How To Buy

Mexican Restricted Zone & Fideicomisos

Is it safe for a foreigner to purchase land in Mexico?

In 1917, the Mexican government, through the Mexican Constitution, enacted a law whereby property can be bought by foreigners and have direct ownership in Mexico’s interior areas. Property that lies within 50 kilometers (31 miles) of the coastline or within 100 kilometers (62 miles) the borders of Mexico is in what is considered to be the Mexican Restricted Zone. In the past 30 years Mexican laws have changed and are more accommodating to foreigners, including citizens from the United States and all other countries allowing them to buy, indirectly, the rights to hold and develop or make improvements and to occupy, sell or rent the property.

How can I buy real estate within a Mexican Restricted zone if I am a foreigner?

Legal ownership is possible by using one of two methods which is generally determined by the intended use of the land.

For residential real estate, a bank trust, known in Spanish as a fideicomiso, is the most common method. In this scenario, the buyer has complete control of the property and owns the beneficial interest in the trust. While the bank has technical “ownership”, for a 50 year term, it has no rights to the property, and is mandated that any dealings with the property are to be solely at the instruction by and for the benefit of the beneficiary which may be an individual or corporation. The fideicomiso allows a buyer to avoid inheritance taxes and to put the property in a will, as well as the obvious rights of real estate ownership including building or developing the property and renting out or selling the property. Foreigners are required to obtain a permit to own the land, as is the case with ‘direct deeds’, from the Secretary of the State, which is essentially an endorsement from the Mexican government of ownership of the property. As such, a fideicomiso affords foreigners the same rights and responsibilities full and direct ownership gives. Upon the sale of the property the buyer can assume the current fideicomiso or can take out another one.

For commercial real estate, a foreigner will generally form a Mexican corporation, also known as a Sociedad Anonima (SA), that buys the property, as the law permits a foreigner 100% ownership of a corporation. One requirement is that at least one of the owners must have their FM3 immigration status. Otherwise, a Mexican citizen that may be, but is not required to be, an owner of the corporation, must be chosen to act as an agent of the corporation for the signing of papers related to the purchase of such property.

The property is deeded directly to the corporation and required to be used in a commercial capacity. There are annual corporate fees and tax reports to be filed by an accountant, but this approach avoids the initial costs of setting up and the annual fees, approximately US$300 to $500 per year, that are associated with a fideicomiso.

Title Insurance & Mexican Corporations

Can I buy title insurance in Mexico?

Title insurance as well as Escrow services are available in Mexico through a number of sources including First American, Stewart and International Land Title. As in most other countries, the title insurance company will require a deposit to begin the title search which will be credited back to you at the time of closing. Title policies can insure the owner, lender, mortgage or holder of any interest, as outlined by the person who buys the policy. Generally speaking, a title insurance company will, at its own expense, defend any lawsuit affecting title.

How do I create a Mexican Corporation Sociedad Anonima (SA)?

Once you obtain a permit from The Department of Exterior Relations, whereby you register the name of the Mexican corporation, you then create the articles of incorporation. This requires a “Notario” who is a keeper of the public record appointed by the state, licensed as an attorney who passed the notario exam and is willing to forgo litigation.

After the articles of incorporation are recorded in the public record, Next is the process to obtain necessary permits such as Hacienda, or taxes, the Department of Commerce, Department of Immigration, State Registry, Chamber of Commerce, SIC code data base and an Import/Export permit with certain industries requiring additional permits. It generally takes about 6 weeks to complete the process and cost approximately US$1,000 in addition to a $500 notario fee. Hiring a consultant to process the paper work and complete registries may involve additional fees.

How can I confirm that a seller has legal title to a property?

A buyer should request a copy of the lien certificate or certificado de libertad de gravamen which will indicate the owner of record including the surface area and classification of the type of property, the legal description and if there are any encumbrances filed against the property. A title search of the property should be performed and a copy of the title to the real estate should be requested of the seller.

