

Any Foreigner or Mexican can constitute a Fideicomiso (equivalent to a Beneficial Trust), in order to purchase Real Estate in Mexico, including property inside the Restricted Zone. The buyer will hire a Mexican bank to act as a trustee on her/his behalf.

The Fideicomiso is established for a 50 year renewable period. During this period the Bank becomes the legal owner of the property all to the exclusive administration for the benefit of the Buyer/Beneficiary, who will have the use and possession of the property at all times. The foreigner may live on the property undertaking any alterations and/or improvements and at the same time having the ability to instruct the Bank on mortgaging, renting, selling or transfer the title of the property to another individual or corporation. The Fideicomiso can be used as a form of will for the property acquired in Mexico due that the law allows the foreigner to assign secondary beneficiaries in case of death. During this period, the Foreigner is able apply for a Mexican residence or FM3 visa.

The Bank (Trustee) is responsible for the Buyer/Beneficiary to ensure precise fulfillment of the trust in accordance to Mexican Law, assuming full technical, legal and administrative supervision in order to protect the interests of the Buyer/Beneficiary. Note: The property held in a Fideicomiso (bank Trust) is not considered an asset of the Bank at any time. The Bank only does what it is told by the owner (beneficiary).

For practical purposes, even in unrestricted zones many Foreigners and Mexicans, for that matter, prefer to hold their Real Estate under a Fideicomiso.

Procedure

As a buyer you provide the bank with the following information:

  • Copy of the Real Estate title or deed indicating the exact surface area and boundaries.
  • Blue prints of the property.
  • Name of the beneficiary or beneficiaries, nationality, address and phone number.
  • The agreed purchase price.

Upon receiving the information and documents, the bank will present an application for a Trust permit at the Foreign Affairs Ministry. Once obtained, the Trust Contract is executed and legalized before a Public Notary.

A Public Notary is an attorney at law that has been entrusted with public faith by the Mexican government to attest specific legal transactions and is the only one authorized by the Mexican Government to formalize title transfer procedures in his book of records called Protocolos. The resulting documents are then registered at the Public Registry of Property and Commerce of the State, giving legal evidence of the title under the buyer’s name.

If you sell the property to another foreigner, you may assign your beneficial interest to the new purchaser. The assignment of rights must be formalized before a Mexican Public Notary prior to the federal and local taxes and fees payments that arise from the transfer of beneficial rights.

In all cases the Buyer/Beneficiary must pay all fees, taxes and expenses from the purchase and formalization of the Trust Deed before the Mexican Public Notary, including in these the costs of the permit that must be obtained from the Ministry of Foreign Affairs and registering the Trust Deed at the National Registry of Foreign Investments.

In the event of the Beneficiary’s death during the Trust’s span, the beneficiary has the right to appoint a substitute Beneficiary or Beneficiaries; these would acquire all rights and obligations stemming from the Trust Contract.

Through such designation the foreigner’s heirs will never need to follow any probate proceedings before any Mexican Courts that could cost time and legal fees. They would only need to present the death certificate and identifications to the bank, which in turn would give instructions to a Public Notary in order to register the heirs as the new owners (Beneficiaries) of the Trust Contract.

Mexican Corporations

This is another way to invest in Mexico: Forming a Mexican corporation. This option is only for industrial or commercial purposes and it is not for residential purposes.

This process is not complicated and allows you to sponsor yourself to work in the country as well. In the last several years, this formula has become popular because with the help of an attorney or accountant you can create a Mexican corporation that will be the owner of the Real Estate, without the need of a Bank Trust.

Mortgages

Due to the influence of the Real Estate industry in Mexico, mortgage capital is now being made available to Americans acquiring property in Mexican resort destinations.

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. Likewise, Mexican banks have not entered into this 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.

This situation dramatically changed since 2006. There are now more than four American mortgage firms offering financing for values up to 70% of the appraised trust amount. Interest rates vary yet most are between 2% and 3% above the prevailing U.S.

The trust is in itself sufficient, collateral with a simple notation made on the Mexican trust to protect the lender.

The introduction of mortgage capital shows a vote of confidence for Mexican resort destinations.

