| Arizona Journal of Real Estate & Business • (408) 946-5388 • 1-800-659-8088 October 1999 “BUYING PROPERTY SOUTH OF THE BORDER” By Mitch Creekmore, Stewart Title Guaranty Company, Mexico Division Purchasing real estate in Mexico has changed dramatically over the past five (5) 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 “prohibited zone.” Prospective buyers outside of Mexico’s borders seeking to buy tourist (housing developments, condominiums and time share projects), rustic, industrial or urban property can now enjoy greater legal freedom and ownership rights as mandated and protected under Mexico’s new foreign investment law. In Mexico, as in the U.S., the transfer of real estate property rights are administered by federal, state and local laws. Foreign nationals wishing to acquire property are subject to permission and registration with Mexico’s Department of Foreign Affairs. This federal level agency is responsible for awarding the lawfully required permits and authorizations to purchase land in the Mexican Republic, as well as to acquire real estate properties or rights thereto. However, buying south of the border is not like buying property in the U.S. and purchasers must always remember that they are not in the United States. The Mexican legal system is not the same as its American equivalent. That is not to say that real estate transactions (operaciones) in Mexico are totally different or more complicated than in the US, but common sense should always be exercised. The worst a purchaser can do is to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country. Mexico is not the “wild west” as some may perceive where anything goes and the prevailing Mexican attitude is “trust me, no problema.” It is inherently important for non-Mexican buyers to understand that Mexico has formality of law with authorized regulation of real estate development procedures at all levels and this formality is coupled with a statutory government framework for the legal conveyance of real property. Foreign purchasers should be aware of the same basic issues that any prudent buyer would utilize acquiring real estate. Additionally, they should not depend on the seller for information or advice about the property because they have no way of knowing whether it is correct. They should obtain the status of the title to the property requiring an in-depth title search. They should be knowledgeable of the type of contracts to be utilized for a purchase-sale agreement (compraventa) and preparation of the deed (escritura publica) by the notary public (notario publico) in Mexico. They should be aware of earnest money deposit and escrow considerations, and ultimately, a buyer should have an understanding of the actual conveyance method in Mexico and how legal title or beneficiary interest (Fidecomiso) is vested and recorded for foreign purchasers. The first thing a buyer must consider is whether the seller of the property has legal title to the property, and if so, whether the property can be legally transferred. Although this seems to be a logical and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. Very simply, the seller didn’t own the property or he had not completed the required development procedures for the conveyance of the real estate. A good example would be agrarian land (“ejido”) not properly regularized, or the conveyance of a condominium unit that does not have a recorded condominium regime (regime de condominio) or even the sale of a lot or house in a residential subdivision (fraccionamiento) that does not have the required and published state/municipal development approvals. In any of these cases, the result is that the purchaser has paid money for the acquisition of the property but can not receive legally recorded title or beneficiary interest in a Mexican bank trust. An adequate title search of the property should be performed that addresses these various issues. A buyer should always ask the seller for a copy of the escritura vesting title to the real estate. The buyer should request a copy of the lien certificate (certificado de libertad de gravamen) on the property that should indicate the owner of record, surface area and classification of property type, the legal description and whether there are any liens or encumbrances filed of record against the property. The buyer can also request a certificate of no tax liability (certificado de no aduedo) from the local taxing authority. The notario publico is responsible for the title search in Mexican transactions. However, the notary typically only examines the current deed and a current lien certificate resulting in the possibility of a short or incomplete title history of the property. Today, there are US title companies, as well as Mexican companies, that facilitate the title examination process on a more in-depth basis and issue either a Commitment for Title Insurance on Mexico Land or a title report from the Mexican company. A foreign purchaser always has the option of hiring Mexican counsel to provide a legal opinion on the status of title as well. Most real estate transactions in Mexico will have at least two (2) contracts: (i) an offer and acceptance (oferta) and/or a promissory agreement (contrato de