The process of purchasing property in Mexico for a non-Mexican is similar to the process in the United States or Canada, except that it requires a few extra steps. These include the requirement of registering and obtaining permission from Mexico’s Secretary of Foreign Relations, and having to establish a Fideicomiso, or bank trust, when buying property in the restricted zone.
Real estate transactions and property rights are outlined through local, state, and federal laws in Mexico; however, the protection for the parties involved are not as detailed or regulated as the property acquisition process established in the US and Canada. While many people may see this as a deterrent, this allows for opportunities as long as you have a good and experienced real estate team representing and protecting your interests.
The most important steps when purchasing a property in Mexico are:
1. Selecting an experienced, certified and licensed real estate agent.
2. Identifying the area you are interested in purchasing real estate in.
3. Researching and studying the Mexican real estate laws and procedures – this is where having a knowledgeable real estate agent helps.
4. Researching properties and having your real estate agent compile a list of properties that meet your criteria.
5. Physically visiting and touring the area and properties with your real estate agent so you can evaluate the pros and cons of each property.
6. Choosing your new Mexican dream home and making an offer.
7. Preparing the promissory contract.
8. Deciding which entity will hold the bank trust and property on your behalf (if you are purchasing in the restricted zone).
9. Preparing the purchase sales contract and having it formalized with the notary public.
10. Inspecting the legal documents and obtaining permits.
11. Formalizing the conveyance and filing with the public registry.
Those are the main steps to purchasing a property in Mexico. Once you have found the perfect property, what do you do? The first thing is to place an offer to purchase.
Offer to Purchases:
The offer to purchase is the first document you need to begin the process of transferring a property from the seller to the buyer. It can also be prepared as a reservation agreement or an earnest money deposit, listing the main points of the future transaction.
The offer to purchase can be as complex or as simple as the buyer deems necessary. This is the preliminary agreement containing the basic information to execute the transaction such as names and personal information for both parties, the description and address of the property, the price and payment terms, the terms and conditions of the offer, and the closing date. Any money released, such as earnest money, should be refundable during this phase.
The offer to purchase is a legal document. Once it has been signed and accepted by both the buyer and the seller, it creates a binding commitment for the buyer to purchase, and the seller to sell. It can be signed before a notary or before two witnesses. Even though it does not need to be notarized, it does have a legal binding effect.
Based on Article 27 of the Mexican Constitution, a non-Mexican citizen cannot hold a real estate title within the restricted zone. This zone is 50 kilometers from the coast and 100 from the United States or Central American boarders. Because the Mexican Constitution forbids non-Mexicans from purchasing within this restricted zone, an innovative and secure method of holding the title was created; this allows foreign ownership through a property trust called a Fideicomiso (or bank trust).
This trust agreement is much like an estate trust in the United States, giving the buyer all the rights of ownership. Essentially, the bank acts as the trustee for the trust and the purchaser is the beneficiary. However, the trust is not an asset of the bank; it simply acts as a trustee to hold it. The beneficiary has the right to use, lease, improve, or sell the property as he or she wishes. The beneficiary may also bequeath the property to an inheritor. The initial term of the trust is 50 years; however, it can be renewed indefinitely for additional 50 year periods.
Another way to purchase property in the restricted zone is through a Mexican corporation. This allows you to obtain the title to a property without a bank trust. The Mexican corporation is used strictly for properties with commercial or business purposes and is beneficial for foreign business owners. Mexican corporations require additional government reporting and tax payments, making it necessary to hire an accountant to file these declarations every month. You should consult with the Mexican legal counsel to determine what best suits your needs.
The promissory contract is prepared after the offer to purchase contract has been accepted. This means all negotiations are finished, the terms and conditions have been accepted and the final selling price has been agreed on by both the buyer and the seller. The promissory contract’s purpose is to outline details such as legal description of the property, agreed price, penalties and other items committing both parties to enter into a future document: the purchase sales contract. The promissory contract is especially important when the title transfer takes time, such as when buying pre-construction.
Purchase Sales Contract:
The offer to purchase and the promissory contract are intended to give the details and preparation for the transfer of the property, whereas the purchase sales contract is the instrument used in the actual, legal transfer. The purchase sales contract binds the buyer and the seller; it is the last contractual document required to transfer the rights of the property to the buyer. This contract needs to be formalized in a public document before a notary public, in which the notary public will follow all provisions to transfer the property legally. The purchase sales contract is like your title deed in the United States; it needs to be signed in front of a notary public and filed with the public registry.
In the United States, a notary public is someone who took a class, got certified and serves as an impartial witness to the signing of documents. In Mexico, however, the notary public is appointed by the state governor for a lifetime term. They must have a law degree and pass a rigorous exam. In Mexico, all legal documents must be made before a notary public in order to be valid.
All real estate closings must be formalized before a notary public. He or she will verify the real estate documents involved in the transactions, perform a title search to make sure that there are no liens on the property, and gather a statement from the municipality regarding property assessments, water bills and other pertinent taxes that might be due, get an appraisal of the property for tax purposes and confirm that the correct people have signed all the necessary paperwork. They also collect any property taxes, transfer fees and capital gain taxes generated by the sale.
One of their main duties is to register your new deed with the public register of properties. The notary public is legally responsible for the accurateness of the transaction. If the document is not notarized by a Mexican notary public, it is not legal.
It is important to highlight that the notary public is an independent third party and will be unable to advise you on the details in your contract, such as the price, financing, or any terms of sale.
As you can see, there are many steps to the property purchasing process in Mexico. That is why it is extremely important to find the right real estate agent. The purchasing process in a foreign country can be a foreign experience, so it is essential to have a knowledgeable, experienced and professional real estate agent representing your interests.
Your real estate agent should be certified and belong to real estate groups such as the Mexican association of Real Estate Professionals (AMPI), and National Association of Realtors (NAR). Your real estate agent should be a wealth of information, providing knowledgeable, secure advice about real estate laws, developers, notaries, attorneys, accountants and anything else that might be needed during this process. When looking for an agent, look for someone who knows what they’re doing, with a good reputation; don’t be afraid to ask for references and testimonials from past clients!
By Thomas Lloyd
Thomas, from Indiana, is a graduate from the prestigious Krannert School of Management at Purdue University, where he obtained a degree in Administration with the Financial Management option.
He has been working professionally in Mexico since 1995, and in 2011 he was the first person to ever attain a new nationally regulated Real Estate degree and professional identification number for the Country of Mexico.
In 2009 he was voted Realtor of the year, because of his professionalism, attention to customers and knowledge of procedures and the market. Also, he has been active in the real estate community serving on the real estate association’s Honor and Justice Committee.
Thomas founded TOP Mexico Real Estate to help non-Mexicans have an enjoyable and safe experience as they purchase and invest in real estate in Mexico.
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