|Investing in Mexico
Purchasing real estate in Mexico has changed dramatically over the past eight to ten years for foreign, non-Mexican nationals. Beginning in 1994, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area known as the "Restricted Zone." The properties that are considered to be in this zone are any real estate properties that are located within 62 miles of an international border or within 31 miles of the Mexican Coast Line and all of Baja California Sur, Mexico.
|BUYER'S GUIDE TO MEXICAN REAL ESTATE TRANSACTIONS From Internacional Land Title Guide (ILT)
|For the buyer, the purchase of real estate in Mexico involves a preliminary title search, acquisition taxes, broker's commissions, permit and registration fees, title expenses and legal fees, and the creation of the bank trust instrument (Fideicomiso) that holds the assignment of rights (ownership) to the property. The process can be complex if not accurately outlined and executed. International Land Title (ILT) has created this detailed step-by-step guide to explain the process, the required documents and procedures, and the expenses you will incur to complete your purchase.
|FOREIGN OWNERSHIP OF PROPERTY IN MEXICO’S RESTRICTED ZONES — THE FIDEICOMISO
|Mexico’s Foreign Investment Law allows foreigners to purchase residential property in restricted areas–100 kilometers within any Mexican border and 50 kilometers within any coastline, including all of the Baja California peninsula–through a bank trust instrument, called a Fideicomiso, administered through a designated Mexican bank. Amended on December 28, 1993, the law also permits ownership of non-residential properties in the country’s restricted areas, provided a Mexican corporation owns the property, and that the property is for commercial purposes. The 1993 amendment extended the Fideicomiso term from 30 to 50 years, with renewal upon request by the holder(s) of the Fideicomiso before its expiration.
THE PARTIES TO A FIDEICOMISO ARE:
" The Settlor (Seller)
" The Fiduciary (the Mexican bank)
" The Beneficiary (Buyer)
" The Beneficiary’s Substitutes (heirs)
The Fiduciary acts on behalf of the Beneficiary in all transactions involving the property held in Fideicomiso. However, the Beneficiary retains the use and control of the property and has the right to use, improve, lease without limitations, and sell without restrictions, or pass the property on to named heirs. The Beneficiary pays an annual fee to the Fiduciary for the administration of the Fideicomiso. The Fiduciary bears no responsibility for any defects in the title.
ASSIGNMENT OF RIGHTS (Cesion de derechos)
An Assignment of Rights occurs when the buyer is using the existing seller’s Fideicomiso. If a new Fideicomiso is created to hold the rights to the property, the process is the same, however, a new permit from the Secretariat of Foreign Relations is required.
DRAFTING YOUR FIDEICOMISO
Your Fideicomiso, which will be created in Spanish, will state a the property’s tax identification number, meters and boundaries, the Secretariat of Foreign Relations permit, the monetary value for the real estate that you purchased among other information. To minimize future capital gains liabilities, it is important that the stated monetary amount reflects the actual purchase price and includes any improvements and structures. Your name, spouse’s name, if applicable, and your heirs will be listed as beneficiaries and substitute beneficiaries in your Fideicomiso. Ensure that all names are spelled correctly. In the case of joint ownership, check that the Fideicomiso reflects your ownership arrangement by ensuring that and/or is stated if one party is able to sell the real estate without requiring the signature of the other party.
|I. Before you Close
|CLOSING COSTS ESTIMATES
To take the guesswork out of closing costs for buyers, ILT generates estimates, available at ILT Digital Title Online and through our Cabo San Lucas-based offices, to assist you in determining the cost of your closing. Acquisition tax, Foreign Affairs permit, registration and appraisal fees, trust creation costs, notary charges and closing fees are tabulated based on the purchase price of the Real Estate to produce a detailed report of what you can expect to pay for your closing. Log on to ww.ilt.com.mx to use this valuable service.