promesa): and, (ii) a purchase- sales agreement (contrato de compraventa). The first two are preliminary agreements containing the basic transactional information. They are not the instruments by which title to the property is transferred to the buyer. The second contractual document is the agreement to be protocolized by the notario which will transfer title to the buyer. It may have several different forms: a real estate trust agreement (contrato de Fidecomiso), a reserve title agreement (contrato de compraventa con reserva de dominio) or an assignment of real estate trust rights (contrato de cesion de derechos fideicomisarios). The Civil Code defines an agreement (convenio) as an accord (acuerdo) between two or more persons to create, transfer, modify or extinguish obligations. Specifically, the Civil Code defines contracts as agreement that produce or transfer obligations and rights. In general, real estate contracts in Mexico must be recorded before a notary public and, to be binding on third parties, they must be filed with the public registry of property. Once there is a written acceptance to the offer, it is recommended that the buyer’s attorney draw up the sales contract or promissory agreement. Since this agreement is the single most important document the buyer will execute with the seller, and the agreement’s contents will determine the terms and conditions of the transaction, the buyer should insist that his attorney assume this responsibility. There are many aspects of Mexican real estate deals that are very similar to transactions closed in the United States. It is easy to presume that the basic terms and principals with which a purchaser is familiar in the US also hold true in Mexico. However, a foreign buyer is much better off to assume nothing. Two such terms are escrow (plica) and earnest money deposit. In the United States, an escrow or title company, or a person legally empowered to act as an escrow agent, will serve in the capacity of handling escrow functions and earnest monies. In either case, the company or individual whom carries out the escrow procedure is licensed and empowered by law to do so. They are legally responsible to see that the agreed upon conditions of an escrow agreement are met before any funds are released. This is not the norm in Mexico. Historically, foreign purchasers have given earnest money as contractual consideration to the seller. And in many cases, the real estate agent or “broker” involved in the transaction has served as an escrow agent. Real estate brokers are not licensed in Mexico and typically do not set-up separate accounts for earnest money deposits. The caveat here is expressly made in bold letters. If a foreign buyer is willing to give earnest money to the seller or the real estate agent in the transaction, be prepared not to get it back!! Only until very recently have a couple of Mexican escrow companies come into existence utilizing US bank accounts for earnest money deposits. The same can be said for a few brokerage companies. A foreign buyer should always exercise caution and use common sense when it comes to their money and whom they’re giving it to. As is often said, “don’t leave your brains at the border!” Ultimately, foreign buyers get to the point where they are ready to have the transaction consummated and take title to the property. In Mexico, all real estate transactions and the legal conveyance of any type of property involve the participation of the notario publico. Although their title translates to “public notary”, the notario publico’s responsibilities greatly exceed the formalization of signatures. Appointed by the Governor of the State and the Executive Branch of the federal government for a particular state district, notarios are attorneys that must pass two extensive examinations in order to receive their lifetime appointments. In a typical transaction, they will prepare the deed of conveyance subject to the “protocolized” purchase-sale agreement. The notario brings buyer and seller together for the formalization of the property transfer and they authorize the appropriate signatures upon execution of the escritura. And lastly, after the property transfer has been formalized, the notario will record the escritura with the public registry of property where the property is located. Prior to the closing, the notario’s additional duties include: (i) to examine the documents of the selling party to ensure their accuracy and legitimacy; (ii) to verify title; and (iii) to search the public records to determine the status of the seller’s title to the property and the existence of liens against the property. The notario is also responsible for the collection of all applicable property taxes and government transfer taxes. As a representative of the State, however, the notario does not insure title to the real estate nor do they have any legal responsibility for title defects. In short, a purchaser can not seek restitution against a notario in the event the purchaser suffers a monetary loss due to a title defect unless fraud, misrepresentation or gross negligence could be proven in a Mexican court of law. And finally, title to all real estate in the “prohibited zone” being acquired by foreign purchasers can