How Foreigners Can Own Real Estate in Mexico
Fideicomiso or Bank Trust
Any foreigner or Mexican National can constitute a Fideicomiso (the equivalent to an
American beneficial trust) through a Mexican bank in order to purchase real estate
anywhere in Mexico, including the Restricted Zone. To do so, the buyer requests a
Mexican bank of his/her choice to act as a trustee on his/her behalf.
The bank, as a matter of normal course, obtains the permit from the Ministry of Foreign
Affairs to acquire the chosen property in trust. The Fideicomiso can be established
for a maximum term of 50 years and can be automatically renewed for another 50 year
period. During these periods you have the right to transfer the title to any other
party, including a member of your family.
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 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 by 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.
Escrow, Title Insurance and Home Insurance
It is the Notario Publico who, in effect, acts as a "holding agent" for the
involved parties and for this reason there are few escrow companies in Mexico.
At the present time there is no general use of title insurance in Mexico, although some
American companies are providing coverage in some resort areas of the country. On
the other hand, insurance companies do provide full home coverage throughout Mexico.
Purchase - Sale Process
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 by the broker 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 lawyer be consulted
before signing any papers or handing over any money.
In some cases it is common practice to deliver to the seller an advance payment,
the equivalent of a 20-25% (including the initial deposit) of the total price upon signing
the purchase-sale agreement which should contain a penalty clause applicable in case there
is a breach of contract by any of the parties.
Normally, when signing the escritura or official deed, which needs to be certified by a
Notario Publico or public notary, the balance is paid and the property is delivered.
This should not take more than 45 days. In certain resort areas the custom of
using "escrows" is being implemented.
Notario Publico or Public Notary
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 ensuring their proper transfer.
Furthermore all powers of attorney, the information 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, upon request, receives
the following official documents, which, by law, are required for any transfer:
- A nonlien certificate from the Public Property Registry based on a complete search.
- A statement from the treasury of Municipality regarding property assessments, water
bills, and other pertinent taxes that might be due.
- An appraisal of the property for tax purposes.
Closing Costs
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 January 1, 1996, the Federal Law regarding the real estate transfer tax, which
was 2% for all the Republic of Mexico, was modified in order to allow each of the Mexican
States to determine its own tax. The range may be from 1-4% of the tax appraisal
value, generally less than the sales value. The rest of the closing costs, which
exclude the transfer cost mentioned above, may vary from 3-5% of the appraised value or
more, depending on the particular State. These percentages are applied to the
highest value of the following:
- The amount for which the property is sold.
- The value of the official tax appraisal.
- The value designated by the property assessment authorities.
Cost of the Fideicomiso
Based on a present tariff, the bank charges the person desiring the Fideicomiso an
initial fee ( approximately US$500 ) 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.
