can a foreigner buy in Mexico?
The regulations on the sale of real
property to foreigners are found in Mexico Foreign Investment Law.
The law gives a Mexican company with foreign capital many more rights
than a foreign national.
A foreign national
can acquire land almost anywhere in Mexico with the permission of
the Foreign Affairs Ministry. The only exception in the Foreign
Investment Law is that foreigners may not acquire real property
in the "prohibited zone".
zone" is the strip of land 100 km from the border and 50 km
from the beach. If a foreigner wishes to acquire land in the prohibited
zone, he or she may enter into a trust agreement with a Mexican
bank (discussed below).
A Mexican company with
foreign investment, even 100% foreign investment, may acquire property
in the "prohibited zone" as long as it is not used for
strictly residential purposes. If the property is considered to
be solely residential, the company must use a trust. The Regulations
of the Mexican Foreign Investment Law state that residential real
estate is real estate specifically to be used as a dwelling by the
owner. The law provides a list of examples of real estate that seem
residential but is not considered as such by the law. According
to the law, non-residential real estate includes, but is not limited
1. Time Shares.
2. Real estate intended for both industrial, commercial or tourist
use and residential use.
3. Real estate acquired by credit institutions in payment of debts.
4. Real estate bought by companies to be developed and sold. This
would include apartments and residential communities.
5. Generally, any real estate to be used for commercial, industrial
or agricultural purposes, as well as, ranching, fishing, forestry,
or to provide services.
The Regulations make
clear that this list is not complete and that any questions of whether
an activity is residential should be sent to the Foreign Affairs
Acquisition with Bank Trust
A Foreigner may not hold
actual title to any land in the "prohibited zone". To
possess land in the "prohibited zone" a trust is necessary.
In a trust, a Mexican bank holds title to the land while a foreign
beneficiary has the right to use, enjoy, or even sell the land,
and receive the proceeds. There are two steps to forming a trust:
obtaining the trust permits and entering into the trust agreement.
Both the bank and the
buyer must obtain permits from the foreign Affairs Ministry to form
a trust. To obtain a trust permit, the parties must supply personal
data, proof of title, and a description of the intended uses for
the property. The buyer must additionally agree to be considered
as a Mexican with regard to his or her rights. This agreement is
know as the "Calvo clause" The bank must agree to notify
the Foreign Affairs Ministry of any assignment or cancellation of
the trust. There is also a trust permit fee, which the buyer usually
pays to the bank. The amount of the fee depends on the duration
of the trust.
After the parties obtain
trust permits, they should draw up the real estate trust agreement
and have it recorded by a notary. The notary needs the following
documents to record the agreement:
1. The title documents
for the property.
2. A certificate of no tax liability. This certificate is used to
prove that there are no outstanding property taxes nor other assessments
on the property at the time of the agreement.
3. A certificate of no encumbrances. The certificate of no encumbrance
shows that there are no conflicting claims to the property. It also
contains the chain of title and a description of the property.
4. A topographical study of the property.
5. An appraisal of the property. The commercial value of the property
is used to compute property and other taxes. The appraisal must
either be done by a bank appraiser or a corredor público,
an attorney licensed by the state to perform appraisals.
The standard rate that
banks charge for a trust is $300 and $1,000 per year. Trusts can
be created for up to 50 years and may be renewed.
Before a buyer can actually
acquire real estate, he or she must go before a notary. For this
reason, it is important to understand the role of the notary in
the Mexican legal system.
Unlike American notary
publics, all Mexican notaries are licensed attorneys. Notaries are
also specially licensed by the state to insure that the law is followed
in certain transactions. They are held accountable for any transactions
in which they are involved and can be held liable for any irregularities
in the documents. Because there are few notaries, and they are necessary
for so many transactions, the notary is a prestigious position.
While the notary is a
lawyer, it is not his or her job to advise the parties to a deal
of any legal options they may have. As long as a document presented
possesses all the legal formalities, it will be notarized and recorded.
Notaries charge based upon an agreed table which varies according
to the price of the property, but is frequently between 1.5% and
state transactions have at least two steps:
The first step in purchasing
property is the Promise to Purchase and Sell. The promise is a legally
binding expression of the will of the parties to make a contract
in the future. Admittedly, "promise" is probably the wrong
choice of words, as a valid contract is formed. This agreement is
especially convenient in the case of the American who wishes to
buy a piece of property through a trust and must wait for the paperwork.
At the initiation of activities, the notary will file a notice which
will put a temporary freeze on registrations of liens, ensuring
the protection of priority to the buyer.
At the time of the Promise,
the seller usually demands a deposit from the buyer to take the
property off the market. The deposit is usually between 20% and
50% of the purchase price of the property, but tending toward 20%.
Mexican law has no equivalent of an escrow, which makes it more
difficult to recover the deposit if the selling party backs out
of the agreement. All the buying party is left with in such a situation
is a lawsuit.
The second step is closing
the transaction. The title to the property is transferred by the
Purchase Sales Agreement. This contract must be in writing and to
be binding on third parties it must be recorded in the Public Registry
of Property. To record this agreement, the parties must go before
have opened in some of the beach resorts, acting as bonded escrow
agents. Another alternative to using the Notary services is to work
with a bank and create an escrow agreement among the parties, although
the bank will charge for its trust services.
notary will record the Purchase Sales Agreement, the following documents
1. The title document.
2. A certificate of no encumbrance or tax lien on the property.
3. A Topographical study and appraisal of the property.
4. The property tax receipts for the last 5 years.
5. A notice of purchase.
6. The water bill receipts for the last 5 years.
Many Americans want to
have title insurance on the property as a way to reduce liability.
It is not common for Mexicans to possess title insurance, but there
do exist companies that supply this, specifically for the benefit
of Americans. However, this service is more expensive than the price
that is charged in the United States.
The notary also withholds
a number of fees and taxes. In addition to the notary fee, the notary
withholds the income tax generated from the sale of the property,
which is either a percentage of the gain or a percentage of the
sales price of the property. Certain costs are most commonly borne
by one party or another, but the parties are free to negotiate who
will pay each cost. Customarily the buyer pays all transaction expenses,
except the income tax owed by the seller.
In Mexico, inspections
are not common, but are recommendable in order to avoid future disappointments.
Many times, real estate transactions are negotiated which state
the sales price as less than the price that was actually paid. This
is usually done to avoid or lessen taxes for the seller. Besides
being illegal, this is not a good idea. Any taxes avoided at the
agreement stage will eventually have to be paid (at a higher rate)
as capital gains taxes when the property is resold, unless the new
owner continues to give the property an unnaturally low value.
Ejidos are communal tracts
of land, mostly agricultural in nature, which compose a large portion
of Mexican real estate. Ejidos are considered to be the property
of a whole community, rather than any single person. Members of
the ejido (ejidatarios) hold partial title to the land, they can
live and work on the land but they may not transfer it to another
party. Before 1992, it was impossible for someone who was not an
ejidatorio to again title to this land. The constitutional reforms
of 1992 changed this rule and opened up ejido land, allowing it
to be converted into private property.
the reforms, buyers should be very careful when purchasing former
ejido land as the pitfalls are numerous.
At present, there are
two ways in which a third party can acquire title to ejido land.
The first is through adverse possesion. Because this procedure is
uncommon and may not apply to foreigners, the more common method
of gaining title to ejido land is through the PROCEDE (Program of
Certification of Ejido Rights) procedure.