only be legally vested and recorded one of two ways: (i) in a Mexican bank trust (Fidecomiso) for all residentially declared property; or (ii) in a Mexican corporation for all non-residential real estate. There is no in-between choice or “gray area” concerning foreign acquisition in the restricted zone (100 km. along all borders, 50 km. along all coastlines, all of Baja California) of Mexico. Foreign nationals can be the sole and exclusive stockholders of a Mexican corporation that holds fee simple title to non- residential property in the prohibited zone. In any type of real estate acquisition in Mexico, non-Mexican purchasers must always register their ownership interest with the Secretary of Foreign Affairs and must waive their rights to foreign government intervention in the event of a property dispute. This is known as the Calvo Clause, which is constitutionally mandated, and is contained in all bank trust agreements. It should be noted that Mexican banks, acting as trustee for a foreign buyer in a Fidecomiso, make no warranty or guarantee of the title to the property in the trust nor do they provide any restitution in the event of a title defect. Foreign buyers should always be advised to consult US or Mexican counsel regarding real estate transactions. They also can contact US title companies to assist them in answering questions about conveyance issues, title searches and title policies for a prospective property as well as escrow account considerations. And one last caveat buying public: if you are told by a seller or agent that this beautiful piece of land on the border or this lovely house on the beach does not need to be in a corporation or in a trust, or it does not need to be closed by a notario, walk away immediately….., and very quickly!! Mitch Creekmore is the Director of Business Development for the Mexico Division of Stewart Title Guaranty Company in Houston and may be contacted at (800) 729-1900, ext. 8753 or (713) 625-8753. |
| The article below, although a bit dated, is nevertheless a very good "primer" or beginning in terms of understanding the "Do´s" and "Don´ts" when it comes to buying in Mexico. The process may appear a daunting, complicated, and even risky procedure at first but it really does not have to be ...if ....you follow certain ever-applicable rules in any and every transaction you consider. Speaking of rules, they are always in a state of change here so the first "rule" to consider is... never ever... consider the sale or purchase of real property a "Do it yourself" operation. Always, and we mean ...ALWAYS...find and consult with an attorney you can trust, communicate with, and who will take the time to explain to you in as much detail as necessary, as many times as necessary, what is happening and what will happen in every step of your purchase or sale. If your Spanish is not completely fluent (culturally as well as linguistically) then by all means seek out an attorney who´s English is excellent, if not perfect, AND...one who specializes in the type of law you are working with be it Real Estate, Business, Immigration, or other area related to most issues affecting foreigners in Mexico. Check out his or her reputation, including with whom he/she typically works. Including in your research which real estate companies and/or other foreigners they work with or have worked with would be a great place to begin. For the Yucatán, go on the great and helpful, interactive website, www.MeridaInsider.com and see what people have to say about this person. You can even make your own posting or inquiry and will probably get a surprising number of helpful responses as MI is the online meeting place for aficionados and other folks interested in and oft times in love with...things Yucatecan in general and Merida in particular. Having said that, do please be aware that everyone has an opinion and though they may sometimes come across as "experts", on the Internet, you are much more likely to find "Know-it-alls" lacking true credentials than true "experts" so always verify whatever information or personal testimonials, however well intentioned, with further research and validation of your own. A couple more points about the article: #1 is that for a foreigner to own real property in Mexico under a "Fidecomiso ("fee-day-co-me-so")Trust, that property must not exceed 2000m2 in area or roughly 21,528 square feet. If the property you are considering exceeds 2000 Square Meters, the government will assume your intention is to do some kind of business on the property and so they will require that you take ownership as a Mexican Corporation (LLC) which, in fact, may have many advantages over a Fidecomiso in any case. We will include a more in depth discussion of these issues and others following the article. Meantime, we would like to refer you to our personal attorney and his colleagues not just because he is our respected friend, nor even because we trust him/them implicitly or because he works with some of the most successful and respected investors and real estate companies in the Yucatán ...AND... Quintana Roo/Cancún....but because he is, in our 5+ years here, simply the best all around provider of comprehensive and trustworthy legal services that we have