PRELIMINARY TITLE SEARCH
An ILT Preliminary Title Report (PTR) involves in depth research to uncover any obstacles that would prevent you from assuming ownership at closing. A PTR identifies the legal owner, any existing liens or encumbrances, and any easements affecting the property. ILT makes a complete analysis of what constitutes title of the current owner. In the closing process, a PTR is your safety net.
ILT TITLE PROTECTION PLAN - THE U.S. TITLE INSURANCE POLICY
Once ILT’s Preliminary Title Report is complete and the title meets the required criteria, a U.S. title insurance policy may be obtained through Fidelity or First American. Subject to the policy’s terms and conditions, Fidelity or First American agree to indemnify the insured against loss from any defects in the title, bearing full expense for any proceedings that may arise due to these defects.The Preliminary Title Report and ILT’s Title Protection Plan are essential steps that allow you to purchase your property with confidence and safety.
|II. THE PURCHASE OFFER OR PROMISE TO TRUST
|In Mexico, a preliminary offer to purchase, also called a promise to trust (Fideicomiso, is drafted by the real estate company representing the buyer. The offer to purchase will include all or most of the following depending upon the individual circumstances of the sale:
" The purchase price, earnest money amount (good faith deposit), and payment terms
" The establishment of a third party escrow account for the deposit and transfer of funds
" Clause subjecting the purchase to a Preliminary Title Report (PTR) to determine that the title is free from defects
" The election of the Public Notary overseeing the closing
" The assignment of realtor’s commissions and notary fees
" Assignment of acquisition, capital gains, and closing costs
" Furnishings, appliances, equipment, concessions, and employment contracts, if applicable, included with the sale of the property; and the physical condition of the property upon transfer
" Financing clauses
" Clauses subjecting the purchase to the sale of the buyer’s property
" The closing date
" The date for vacating the property by the seller, if different from the closing date
" Penalties payable to the Real Estate Company and/or buyer for failing to complete the conditions of the closing after the offer to purchase has been signed by the seller
" Financial reimbursement to the seller for failure on the part of the buyer to meet the offer to purchase’s conditions ILT strongly recommends the buyer exercise due diligence, and confirm that the seller has fully met his obligations by perfecting the required procedures and documents to close the transaction, before entering into an offer to purchase.
|III. THE TRANSFER OF PROPERTY OR CLOSING
|In order for the real estate transaction to close, the seller must have legal title to the property. Once the offer to purchase is signed, the deposit received, and the PTR finds the title free of defects, the transfer of property may proceed. Buyers electing to close a real estate transaction without a completed PTR do so at their own risk. In addition to The Settlor (Seller), The Fiduciary (the Mexican
bank), The Beneficiary (Buyer), and The Beneficiary’s Substitutes (heirs), the transfer of ownership will involve a closing company—such as International Land Title’s Global Escrow; a Notary Public;
the real estate company; and Municipal, State and Federal Mexican agencies and departments
A valid passport and Mexican immigration visa (FM-1 Tourist Visa; FM-3; or FM-2) are required as proof of identity to finalize your closing. You must bring these documents with you when signing your Fideicomiso and all other legal documents before the Public Notary.
CLOSING STEPS AND FEES:
The closing company and the Notary Public will perform the following procedures to transfer the property from the seller to the buyer:
" Acquisition Tax (ISABI):
2% of the purchase price; Payable by the purchaser
" Permits & Registration:
Mexico Secretariat of Foreign Affairs Permit Fee for Assignment of Rights (Cesion de Derechos)
" Public Registry of Property:
Municipal Tax Registration and Certificates
" Property Appraisal (Municipal Authorization) and Appraiser’s Fees
" Fiduciary Institution (Bank) Fees:
For the Creation and Administration of the Bank Trust (Fideicomiso)
" Public Notary Fees:
For the Transfer of Property and Creation of the Fideicomiso
" Real Estate Broker’s Commission
" Other Disbursements:
Establishment of Escrow Account, Global Escrow Closing Fee , Administrative Charges, Title Search and Report, U.S. Title Insurance Policy Premium Fee