How to Buy - Overview on Purchase Property in Mexico
Overview on Purchase Property in Mexico Buying Property in Mexico – Americans, Canadians and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own residential property outright within the restricted zone. The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. Commercial real estate can be owned through a Mexican corporation as we will discuss further.
Since the 1970s foreigners have been able to buy real estate in Mexico with coastal and border properties acquiring the property through a Fideicomiso Trust deed established with a Mexican bank. Foreigners may also directly own rural or urban land in the interior of the country with certain limitations on specific agricultural tracts. In 1994, a change in the Foreign Investment Law also allowed Mexican corporations to own property in the restricted area as long as it is commercial property. This applies to even those corporations with 100% foreign ownership if the commercial purpose is not restricted (radio stations, utility companies, logging, etc…)
Residential or Commercial - When deciding how to acquire a foreign property, it is important to first establish whether the property will be used as a commercial venture or as a residence. If its use will be residential, i.e. the foreign person or entity will use it as a residence only and not for commerce, ownership must be taken through the Fideicomiso Trust. For example, if the purchaser is buying land to build a house and will then be living in the house, the purposes are residential. If the purchaser is buying land in order to build and eventually sell the houses or condos, this is a commercial purpose and a Mexican corporation could be used as the acquisition vehicle.
The Fideicomiso Trust Deed - The Fideicomiso Trust Deed, which is established by means of an authorized Mexican financial institution, assures foreign property buyers of all rights and privileges of ownership. In 1994, a Foreign Investment Law was passed that allows these trusts to be constituted for a period of 50 years and are renewable upon expiration. This law protects the rights of foreigners and makes sure that the transaction is legal and unencumbered.
These trusts are similar to the U.S. estate trust or land trust and are used by foreigners and nationals alike to hold real property in Mexico. They can serve the additional purpose of creating an estate plan for one’s Mexican property and in fact isolates the asset to a certain degree as the real property is held by the Trust. When setting up the Fideicomiso Trust to acquire the property, you must indicate a beneficiary or beneficiaries of that trust. The beneficiary (ies) will be the de facto owner(s) of the property and will be responsible for the property and all of the costs generated by the property.The beneficiary of the trust may be a person or persons or a corporation, domestic or foreign. The beneficiary of a Fideicomiso Trust cannot be another trust due to conflict in trust laws and because Mexican law does not recognize the foreign trust to have “personality” or the capacity to act.
You can also name a substitute beneficiary (ies) who will inherit the property upon the death or dissolution of the primary beneficiary (ies). You can mirror your current estate plan using the Fideicomiso Trust here in Mexico and by indicating a substitute beneficiary or beneficiaries, avoiding the problems and expenses of probate. Substitute beneficiaries can also include a charitable foundation.
If you choose to name a corporation as the beneficiary of the Fideicomiso Trust, you will need to provide certified copies of the articles of incorporation, certificates of good standing and powers of attorney which indicate who can represent the corporation. All the documents must be certified translations if they are not issued in Spanish.
Mexican Corporation – A Mexican corporation can now be formed with 100% foreign ownership as long as the corporation will not conduct prohibited or restricted activities such as the operation of a utility company, radio station, etc. Hotels and real estate development are two areas that are open to 100% foreign participation. A minimum of two shareholders or partners is required to incorporate and the corporate statutes should reflect the purpose of the corporation, its legal structure, how it is managed and how profits/losses will be distributed. Fiscal analysts should be involved in creating the ideal corporate structure.
The Closing Process – Once the decision has been made on the purpose (commercial or residential) of the property and the acquisition vehicle established, the procedure in drafting the closing documents and obtaining the necessary permits and certificates will take between 45-60 days to complete. The parties will appear before a Public Notary to formalize the operation. Purchase funds are normally held in escrow prior to the closing and distributed once all of the documents have been signed.
Public Notary - The Public Notary in Mexico is first a licensed attorney in Mexico, they must practice for a minimum of ten years and most apprentice in notary law and practice with another notary public for a period of time. They then may sit for the notary public examination and if they pass the examination, they must be appointed by the Governor of their state to act as a Notary Public in a given geographical location (a town, a district).
The Public Notary is vested with the "public faith" granted by government and can assert this public faith in reference to the existence of an event they witness, the existence of certain documents, the existence of official acts, the content of a contract, the signature of a party, and as well the due representation of an agent on behalf of a principal. As one can see, their authority is substantial.
The Public Notary normally perform their duties either in the issuance of a public instrument ("Escritura Pública") that will contain that sought by the parties or they will affirm to the signature of a party that signs a document before them.
In cases where title of ownership of real estate is transferred, the Public Notary is charged with the preparation of the title transfer document/contract (their own document or a draft given by the intervening parties that they will review and revise as needed) which takes the form of a public instrument and with the acquisition and attachment (to the public instrument file) of documentation evidencing the seller's ownership, any power of attorney (in the event of an agent acting on behalf of a principal), the certificate of non-encumbrance and titleholding from the corresponding Public Registry of Property, an affidavit of appraisal, non-debt of water, and non-debt of land taxes. As well, the Public Notary calculates the taxation and fees that will be payable to government agencies and collect them from the intervening parties and (when the parties so request) performs the registry of the new title at the corresponding Public Registry of Property.
Title Insurance – U.S. based title companies such as First American Title, Fidelity Title and Stewart Title Guarantee Company have been insuring title on Mexican real estate since the 1990s and although title insurance is not a requirement in Mexico, it is an option offered to give further security to purchasers.