How To Buy Your New Home (Or Investment Property) In Mexico
The purchase process for foreigners looking to buy real estate in Mexico is simple and straightforward. If you’ve done your due diligence, and you are represented by experienced real estate professionals and a licensed real estate attorney, you’ll have no problems.
But you do need to have an idea about your property objectives before you dive in. Are you looking for property to live in… or are you looking purely for investment? The end use for your property may dictate how you go about purchasing it.
In 1917, the government declared that all land in Mexico would be “ejido,” that is, communal land used for agriculture and farmed by a collective of locals—not private property. Nowadays not all Mexican land is ejido, but it’s important for foreign buyers to make sure that any real estate considered for purchase is not classified as such.
Mexico passed the Foreign Investment Law in 1973, allowing foreigners to purchase real estate anywhere in the country—the only restrictions being border and coastal land (within 100 kms of international borders or within 50 kms of the coast). In 1993, the law was amended to allow for purchase within restricted areas through a fideicomiso—a trust agreement established with a Mexican bank.
A fideicomiso allows a foreign buyer to hold property with all the rights and privileges of a citizen. With a single fideicomiso, you can hold multiple Mexican properties, own them in perpetuity, and will the property to your heirs. Plus, you can easily transfer the trust to another foreign buyer, should you wish to sell.
A fideicomiso is good for 50 years and is renewable thereafter (by you or your heirs). It can be held by one or more individuals or by an entity (an LLC, for example). The initial setup costs range from US$500 to US$1,000, and maintenance fees amount to US$500 to US$700 per year.
Foreigners can also own land in restricted areas through a Mexican corporation, and these can be 100% foreign-owned. You should only consider a corporation if you’re buying real estate strictly for investment or business. If you plan to subdivide and develop land, a Mexican corporation makes sense.
Corporations come with more restrictions and reporting requirements than fideicomisos. They are required to submit monthly reports on income and expenses—completed by a certified accountant—to the Mexican Department of Treasury. And property held in a corporation is considered commercial, so it’s subject to additional taxes (VAT, for example).
The initial costs to set up a corporation will vary depending on the attorney that you use, but the minimum required is $50,000 Mexican pesos (about US$2,800 at today’s exchange). You’ll also incur costs for the certified accountant to maintain it (US$600 to US$800 annually).
No matter the use of your property, your attorney should be involved in reviewing its legal status, including title search, the review and preparation of contracts, and setting up your trust or corporation.
The buying process should play out like this…
Offer And Acceptance
Make an official offer. While Mexican law recognizes verbal agreements, both the offer and acceptance should be made in writing, ensuring no confusion on terms and conditions. Your offer should be sent in the form of an “Offer to Purchase” contract, detailing the main terms of the sale, including price, payment plans, details on an earnest money deposit, and a deadline for the seller to accept the offer.
As soon as the seller has accepted your offer, an earnest money deposit must be made (to be held either by the real estate agent or the buyer’s attorney). You should include a clause in the offer that guarantees the deposit if either a promissory agreement or a final sales agreement isn’t executed in a certain amount of time; also note who received the deposit. If the seller requires it to be non-refundable, make sure it’s not more than you’re willing to lose.
Once the deposit is made, the promissory agreement (contrato de promesa) will be drawn up, binding both buyer and seller into a timeframe to execute the purchase contract. Having this in place locks in the basic terms of the offer while you and the seller track down all the paperwork you’ll need to complete the purchase contract—which can take some time. It also allows time for both parties to work out the details for the final purchase contract.
Under Mexican law, both parties are bound by the terms of the promissory agreement—if all the terms and conditions are met to execute the purchase contract, neither party can back out of the sale.
Once the promissory agreement has been signed, the seller contacts your bank (the one you used to set up your fideicomiso) to initiate the trust application. Your attorney then orders a trust permit from the Ministry of Foreign Affairs.
During this time, your lawyer should also be verifying the legal status of the property, including review of title, confirming that the seller has the right to transfer the title, and reviewing the terms and conditions of the purchase contract. He’ll also need to request documentation from the seller, such as the certificate of no encumbrances, a certificate of no tax liability, and a property appraisal.
The documentation required from the buyer is minimal—all you need is a copy of your passport and driver’s license, a recent utility bill showing your name and home address, and corporation documentation (if applicable). These are presented to a notary and are filed at the public registry.
If everything is in order, the notary and your attorney will work with the bank to have the trust documents drafted and finalized.
At this point, both parties should be able to execute the purchase/sales agreement (compraventa), start the closing process, and transfer title of the property to the fideicomiso.
By this time, the bank trust office should have received the trust permit from the Ministry of Foreign Affairs, and your attorney will be able to start the drafts for the closing deed. Your lawyer, a notary, and a bank trust officer will then review the final draft of the deed.
Closing And Title Transfer
Once everything has been verified as correct and all the closing paperwork is ready, you’ll be notified of a closing date and the final closing costs due. At closing, the final deeds will be signed, final payments settled, and the property title officially transferred to the bank trust.
|Certificates of no encumbrances and no tax lien||US$200 – US$300||Buyer or Seller (Negotiable)|
|Notary fees||US$650 – US$1,200||Buyer|
|Public registry filing fee||US$100 – US$300||Buyer|
|Appraisal fee||US$300 – US$500||Buyer or Seller (Negotiable)|
|Acquisition tax||2% of purchase price||Buyer|
|Trust permit fee (50 years)||US$1,000||Buyer|
|Foreign investment registration fee||US$300 – US$800||Buyer|
|Administrative and closing costs involved in a typical transaction
*The seller may use his own real estate attorney for the transaction—in which case, he would be responsible for covering this separate legal fee.
The notary then issues a notarized copy of the closing deed. This is your first proof of ownership and can be used to put utilities in your own name.
Within three months of your closing date, the Public Registry issues the final deed containing an electronic folio, copy of all certificates, and payment of rights.
In Mexico, the delivery of your property and taking of title are two different procedures that can take place on two different dates… meaning you don’t immediately take possession of the property at closing.
Delivery Of Unit
Do a personal walk-through to ensure that your property is being handed over in an acceptable condition before you take it. Once you’re satisfied, you’ll sign a delivery statement, detailing the official delivery date of your property.
Keep in mind that your attorney can handle the entire purchase process—you don’t need to be in the country for every step. By granting your lawyer a power of attorney, they can assist you through each stage of the sale, right up to the signing of the closing deed on your behalf.