Buying Property in Mexico

Buying Mexican Property may be a dream but many foreigners make it a reality. However, before purchasing it is crucial that you keep in mind the technical and legal procedures that will make you a better buyer.

Mexico's "Restricted Zone?"

Defined under the Mexican Constitution, Article 27 of the Mexican Constitution ,the "Restricted Zone" is the land 100 kilometers from any Mexican border and 50 kilometers from any coastline. In these areas, non-Mexicans may not purchase or hold direct domain over any land, unless done so through a Bank Trustor forming a Mexican Corporation. Therefore, a FIDEICOMISO is required for any non-Mexican acquiring residential property in these zones.

A Bank Trust (Fideicomiso)

Both foreigners and nationals may establish a Fideicomiso. (An Irrevocable Bank trust). This trust is created with a Mexican bank. The bank accepts the fiduciary responsibilities of a Trustee. The Fideicomiso allows you to purchase anywhere in Mexico including the restricted zone.

The Notario at the request of the buyer requests that a bank of your choice act as a trustee on your behalf. The bank then will receive a permit to acquire the chosen property in trust. The trust is irrevocable and is established for a maximum of 50 years then it may be renewed for another 50 years. You are the beneficiary of the trust and have all the benefits of direct ownership. This includes the option to sell, remodel, lease, mortgage, or transfer the rights to a pre-appointed heir or another third party. The trust may also include language to by pass the probate court with joint ownership to transfer with the rights of survivorship. You do have the absolute right to transfer the title to another party at anytime.

Responsibilities of the trustee to the buyer include; exact fulfillment of the trust. Mexican Law also states the trustee will assume full technical, legal and administrative supervision.

It usually costs approximately $ 600 to $1,200 USD to set up a trust. There is also an annual maintenance fee of $400 to $500 USD. You will pay the yearly fees directly to your bank.

A corporation

If you wish to purchase property through a Mexican corporation, it may be 100% owned by foreigners. A provision in the by-laws of your corporation must state that the share holders must accept and will be subject to Mexican laws. You cannot live by the laws of your own country. The property must be registered with Foreign Affairs Registry.

Mexican Notaries / Notario Público

A Notario is an attorney appointed by the governor of the state in which he is licensed. The position of the Notario is held with very high esteem and they have responsibilities under the Mexican law. Only a Notario has the right to register and record real estate transactions and are responsible for the registration of deeds at the State and local government. They also collect taxes for the Federal, State and Local Government, which is a large part of the closing cost. The Notario ensures proper transfer of all documents and will draw up and review all of the closing documents including deeds, trust, and registration papers. In addition, other work done by the Notario include powers of attorney, the formation of corporations, writing of wills, and the well-known notary stamp and seal on numerous legal documents. The Notarios' work is in a manner similar to a U.S. title company because the Notario verifies on the date of deed transfer that back taxes have been paid on the property, collects capital gains taxes from the seller if any are due, request a letter that verifies maintenance fees are current in the case of property with a homeowners association and that there are no liens or encumbrances against the property. You receive a clear title to the property.

“The Closing Process and The Closing Cost”

It is going to take between 45-60 days to complete the closing process. Commonly, the buyer pays for the closing costs as well as transfer or acquisition tax. In many closings, it is not necessary for the buyer to be present for the closing. The closing costs are paid on the value of the property purchased. Most Notarios require that you pay for ½ of the estimated closing cost when they start your paperwork and the final payment at closing. An Estimate may be requested from any Notario and varies marginally in the cost of the closing from one Notario to another. Closing costs are as follows:

• Fees for the tax certificate
• Transfer tax (I.S.A.I.) of 2% plus a fixed amount according to a scale based on the appraised value of the property, this goes to the Mexican government.
• A registration fee of .05% of assessed value of the property.
• Average of 2% for legal notary fees.
• Title search fees
• Property Appraisal and miscellaneous office expenses.
• Total closing costs varies from State to State because each State sets the amount of taxes. The average in the State of Jalisco for closing residential properties range from 3.2 to 5.5 % of sales price. Commercial property for new construction may be as high as 8 % because the I.V.A. Tax (a 15% sales Tax) may be included in your closing cost.

Note: The recent closing for a condominium that sold for $254,000 US dollars the closing cost and the trust fee were $9,697 US dollars or 3.8 per cent. Another recent closing of a condominium that sold for $440,000 US dollars and the closing cost and the trust fee were $14,080 US dollars or 3.2 per cent.

Property Taxes - Your property taxes may to be low compared to States like California or Texas. The assessed rate is set by each state the same as in the U.S. The range is .04 - 2 per cent. In the State of Jalisco the rate of .08% of the assessed property value which is determined when the sale is made. Example: a $300,000.00 US dollar residential property is a little less than $280.00 US dollars per year. Compare that to what you are paying in your home State and you will see another advantage to owing property and retiring in Mexico. Not to mention lower cost for medicine, medical care, insurance (car and health), food (fresh fruit and vegetables) and clean air to breathe (basic essentials).

Financing - Interest rates in Mexico are higher compared to U.S. and Canadian rates so most transactions are made in cash. There are a few Mexican banks that offer mortgages and some developers do offer financing. In today’s market there are also U.S. lenders that have money available for U.S. and Canadian citizens. Contact us for more information about current interest rates and required down payments.

We at Lloyd Real Estate are here to help you find that perfect Mexican real estate vacation home. We believe that through education of our clients that they can make a better decision and be much happier with their purchase.