encountered not only in Mexico but at least four other Central American countries as well! This is NOT in any fashion whatsoever a "paid advertisement" or nepotistic referral. It is simply a referral we proudly share with friends, colleagues, clients and anyone else interested in avoiding the sometimes heart-breaking and costly mistakes we, like so many others, made when we first came here. No need to "re-invent the wheel" at your expense as they say. Our esteemed, bi-lingual, attorney and his colleagues are experts with many years of experience in real estate, business, and immigration law, among other legal specialities, and will be happy to answer any and all questions you may have regarding just about any aspect of living or doing business here. His contact information is as follows: Lic. Mauricio A. Rojano Romero Tel:(999)920-11-33 Email: rojano@racabogados.com.mx Website: www.racabogados.com.mx OK, finally...the article: |
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Lots of valuable information in the preceding article for sure. Still, we have met many attorneys and top brokers who feel that if your attorney/notario does his/her job then Title Insurance is a redundant cost. We would suggest that you explore all options thoroughly and make your own decision based upon your own experience, needs, and comfort level. One thing we might also add is that most of what the author suggests the potential buyer research and become intimately familiar with are things your attorney will know and take care of as part of his/her responsibilities as your attorney. The article may otherwise be discouraging to many of us because at times it looks like we first need to be fluent in Spanish and ...then...practically have a degree in Mexican Real Estate Law to be able to survive here. Not the case at all. Still, as we said, you may want to ask your attorney or potential attorney about some of the very important issues and details this obviously knowledgeable author brought up because, as we mentioned earlier, the laws and regulations are always in a state of evolution . |
Still more thoughts on buying in Mexico....... The following is a piece we wrote a while back primarily for single family home owners. That is, first- time buyers of single family homes in Merida Centro or along the marvelous Yucatecan coast. The thing is that many people come down here thinking they are just going to buy a place to spend the winters or perhaps retire to in some distant future day. Next thing they know they run into a "deal" they simply cannot afford to pass up. Or, as is often the case, they decided because prices are still relatively low that a house on the beach for when Merida heats up in April and May would be just the ticket! But what if we are going to out of the country 6-8 months a year, why not rent out one or both of the houses to recoup some of our investment or add to our retirement nest egg or the college fund for the kids or grand kids? That ...used to be all fine, well, and good but with the real estate boom in Mexico over the past 10 or so years, and especially in the Yucatán, the government has enacted new laws, regulations, and tax structures to bring things under control, often times we feel, for the better. If you are indeed looking for a single family home then you will likely go with private sellers or one of the many, many real estate companies out there just waiting to sell you your dream house. We occasionally carry a single family home(we have two wonderful properties right now) but are mainly involved in larger properties such as farms, ranches, and investment properties a little further afield from the main population centers such as Merida, Valladolid, or, Cancún in the neighboring state of Quintana Roo. We like the peace and the people. We like , love really the nature to be found even less than 2 hours from Merida and we absolutely adore finding and sharing properties with our clients at 50% or less the cost of properties nearer to or in Merida! Remember the 2000m2 rule. If you are looking for a larger property you will most likely end up with an LLC corporation. The Fidecomiso just does not apply to you. Still, it´s a good idea to have at least a basic understanding of how some of this works going in. Mind you, we are not attorneys, but only sharing our own necessarily limited understanding and experience. As we said before, to effectively deal in real property here and really , including immigration issues, just about every other aspect of living happily in Mexico, you need to find the best attorney out there and make sure you stay with him/her as he/she will be your lifeline to security and peace in this, your new home. It´s a great life in the Yucatán! Dare to dream! OK. Here´s our version of "Buying Property in Mexico: It´s “relatively” simple buying and securing property here in Mexico. By the way, I am an Ex pat living and working here on and off for the past 6 or so years so have seen my fair share of most sides of this equation. I´m not however an attorney nor an accountant so let me just give you a quick intro from my necessarily limited personal (versus professional) perspective and see where we can go from there. Complexity of purchase largely