Thursday, September 6th 2018
Buying Property in Mexico
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Have you considered buying property in Mexico? This helpful article contains advice for what steps to take before you engage in buying property in Mexico. Then it has helpful tips for how a foreign expat can purchase property in Mexico. WeExpats highly recommends that you review and prepare all contracts with the help of a Mexican attorney.
HISTORY OF LAND LAWS IN MEXICO:
In 1917, the constitution which still exists today was adopted. In this document, the Mexican government decreed that all land would be farmed for agriculture by a community of locals, and thus it would not be private property. This land is known in Mexico as “ejido”. Since then, some land has been allocated for private property, however it is still important that foreign buyers ensure that the land which they are interested in purchasing is not ejido.
In 1973, the Mexican government passed the Foreign Investment Law. This law let foreigners purchase land, except any land within 100 kilometers of a border with another country, or within 50 kilometers of a beach.
In 1993, an amendment to this law was passed so that foreigners could purchase land within these restricted areas through the use of a fideicomiso.
WHAT IS A FIDEICOMISO?
A fideicomiso is a form of trust that allows a Mexican bank to act as an intermediary between the foreigner buyer and the property seller. This allows an American or Canadian expat in buying property in Mexico with all the rights of a Mexican citizen.
You can will your property to your heirs and you can even hold several properties off of one fideicomiso. The fideicomiso also makes it easy to sell to another foreign buyer simply by changing the name through a process with the Mexican bank. Fideicomisos don’t have to be owned by a person, they can also be owned by an LLC for example. There is is a fee to set one up, roughly 500 USD – 1,000 USD. Also, there are yearly maintenance fees, which will typically run around $500 – $700 USD.
HOW TO PURCHASE LAND THROUGH A MEXICAN CORPORATION
Starting a corporation in Mexico can also be an avenue for foreign expats. It can often make sense to form a Mexican corporation if you plan to purchase, subdivide, and develop land—or any other process that is business or investment related to buying property in Mexico. Mexican corporations can be owned entirely by foreigners.
However, Mexican corporations carry with them more reporting requirements and other restrictions as opposed to a fideicomiso. Mexican corporations require a certified accountant to submit monthly expense and income reports to the Mexican Department of Treasury (Secretaria de Hacienda y Credito Publico – SHCP). Also, property held by a Mexican corporation is considered commercial property and it is thus susceptible to additional taxes like a Value- Added Tax (IVA in Spanish).
Setting up a Mexican corporation must go through a Mexican attorney, thus the prices to set up a Mexican corporation vary, but it will be at least $50,000 MXN (about $2,800 USD), that’s not to the annual fees to maintain your Mexican corporation (roughly $600 USD – $800 USD).
AN OFFICIAL OFFER FOR BUYING PROPERTY IN MEXICO
Though Mexico recognizes verbal agreements, it is always best to have an offers and subsequent contracts written in writing so as to ensure that there is misunderstandings or confusion. Be sure to have terms and conditions clearly defined.
When you make an offer in buying a property in Mexico, you and your lawyer will be creating an official “Offer to Purchase” contract. In this document, you will detail the terms of the sale. This must include, the price and plans on how you wish to pay for your property in Mexico. You will also outline details on an earnest money deposit, and be sure to add a deadline that dictates the amount of time the seller has to accept or decline your offer.
If the seller chooses to accept your offer, an earnest money deposit must be drafted by either your attorney or the real estate agent. In this, be sure to add a clause which guarantees the deposit if a final sales agreement or a promissory agreement isn’t executed within a certain time period illustrated in the document. Define clearly who receives the deposit, and if the seller requires that the deposit be non-refundable, then make sure it is a smaller amount that you can stand to lose if something goes wrong.
