Some things need to be carefully considered when purchasing a home in Mexico!  You need the right guidance and you need professionals to step in and make sure it goes smoothly.  The following article contributed by Robert Foster & Asociados. We appreciate the contribution!

"Can foreigners own property in Mexico?"

Yes. In the interior of the country, foreigners can own real estate (whether lots, land, houses or condos) in fee simple (called "freehold" in Canada), just like a Mexican. Prior to 1974, foreigners could not purchase property in the "restricted zones" (meaning within 100 kilometers of the borders and 50 kilometers of the coasts). But the Mexican Foreign Investment Act of 1974 changed all that, creating an efficient trust-system of ownership. (The law was amended in 1994, making all trusts 50 years in term, and automatically renewable in perpetuity.) Since 1974, along the borders and coasts, foreigners receive a special trust deed called a fideicomiso. A Mexican bank is designated as trustee, and the foreign buyer is the Primary Beneficiary. The buyer has complete use and control of the property, with the same rights privileges and benefits as any other property owner in Mexico. Essentially, as a practical matter, it's as if you own the property in fee simple .

"Is Title Insurance available?"

Yes, Stewart Title Guaranty and First American Title routinely write policies on Mexican property now.

"Is financing available?"

Yes. More and more US lenders are active in Mexico, especially in resort markets such as Cancun, Cabo San Lucas and Puerto Vallarta. Terms and rates are competitive with "second home" rates in the US, and are getting even better as more underwriters come into the market. Loans are now available to Canadian buyers as well.

"Can I will the property to my children?"

There is no better estate planning tool than owning property in a Mexican trust (fideicomiso). Your trust deed will already contain the names of your designated heirs (sub-beneficiaries), and the real estate (bienes raices) will pass to them automatically when the owners (primary beneficiaries) have passed away. There is no inheritance tax and no probate whatsoever when Mexican real estate held in a trust deed passes from one generation to the next.

"Do I have to get "permission" to sell the property?"

No. You may sell the property at any time to anyone you want. Again, as a practical matter, it's essentially as if you owned the property in fee simple.

"Will I have to pay property taxes?"

Yes, but they are stunningly low. On a million dollar (USD) home you will pay less than $400 USD a year in property taxes. You must pay these very low taxes, because you have the same rights as any owner in Mexico and, it follows, the same obligations as any owner in Mexico.

"What happens to my property if the trustee bank closes or gets into financial trouble?"

Nothing. Your property is not part of the capital asset base of the bank. It is known as "segregated assets" and cannot be attached no matter what happens to the bank. Your trust would simply be moved to another institution.

"Can my corporation or LLC buy the property?"

There are several ways to acquire Mexican coastal real estate. Most common is for a couple to buy as individuals, jointly owned, a fifty-fifty undivided interest. (As Co-Primary Beneficiaries) But optionally, you can use your US or Canadian corporation or LLC to purchase the property, but there are ramifications regarding capital gains when you sell. It is a decision to be discussed in some depth with your Mexican real estate professional before deciding how to acquire the property. (In 90% of cases, acquiring as individuals is best.)

"What about forming a Mexican corporation to buy the property in fee simple?"

This is not advisable in most cases, as the law states clearly that Mexican Corporations can buy in fee simple only if the property is commercial, not residential. Residential property owned by foreigners along the Mexican coast must be purchased with a fideicomiso (trust deed).

That is the legal framework. Now, the practical side of making a purchase: Generally, as you shop around, consider only already-deeded (escriturado) property. And beware of two potentially risky areas that have brought a lot of heartache to foreign buyers: developer-financed property and ejido property.

Developer-Financed Property:

You should be cautious about contracting for developer-financed property, especially in pre-construction situations. Indeed, it can work exceedingly well, but in most cases it is paramount have an experienced local realtor guide you. Developers vary widely in their skill, integrity, and solvency. Unless you have the ability to perform due-diligence on the developer's track record and financials, think long and hard before putting 20 or 30% down and contracting for an un-built or partially built property.

Don't let a beautiful model unit, that gorgeous beach view, and a likeable salesperson sway you. ("But...he seemed so honest!") You need competent representation, to help keep your emotions and perspective in check, to negotiate the best terms and price, and to thoroughly check out the qualifications of the developer. (The realtor/broker you select to represent you should be at a minimum an A.M.P.I. member. A.M.P.I. is a professional association of Mexican realtors, with standards of admittance based on experience, ethics, and knowledge.)

Don't rely on the developer's blithe assurance that, "No hay problema," or the cynical pressure of, "What's wrong? Don't you trust us? You're just a nervous gringo!"