depends upon your long terms interests in general and what you plan to do with this (or whatever other first property) specifically. If you are only interested in buying a property as a single family residence for you and/or your family/friends either from part to full time and... you expect to keep the property for at least 5 years or more, then normally what you would do is the following: 1). Locate a property and make an offer 2). Subject to that offer being accepted (let´s assume here that it was)…you would get together with a lawyer who first of all checks (and legally takes responsibility for) ...to make sure the property is free, clear, and lien or loan free. The seller provide copies of his/her "escritura" or deed plus the plot/house plan. The seller also has to provide proof that the property taxes and even water and electric bills have been paid up to date. My suggestion is that my buyers also insist (though it is not required by law) THAT THE ...PHONE BILLS ARE CURRENT...as this can be a huge bill left behind and while not impossible to rightly get out from under can nevertheless be a large hassle ….better and easily avoided all together.... Fine. Let´s say the house is clear. FYI: Most reputable Realtors will pre-clear their properties BEFORE accepting a listing. Again, we now know the house is clear and that your offer has been accepted. You will also need to discuss and agree upon, through your agent or attorney, such terms as to time from contracting to closing as well as other details for example: Is the furniture included and if so which pieces are or which pieces are excluded from the agreement. What about the gas tanks or the AC, or the stove, or patio furniture, or potted plants? If it is not specifically included or ...excluded...it´s any one´s guess what may be leaving...or staying...on moving day...... Terms and conditions are clear so now it´s time for the official contract. You can do this, by the way, with only a tourist visa as long as you bring your passport along. Residency visas are another issue easily obtainable and many people do their own but let´s save that for later. If you are buying the property with anyone else, they will of course also have to come along bringing whatever type of visa they have (assuming they are not a Mexican National) plus their passport with I believe at least 6 months remaining on it´s current active status. The attorney, now with all of the information, terms, conditions, and identifications of all parties to the transaction now prepares a “Contract to Buy and Sell” . Up until now it´s been strictly discussion, perhaps negotiation, and information gathering. Now with everyone having their “homework” done, the parties are about to officially enter into a binding contract. This takes place with the parties signing the contract and with the buyer making a minimum 10% (or more) …non- refundable deposit towards the agreed upon purchase price. For the sake of brevity let me just say that in the terms of the contract, buyer and seller have agreed either that the attorney will retain possession of the deposit until the closing or…that the seller is permitted to accept the deposit as soon as both parties have signed the contract. It can go either way but usually here the seller get´s his/her deposit at the time of signing the contract. But wait a minute you say! What if seller gets a late, or better offer or simply gets cold feet selling the family homestead? He´s got …and maybe even has spent… your deposit and here you are in a foreign country where you may not even speak the language!!!!!!! NOT TO WORRY……. The good news here is that you as buyer are really very well covered. If, for example, after receiving your $10,000.00 USD earnest money deposit, the seller has a change of heart for …whatever reason… He/she must either give you back …double the deposit or, in this example, $20,000.00 USD or…he has to go through with the deal. End of story. The courts here take a very dim view of such situations and so if the seller cannot or will not sign the property over to you, a judge will do it for him/her and all you have to do is be prepared to hand your balance over to the court and it´s all over very quickly. This, as I understand it, happens very rarely these days because the sellers want their cash and because I suspect that they know what´s in store if the courts get involved. Not only will the judge sign over the property to you, the buyer, he may also assess a hefty fine plus fees to be taken in advance from seller´s profits…… Remember seller has the right to change his mind as long as he is ready to turn over your original deposit to you PLUS …an additional equal sum from his own pocket …to buy his way out of your contract. There are always other properties and now, in a matter of what, 2-3 weeks, you have an extra $10K to spend either on a more expensive property or perhaps furnish nicely the one you bought instead! So much for the “What if´s” …. Again, please make a note of any and all questions you may have and then have a chat with your attorney before you take the plunge…….. We have folks for you but I´ll get to that shortly…….. Now we have the contract and every one is happy. But how are you planning to take title?????? Up until now the process for any of your options will have been the same. Going back to what I mentioned earlier we´re now at that juncture where again it´s in your best interests to consider and seek professional council to help you decide upon what kind of future you expect to have with your new acquisition. This is where your attorney will be an invaluable as well as an essential resource. Nevertheless, let me summarize some of your options to perhaps give you a jump start on your “homework”. Let´s start with a short questionnaire with you simply answering “Yes” or “No” to each question. 