MEXICAN PROMISSORY AGREEMENT (CONTRATO DE PROMESA)
After the deposit stage, both parties will draw up a contrato de promesa, or promissory agreement, which will set the basic terms of the offer in place. This will also ensure that both the seller and the buyer adhere to a solid timeframe while all remaining paperwork is completed for the purchase contract. This paperwork can take some time. If all the terms and conditions in completing the purchase contract are met, then neither party can back out of the transaction. Both parties are bound to the promissory agreement by Mexican law once the promissory agreement has been signed. After the signing of the promissory agreement, the seller of the property in Mexico initiates a trust application with the bank where you set up your fideicomiso.
Meanwhile, your attorney will order a trust permit from the Ministry of Foreign Affairs (Secretaria de Relaciones Exteriores). Your attorney will also be ensuring that the legal status of the property is in order, such as:
- Making sure that the seller has a right to transfer the title
- Reviewing the terms and conditions of the purchase contract
- Reviewing the title
- Requesting a certificate of no tax liability from the seller
- Requesting a property appraisal from the seller
- Requesting a certificate of no encumbrances
- Submitting a copy of buyer’s passport and other identification—as well as a utility bill with your home address—to a notary public to be filed at the public registry. (If you are purchasing the property through a corporation, documentation will also be provided).
Assuming everything is in order, the notary public, your attorney, and the bank will have your trust documents drafted and finalized.
FINALIZING THE PURCHASE/AGREEMENT
Once the promissory agreement has been signed, and all the subsequent paperwork has been completed, the process of executing the purchase/sales agreement should unfold without issue. In Spanish, this is known as the compraventa. From there the closing process will start and the title of the property will be transferred to the fideicomiso.
Around this time, the Ministry of Foreign Affairs (Secretaria de Relaciones Exteriores) will have sent the trust permit to your particular bank trust office. From there, your lawyer should be able to begin drafting documents to close the deed. Together, your bank trust officer, an attorney, and a public notary will review the final draft of the deed for your property in Mexico.
TITLE TRANSFER AND CLOSING THE DEAL
Once the closing paperwork has been completed, a closing date will be selected. You will be notified of this date, the property title will be officially transferred to the bank trust, the final deed will be signed, all final payments and all the final closing costs will be due.
FEES THAT THE BUYER MUST PAY
The buyer is expected to pay several fees related to the closing paperwork. Here are some estimated prices so that you can get a rough idea of what to expect:
Fideocomiso Permit Fee (which lasts for 50 years) $1,000 USD
Foreign Investment Registration Fee $300 USD – $800 USD
Acquisition Tax 2% of the Purchase Price
Public Registry Filing Fee $100 USD – $300 USD
Notary Public Fees $650 USD – $1,200 USD
FEES THAT ARE NEGOTIABLE IN THE CONTRACT
There are some fees that can be paid by the buyer or the seller, depending on the particulars of the contract. The Appraisal Fee—which is typically between $300 USD and $500 USD—can be paid by either party; as is the same with the Certificate of No Encumbrances $200 USD to $300 USD. If the seller uses their own real estate attorney, they are responsible for their own lawyer fees which vary—just as how the buyer is responsible for his own varying lawyer fees.
THE CLOSING DEED
Once all the fees are paid, then the notary public will issue a notarized copy of the closing deed. With this document, you now have proof that you own the property, and you can begin to set your affairs in order—things like setting up the utilities for your home.
Within the next few months, the Public Registry (Registro Publico) will issue a final deed. This document containing a copy of all certificates, and an electronic folio complete with payment of rights. However in Mexico, taking the title and when you are actually delivered the property are two different processes. These processes are not necessarily completed on the same day.
DELIVERY OF YOUR PROPERTY OR UNIT
Whether or not your property has a completed building, when you are finally handed the keys to your new home, be sure to do a personal walk through. Make sure that your property is being passed on in an acceptable state. You will be asked to sign a delivery statement. Do not sign it unless you are satisfied that your home, unit, or property is in acceptable condition. Don’t forget that the process of buying property in Mexico can be handled by your Mexican attorney. You do not need to be physically in the country throughout the entire process. You simply have to grant your lawyer power of attorney, and they will take care of the process of buying property in Mexico.
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