Though not specifically a legal title issue, a certificate of no tax liability, or certificado de no aduedo, should be requested. In Mexican transactions it is the responsibility of the notario publico to perform the title search but the notary generally examines only the current deed and current lien certificate which may not provide a complete title history of the property. Accordingly, it may be prudent to hire a Mexican attorney for a legal opinion on the status of title.

Public Registry of Property & Notarios Publicos

What is the role of the Public Registry of Property?

Public instruments in Mexico, such as deeds, can be researched at the local Public Registry of Property which is open to the public and exist in most cities and towns in Mexico.

It is is a government office where documents are registered allowing third parties to research land titles and liens on titles. Any Public Instrument is required to be finalized and signed by a Notario Publico. Public Instruments usually identify the property, include the entities involved in the transaction as well as the notario, seller, buyer, and the bank if there is a fideicomiso. When a Public Instrument is finalized and signed the funds change hands and the transaction is considered closed.

Who is involved in real estate transactions in Mexico?

Typically, there are four entities involved when consummating a real estate transaction in the restricted zone: The real estate agent, the attorney representing the buyer, the bank and the public notary.

Outside of the restricted zone, there is no bank involvement since a fideicomiso is not needed in those areas. Apart from this detail most real estate transactions are the same.

To ensure a secure transaction, it is advisable to hire a Mexican attorney of your own, as opposed to that of the seller, to perform title searches, write contracts and review conditions and terms of a sale. The attorney should also be able to help lower closing costs due to their knowledge of competitive rates for different services due to the wide variety of contacts and transactions in which they are involved. The attorney should also be able to provide a “cédula profesional”, a document that is a registered license to practice law in Mexico and will include a signature and photograph of the attorney. Only licensed Mexican attorneys can provide advice on the law and it is good practice to include their license number on any retainer agreements.

You may want to consult with your personal attorney from your country of origin but unless they are licensed to practice law in Mexico they should not give advice on Mexican Law.

What is the role of Public Notaries (Notarios Publicos)?

Real estate transactions and the legal conveyance of any type of property in Mexico involve the participation of a notario publico. Don’t be misled by their title, which translates to ‘public notary’, because the notario publico’s responsibilities are much greater than simply the formalization of signatures. Notarios publicos are attorneys that forgo litigation and must pass two extensive examinations to receive their lifetime appointments and are appointed by the Governor of the State and the Executive Branch of the federal government.

In standard transactions, the notarios prepare deeds of conveyance in accordance with the purchase-sale agreement. The buyer and seller get together with the notario to formalize the transfer of property and authorize the signatures upon execution of the escritura. Notario’s record the escritura with the public registry of property where the property is located after the property has been transferred. A notario’s duties before the closing include verification of title, searching public records for status of the title and for liens against the property and to examine the sellers documents to ensure accuracy and legitimacy.

They are also responsible to collect property taxes and government transfer taxes. As a representative of the State, however, the notario is not allowed to insure title to the real estate and do not have legal responsibility for any title defects.

A buyer can only seek restitution against a notario, in the event of monetary loss, due to fraud, misrepresentation or gross negligence that is proven in a Mexican court of law.

Closing costs & down payments

How much should I expect closing costs to be?

Common practice in Mexico is that the seller pays capital gains tax and the real estate broker’s commission. The buyer is responsible for paying the transfer or acquisition tax and all other closing costs including the notario’s fees. Federal law regarding the real estate transfer tax allows each of the Mexican States to determine its own transfer tax rate which may range from 1-4% of the tax appraisal value which is usually less than the actual sale amount.

Additional closing costs, excluding transfer taxes, are generally 3% of the appraised tax value or more depending on the individual State. The percentages are applied to the highest value of either the amount for which the property is sold, the official tax appraisal or value designated by the property assessment authorities.

For transactions consummated in cash:

There is a 2% transfer tax that is based on the price of the sale.

The Deed Recording Fee into the Public Registry, varies by state, but is usually between .05% and.06% of the purchase price.

The Notarios Publicos fee will vary depending on the notary but are usually 1% to 1.5% of the purchase price.

The trust set-up fee is approximately US$550 with an annual fee of approximately $650 which depends on the trustee bank. An SRE Permit from the Mexican government is required and costs approximately $1500