1) Will this be your sole property and primary residence in Mexico? 2) Do you plan to hold this property for at least 5 years before selling? 3) Is the physical area of your intended purchase less than 2000 sq. meters or 21,528 sq.ft.? 4) Do you plan to rent out or open a business of any kind with this property? 5) Is there any likelihood that you might buy a 2nd or 3rd property if you find a “great deal”? 6) Are you planning to start, purchase, or run any kind of business in Mexico? I´m sure there are more but these ought to get us started. If you answered “YES” to #1 through 3 and NO” to #’s 4, 5, and 6, then you are probably most likely to take title through a bank-held “Trust” also known in Spanish as a “Fidecomiso” (“Fee-day- co- me-so”). These are required for foreign owners if the property is within 50 km/30miles of the sea or 100km/60miles from a national border. There are other restrictions but this one is most important to us…except that with a Fidecomiso you are also limited to the size of property you will buy which must not, in this case, exceed 2000 sq. meters (2000 m2). Fidecomiso is like “Fee Simple” ownership held in trust by a third party. You buy it, own it, use it, and keep it for ideally at least 5 years. You are the owner but/and the Trust allows you to function as a “Mexican entity” and therefore own property that would, in most cases, not be permitted because A) you are a foreigner and B) because this property is less that 30 miles from the seashore and/or 60 miles from a national border. A fidecomiso is not for a short term real estate deal or resale, or land development or rental business or really any other kind of business. Selling and then buying or even just buying an additional property in less than 5 years may look to the Mexican Government, including their IRS (“Hacienda") like you are doing business with your house instead of using it as an owner occupied… non- nonbusiness-use… dwelling. Mainly there are Capitol Gains and other issues that arise at that point possibly but is it not better to think things through,get the best possible legal advice, consider your options, and avoid any unnecessary confusion, hassle, or expense in advance? Sure it is! That´s why you asked, of course! Second option: (Hang in! We´re almost done!) Your second option to consider and speak at length with your attorney about, especially if you answered “No” to either question numbers 1 and 2 and/or “yes” to questions 4, 5, or 6. In this case your attorney may ask you to consider a Limited Liability Corporation (LLC) instead of the Fidecomiso for a number of reasons just a few of which I will mention here below. With an LLC you can: Buy and sell at will Own multiple properties Rent, build, refurbish and property manage Buy and sub-divide land Purchase land near the Mexican border and in virtually all coastal zones Write off expenses including food, lodging and travel to and from …where ever and inside Mexico. Buy, hold, and/or develop on virtually any size of property (Remember the 2000m2 limit w/fidecomiso?) A real plus with the LLC over the Fidecomiso is that the cost of the LLC (approximately $3,900 USD)...is a one time fee. There are nominal ongoing monthly fees associated with the LLC but for most folks they are nominal and as much as half the cost of maintaining a Fidecomiso which must be purchased with each additional property you may purchase. The Fidecomiso will usually run in the neighborhood of $5000.00 USD for each property purchased under this arrangement. There are tax and management issues involved in either option but if in fact you may end up doing “business” as defined by the new property and Mexican IRS (“Hacienda” in Mexico) regulations as of January 1, 2008, then you definitely want to ask your attorney here about the LLC Real Estate Corporation. Once again, we are very proud to use and refer to Attorney, Lic. Mauricio Rojano Romero and his company here in Merida, with offices also in Cancun. His email is Rojano@Racabogados.com.mx and he is not only fluently bi-lingual but he and his colleagues specialize in Property, Corporate, Immigration and other kinds of law. It´s obviously worth doing the homework and the research because it´s most assuredly worth being here. I might also add or suggest that the Yucatán Peninsula is probably unlike anywhere you have ever been in Mexico and probably Latin America where I have personally traveled, lived, and worked extensively since the late 80´s. Very special and unbelievably….safe. Please let us know if you have any further questions or comments…… Best of success and happiness here in the Yucatán! ¡Saludos! |