Foreign Ownership of Property in Mexico

The Mexican Constitution regulates the ownership of land and declares that ...within a zone of 100 kilometers from the border or 50 kilometers from the coast, a foreigner cannot acquire the direct ownership of the land. These areas are known as Restricted or Prohibited Zones. However, the latest Mexican Foreign Investment Law, which was ratified on December 28, 1993, allows a foreigner or foreign corporation to obtain the rights of ownership through a fiduciary trust known as Fidelicomiso, the equivalent of a US beneficiary trust.

Alternatively the purchase of non-residential property can be achieved through a Mexican corporation which, under certain conditions, can be 100% foreign-owned. An agreement is signed that says the corporation is subject to Mexican law and the owners will not invoke the laws of their parent country. Also, the real estate must be registered with the Foreign Affairs Ministry and be used for non-residential activities. In other words under the above conditions foreigners can directly acquire properties for tourist, commercial and industrial use.

Fideicomiso or Bank Trust
Any foreigner or Mexican National can constitute a Fideicomiso (the equivalent to an American beneficial trust) through a Mexican bank in order to purchase real estate anywhere in Mexico, including the Restricted Zone. To do so, the buyer requests a Mexican bank of his/her choice to act as a trustee on his/her behalf.

The bank obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust. The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for another 50 year period. During these periods the registered owner has the right to transfer the title to any other party, including their family members.

The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary who has all the benefits of a direct owner, including the possibility of leasing or transferring his/her property rights to a third party or to a pre-appointed heir. During this period, the foreigner is considered to be a Mexican National.

The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican Law. It assums full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary. Fideicomisos are not held by the trustee as an asset of the bank.

For practical purposes, even in unrestricted zones, many foreigners and even Mexican Nationals prefer to place their property under a Fideicomiso.

How It's Done
Most real estate transactions are opened after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker in order to transmit the offer to the seller. If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or a lawyer be consulted before signing any papers or exchanging any money.

In some areas it is common practice to deliver to the seller, as an advance payment, the equivalent of 20-50% (including the initial deposit) of the total price upon signing the purchase-sale agreement, which should contain a penalty clause in case there is a breach of contract by any of the parties.

Normally, when signing the escritura or official deed, which needs to be certified by a Notario Publico (notary public), the balance is paid and the property is delivered. This should not take more than 45 days. In certain resort areas, the custom of using "escrows" is being implemented.

Notario Publico
The Notario Publico is a government appointed lawyer who processes and certifies all real estate transactions, including the drawing up and review of all real estate closing documents, thereby insuring their proper transfer.

All powers of attorney, formation of corporations, wills, official witnessing, etc. are also handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all taxes involved.

Regarding real estate transactions, the Notario Publico, upon request, receives the following official documents, which by law are required for any transfer:

• A nonlien certificate from the Public Property Registry based on a complete title search.
• A statement from the Treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.
• An appraisal of the property for tax purposes.

Fideicomiso Cost
Based on a present tariff, the bank charges the person requesting a Fideicomiso an initial fee (approximately $500 US) for the drawing up the agreement and the trust, plus a percentage depending on the value of the property. In addition the bank charges an annual fee (again, depending on the value of the property) to cover its services as a trustee.

Title Insurance
There are different types of Title Insurance. There is Title Insurance available on the land (US Style) and Title Insurance available on just the Fideicomiso (Bank Trust).

A title insurance policy is a contract of indemnity that promises to pay for a loss up to the face amount of the policy if the state of the title is different than it is set out in the policy and the insured suffers a loss as a result of the difference.

A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records, and those so called non-record defects that could not be discovered in the public records even with the most complete title search.

A title insurance policy will not only protect the insured for as long as they have an interest in the property, but it will also protect their heirs and devisees for as long as they hold title to the property.

A title policy insures against loss by reason of matters specifically stated or covered in the policy. Purchasers of real estate run the risk of serious financial loss in connection with the title to the property purchased. The seller may lack title to the property because of a problem in the chain of title or may not own all of the interest in the property he purports to convey.

Due to the many rights, claims, interests, and encumbrances that the law recognizes in real property, it is essential for the buyer to have a title search and examination performed before the purchase is consummated in order to identify precisely the nature of the title the seller can legally convey and the rights and interests of all other parties in the particular piece of property. Title policies offer the only protection available against latent defects of title which do not appear of record such as forgery, impersonation, capacity of the parties, faulty acknowledgments, and inchoate mechanic’s and materialmen’s liens.

Currently, American title insurance is available only for foreign investors. The benefit of American title insurance for your Mexican real property is that your rights are enforceable in the U.S. against a U.S. company. Before acquiring any title insurance, it is recommended that you read the policy and determine the exact coverage's afforded.

The insurance runs about $4 to $7 for every $1,000 of property value.

Title Insurance is offered in Mexico by the following companies:

Stewart Title Insurance Company

Fidelity National Financial (FNF)

First American Title Insurance

Remember...
Foreigners wanting to own property in Mexico should consider the following :

• Understand that Mexico is a foreign country with a unique set of laws that must be adhered to in order to acquire recognizable rights in real property. Do not expect paperwork, procedure or costs to be the same as in Arizona.
• If you are purchasing in the restricted zone, you must buy through a Mexican Bank Trust (fideicomiso). Don't use a corporation to acquire residential property. A trust is not a lease. To be sure that you are getting good title, purchase US title insurance.
• Real estate agents are not licensed in Mexico and escrow as we know it does not exist. It is imperative to use qualified professionals including a trustworthy Mexican agent or attorney, possibly in cooperation with a knowledgeable U.S. attorney since the Mexican professionals do not carry liability insurance.
• Insist on U.S.-style protections that are available in Mexico, including but not limited to inspections, U.S. title insurance, U.S. appraisal, and U.S. financing. You can ask to have your earnest money held by a Mexican bank in a conditional deposit subject to the satisfaction of any contingencies that you negotiate in your offer to purchase, including issuance of a bank trust if applicable. Get an estimate of closing costs before you make an offer.
• When purchasing in a new home community or subdivision make sure that the improvements are in or that there has been a bond posted for the completion of the improvements. If you see an advertisement for a Mexican subdivision in Arizona, ask for a copy of the Arizona Public Report issued by the Arizona Department of Real Estate. Ask for Title Insurance and a Mexican Bank Trust.
• Be patient, transactions in Mexico may take longer than you anticipate. If someone suggests that you should purchase before your trust has been issued or without a Mexican Notary Public, beware! Mexican Notaries are official government lawyers who are uniquely empowered to formalize and record real property transactions.

Your purchase of Mexican real estate should be an investment, not a gamble. Many foreigners have paid money or built improvements on property that they cannot obtain legal rights to under Mexican law. The Mexican government in many cases has taken action to help the foreigner acquire recognizable rights because of widespread fraud or ignorance. At some point the Mexican government may draw a line and refuse to regularize such transactions. Foreigners are more educated now and they may be held responsible for acting in accordance with the law.