Also be very careful when considering Ejido Property:

Ejido property is non regularized, non-deeded, communal property. This is cheaper, because it carries great risk. It is technically not even legal for the ejido to sell property to a foreigner, but it is often done nonetheless, through "contracts" which are technically unenforceable.

Usually, through a lengthy (5 or more years) bureaucratic process, the ejido is able to "regularize" (meaning privatize) and provide title to the property after the fact.

But, not always. In some cases, the ejido votes to reclaim the land (along with any
improvements you may have made). When that happens, there is little the foreigner can do because, strictly speaking, you don't have a legal leg to stand on. If you do "buy" ejido property, understand fully the risks you are taking. Most A.M.P.I realtors do not handle ejido property. Those that do should explain the inherent risks fully and completely.

Notarios:

All legal real estate transfers in Mexico must be handled by a notario's office. (The person is a notario. The office is called a notaría.) The notarial system works to protect all parties to the sale. Each notario is a specially trained and government-appointed attorney, charged with handling real estate transactions in a manner fair to both sides. Howver, the notario's chief obligation is to search the history of the property, and deliver to the Buyer a clean and unencumbered title.

The notario is also an agent for Hacienda, the Mexican federal tax authority, and collects any taxes due on the transaction (whether federal or local). Most notarias are busy, highly professional places, with many assistant attorneys and several secretaries on staff. 

Generally, an area has several notarios to choose from. For example, the Puerto Vallarta area has as many as 12 (some Tepic notarios have branch offices in Vallarta). You, as buyer may choose any notario you like. However, your realtor may well recommend one or two notarios with whom the realtor has the most experience and confidence. The notario will give you an itemized estimate of all closing costs on request. In Latin America, it is traditional that the Buyer pays all standard closing costs.

To clarify: You won't necessarily work directly with the notario himself -- most likely you'll work primarily with one of his staff attorneys, through your realtor. That's perfectly adequate.

A professional realtor will draw up a formal buy-sell agreement (a "Contrato de Compraventa Definitiva" -- a definitive and legally binding sales contract -- from which neither party can back out without specified penalties. Usually this will require you, the buyer, to place a ten percent deposit in escrowed-in-trust funds. Most AMPI realtors use either Stewart Title or First American Title for escrow, and to disburse funds at closing. You should insist that your deposit be placed in a formal, true escrow account with a neutral third party such as the two companies above. I would not recommend that you allow your realtor to hold funds. There is usually no reason to do so, and most AMPI realtors avoid handling deposits.

The notario office does all the paperwork to prepare for closing, which usually takes about six weeks. They do the title search, set up your foreign ownership trust with a bank, and ensure that there are no oustanding liens or encumbrances. Finally, when all is ready, they will host the closing in their office. At the moment the seller signs the 'escritura' (deed) over to the buyer, and funds are disbursed by the escrow company. "Trato hecho." (Done deal.)

You'll get a preliminary copy of your 'escritura' on the spot, and in a couple of months, a final copy reflecting that it has now been recorded in the public registry.

The closing costs vary, but as a rule of thumb, buyer's closing costs run about 5-6 percent of the purchase price. That includes your first-year trust fee; the fee to the notario for handling it all; foreign permit; appraisal fees; real estate transfer tax and registration tax; etc. (If you happen to buy from another foreigner -- and assume the existing trust -- you can save a few hundred dollars or more in closing costs.)

Traditionally, and even now, the vast majority of deals in Mexico are cash deals. But increasingly, US lenders are offering dollar-based mortgages on Mexican property. The rates and terms are increasingly competitive, and similar to second-home terms in the US. Loans are available to Canadian or US citizens.

A few owner-carry situations can be found. Generally, these are 3- to 5-year contracts. This can be really sticky if problems arise. Especially if both parties are foreigners. Litigation in Mexican civil court drags on forever, and if both litigants live outside the country -- well, what a mess.

Some good news: Property taxes, even in resort areas, are stunningly low. On a $200,000 (US dollars) house, expect to pay the equivalent of well under $100 (yes, one-hundred) US a year.

However, as a foreigner, you will also have to pay an annual trust maintenance fee to the bank that holds you title-in-trust (the fiduciary to your trust). This averages around $400-500 (US) yearly.

In sum, purchasing coastal-zone property in Mexico can seem complex and confusing. But so long as you have competent, professional representation, your rights will be protected.

Robert Foster, Robert Foster Y Asociados, Bucerias

All journeys have secret destinations of which the traveler is unaware." (Martin Buber)

ROBERT FOSTER Y ASOCIADOS

163 Lazaro Cardenas, Bucerias, Nayarit, Mexico
329-298-3314 fax 3324 cell 322-135-5979
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