Real Estate Purchase & Ownership: The Basics

This article answers some of the basic questions about purchasing real estate in Mexico:

Zihuatanejo Bay

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Can foreigners purchase and own property in Mexico?

Yes, foreigners can own property in Mexico. In the interior of Mexico foreigners can own property fee simple (in their own names). The Mexican constitution forbids the direct ownership of land by foreigners in a restricted zone of 50 kilometers from the coastline or 100 kilometers from the border. Foreigners are allowed to purchase property within the restricted zone using a bank trust (fideicomiso) or by forming a Mexican corporation. Bank trusts are similar to real estate trusts in the United States and are limited to residential properties. Corporations are established to purchase property for commercial purposes.

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What is a fideicomiso?

The Federal Investment Law in Mexico created the fideicomiso in 1973 (revised in 1994) to encourage foreign investment into Mexico. The bank trust is the preferred method of purchasing property for residential use. Mexican bank trusts are similar to real estate trusts in the United States.

Title to the property is held by the bank, also known as the trustee. The purchaser of the property is known as the beneficiary. The property is not part of the bank assets and cannot be liable for any lien or attachment for any bank obligations. A beneficiary has full rights to lease, rent, mortgage, and reap profits from the property and to pass the property on to heirs. Any legal transaction involving the property must be approved by the bank that holds the trust. These trusts are initially set up for a period of 50 years and can be renewed indefinitely.

Be careful when setting up a trust. Trust maintenance fees vary widely and some banks demand variable fees. Check with your real estate professional or an attorney before signing your trust.

Advantages of bank trusts include relatively low maintenance expenses, the possibility of significant capital gains tax exemptions if you decide to sell the property, and the lack of inheritance taxes if the property is passed on to secondary beneficiaries

Disadvantages of the bank trust include higher set up costs and the inability to purchase multiple properties with the same trust.

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Why hold title in a corporation?

Under Mexican law, bank trusts are limited to residential purposes; for commercial purposes a foreigner will want to set up a Mexican corporation. Commercial purposes include but are not limited to large or multiple land holdings, larger hotels, and other businesses.

Benefits of corporations include possible lower set up costs, the ability to own multiple properties, and the ability to sell part or the entire corporation (stock).

Disadvantages of corporations include higher maintenance expenses and the lack of capital gains tax exemptions.

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What is a notario?

A Mexican notario is an attorney and acts as an extension of a judge or government. The notario’s duties are to give legal advice; to approve and record legal contracts, wills, powers of attorney, and depositions; to effect the transfer of real property titles; and to act as an official witness. All property purchases in Mexico require a notario.

In real estate, the general focus of the notario’s job is the correct identification of the real estate, the names of the buyer and the seller, their legal capabilities to enter and carry out the legal documents, and the withholding of taxes to be paid for the transaction. The presence of a notary public helps to make sure both parties are entering into an agreement knowingly and willingly.

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What is involved in the purchase of real estate in Mexico?

Purchasing property is very easy in Mexico; all you need is a passport and a few simple documents. You can be present during the title transfer or set up a power of attorney to allow another person (family member, attorney, etc.) to sign the title for you.

The purchase process is usually a few simple steps: (1) the offer and acceptance of the sales price, (2) the signing a sales contract and making of a down payment, (3) the set up of the bank trust and preparation of the deed for signing (this usually takes 60 to 90 days), and finally, (4) the signing of the deed and payment of the balance owing

Though an attorney is not necessary to purchase property in Mexico, I recommend that all first time buyers in a foreign country be represented by a competent attorney to assist in the process of the contract, the set up of the trust or corporation, and the closing. I will be happy to recommend qualified, local English-speaking attorneys.

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What is ejido land?

After the Mexican Revolution, the Mexican government granted land to communities for common use. A community could claim unused land and petition the Mexican government to establish an ejido. This land was held in common by all ejido members and could not be sold out of the ejido. Ejido land can not be “owned” by anyone who is not a member of the specific ejido, and foreigners cannot become members. I do not recommend the purchase of ejido lands to my clients due to the risks involved.

In 1993, the Mexican constitution was changed to allow the privatization of ejido lands. The ejidos can petition the Mexican government to survey the land, title the common lands, and issue property title. This can be a difficult process involving several years. Once ejido land is properly titled, it becomes private property and can be purchased safely.

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