Property values in these areas have shown stability, reason why condominium prices have risen an average of 5% a year, even more with the possible introduction of legalized gambling soon, market conditions are favorable for an increased investment.

There are 7 million North Americans who travel to Mexico every year. Of that number, figures indicate that there are as many as 400,000 Americans and Canadians who have retired to Mexico; be it on a full time or part time basis. Most tend to congregate in the Puerto Vallarta, Riviera Maya, Lake Chapala and Los Cabos areas.

Closing Costs

Closing costs for a purchase in Mexico are between 7% to 8% of the purchase price.

While your loan related fees will not be substantially different than what you are accustomed to, other fees that you will be required to pay include: transfer taxes, value assessment, legal fees, etc.

“Knowledge is power”, therefore it is better for you to be prepared with all the correct information you can get. Of course, when you apply for a loan, we will give you a full written disclosure, just like in the US, that will list all of the fees for your specific transaction.

Below is a general estimate of what you should expect to pay for various items that will appear on your closing and mortgage statements according to a $500,000 USD property.

Municipal Fees

  • Acquisition Tax = 2% of purchase price
  • Value estimation for property tax = 0.18% of purchase price
  • Public Registry Fee = 1% of purchase price
  • Certificate of Freedom from Liens & Tax Debt = $30

Bank Trust Fees

  • Foreign Affairs Permit & Registration = $1,600
  • Trust Initiation = $ 550
  • Annual bank Trust Fee = $ 600

Notary & Legal Fees

  • Notary Fee = $2,750
  • Translation Fees = $
  • Transaction Fee = $ 950

Escrow & Title insurance

  • Escrow Fee = $ 500
  • Title Insurance (Optional) = $1,500
  • Mortgage fees
  • Origination = 2% of loan amount
  • Underwriting, docs, wire, tax,
  • Administration fee, processing = $1,700
  • Lender’s Appraisal Fee=0.1% of purchase price (max $1,500)

Once you are the Owner

There are expenses to cover and also incomes to be considered for renting your property.
Annual fees

  • Property Tax =$ 450
  • Garbage =$ 350
  • Maintenance =$4,200
  • Building insurance =$2,000
  • Electricity =$3,000
  • Estimated annual income
  • Rental program = $30,000 USD

Process of Buying

These are the 5 recommended steps to follow during the process of buying in México:

1. FINDING THE RIGHT PROPERTY

In Cozumel, as in the rest of the world, you can find companies dedicated to Real Estate, where you can contact your trusted Real Estate Advisor. He will have the responsibility of taking you through all available properties in Cozumel that match your needs and desires. This assessor will go along with you and will guide you during all the process of buying until the day that you move to your new home

2. SUBMITING A FORMAL OFFER AND INTENTION OF BUYING

Once you have chosen the ideal property, you will need to ask your Real Estate Advisor to prepare your official intention of buying/offer to purchase by writing, in where should specify the following:

  • Unit for which you want to offer
  • Location
  • Measurements
  • Catastral Number
  • Amount to offer
  • Payment’s specifications
  • Validity of your offer
  • Promissory signature’s date
  • Delivery date of property
  • Transfer of title date
  • Penalization terms for no fulfillment cases.
  • Others.

During the presentation of your offer, as proof of seriousness, you should present a deposit of at least the 10% of the total price offered; this deposit will not be delivered to developer/owner until signing of the Promise of sales Agreement.

3. PROMISE OF SALE AGREEMENT SIGNING

Only upon this moment, transaction will be considered as DONE. It means that, if any side/party desists of this transaction there will be penalties.

If you are foreigner you may start the paperwork of your Fideicomiso (bank trust) to be able to formalize the transfer of title according to the Mexican law.

4. DELIVERY OF PROPERTY

Welcome to your new home!!!

5. FORMALIZATION OF THE TRANSFER OF TITLE

This is the last step of the process of purchase. The Public Notary will be giving you a legal document in which you are totally certified as the sole owner of the property. It is important to mention that process of buying will take between 3 to 4 months, however, each case is different.

CONGRATULATIONS !!!
As you read, buying Real Estate in México is really easy!