real estate

Mexico Marketing

Mexico offers attractive real estate investment opportunities and retirement in Mexico can be a wonderful option if you follow prudent business practices. Mexico real estate information is for educational purposes only.

A Mexico real estate or business transaction should require no less documentation than in your own country.

1. Your Mexico real estate purchase contract should be no less detailed than in your own country. A foreigner's rights and recourse are near nonexistent without an attorney approved purchase contract. It can be most helpful to work with a lawyer who is licensed to practice law in both Mexico and the USA. Visit Mexico Legal Info more information.

2. All purchase funds should be placed in a neutral, third party escrow with specific instructions for disbursement of funds.

3. Always obtain Mexico Title Insurance from a reputable international title insurance company. Please be advised that the very important local Notario who handles your Mexico real estate transaction is acting without any liability for his service. The Notario is not liable for defects in title and the Notario is certainly not liable for lack of disclosure from the seller.

4. It is always advisable for a buyer to retain professional real estate broker services for analysis of the many factors which can affect the value and security of your real estate investment.

5. It is strongly recommended that you consult a qualified attorney before investing in uncompleted developments of any kind. There can be little or no recourse when a developer fails to complete a proposed project and it is not uncommon for projects to lack proper completion bonds, permits and licenses. Visit the Development Info section for more information about investing in new development projects.

Buyer Beware: Mexico real estate prices that seem too good to be true are usually too good to be true! Many of these "bargains" are located on what is commonly referred to as "Ejido" or communal tracts of land. It is highly recommended that you consult with a Mexico attorney regarding Ejido land rights.

Be advised that there are no laws which regulate the sale or management of real estate in Mexico and abuses do exist.

Mexico foreign investment law is summarized below by Jonathan Pikoff, founder of Pikoff, Sztrigler & Soriano, a Mexico based law corporation. Mr. Pikoff is one of few attorneys with law degrees in both the U.S.A. and Mexico. His practice focuses on real estate development and advising U.S. public and private companies doing business in Mexico.

What 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 Mexican company can now be 100% foreign owned and controlled.

An American (or any foreign national) can acquire land title 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".

The "prohibited zone" is the strip of land 100 km from the borders 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, nonresidential real estate includes, but is not limited to:

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 Ministry.

Property 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.

The Notary

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 2.5%.

Acquisition Process

Most real 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 a notary.

"Closing companies" 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.

Before a notary will record the Purchase Sales Agreement, the following documents are required:

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.

The Ejido

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.

Despite 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.

Typical Settlement Statement
Residential Property - Condo in Cabo San Lucas

Purchase Price (US Dollars) $200,000
Appraisal Fees $300
Certificate free of liens $25
Certificate of Property Tax $5
Pro Rata Property Tax unknown
Acquisition Tax (2%) $4,000
Notary Public Fees: $1,500
Trustee Fee-Initiation (350 p/yr thereafter) $700
Registration of Trust (.25%) $500
National Registry of Foreign Investment $150
Permit from Foreign Affairs Minister $1,000
Attorney Fees: $2,500
Total Purchase Cost (US Dollars) $210,680

Pikoff, Sztrigler & Soriano are among very few Mexico law firms which are licensed to practice law in Mexico, Texas and California. The lawyers of Pikoff, Sztrigler & Soriano are not board certified by the Texas Board of Legal Specialization. Jonathan Pikoff is licensed to practice law in Texas and Mexico, Viviana Sztrigler is licensed to practice in California and Ernesto Soriano is licensed to practice in Mexico. Visit MexicoLegalInfo.com for more information.

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