Best Real Estate in Mexico
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Legalities, Fideicomiso (Trust) and foreign owned Mexican Corporations The Federal Zone This is land that cannot be owned by anyone, Mexican or foreigner. It includes all beachfront land running from the mean high tide line (the point where high tide hits the sand or rocks averaged out over a year) to 20 meters (approx. 60 feet) up the beach. This land belongs to the federal government and the people of Mexico and can never be sold.... Access to this strip of Federal Zone land can’t be restricted by anyone The Restricted Zone Under Mexican law foreigners cannot directly own land within 50 km from the shore or 100 km from the border. Foreign investors willing to acquire property in Mexico can do it through a bank trust (Fideicomiso) in which the object of the trust is the property they are acquiring and the foreign buyer is the beneficiary of the trust. The Fideicomiso is an irrevocable contract under which a Mexican bank holds the title to the property and the foreigner is the beneficiary. For individuals acquiring recreational property in Mexico within the restricted zone, this is the only legal vehicle to do so. Mexican companies with up to 100% foreign ownership may acquire fee simple ownership on Real Estate located in the Restricted Zone ONLY if is for industrial, commercial, and non residential purposes . Fideicomiso Parties: Settler/ Trustor = Seller Trustee/ Fiduciary Institution = Mexican Bank Trustee/ Beneficiary = Buyer Seller (Trustor) irrevocably transfers to Bank (Trustee) title of ownership of Real Estate so that Foreigner (Beneficiary) can use and enjoy the property - Foreigner holds beneficiary rights - Bank holds ownership rights - Permit from the Ministry of Foreign Affairs is required - Bank cannot restrict beneficiary’s use as long as lawful - Bank cannot encumber, securitize or sell the real estate. Formalities: Written Agreement granted before a Notary Public, containing, among other provisions, description of real estate, purchase price and trust fees. Term: 50 years and renewable. Beneficiary: 1 or more persons (individual or company) Second Beneficiaries: Option to designate a person to avoid having to will the beneficiary rights. Companies cannot designate second beneficiaries.

Due Dilligence Once you have selected the developer with the right product, you need to make sure they have the legal capacity to fulfill their offer. We will present you with a series of questions you will have to get satisfactory answers for. Clean and transferable title... Does the seller have legal title? Perform a title search of the property. Review the title (escritura) Is the title, product of the sale, free of liens? Request a copy of the lien certificate (Certificado de libertad de gravamen) showing the owner of record, legal description of the property and liens records. Is the property encroachment free? Has the condominium regime been recorded? Is it an agrarian land (Ejido)? Ejidos are communal lands. Converting ejido land to private property is a very long and complicated process involving the will of the community, boundary disputes, family conflicts and pending litigation. Do not buy ejido land unless and until you have definitive proof that it has been converted to private property with a clear title that can legally be passed on to you. Feasibility of the Development Does it have the proper use of land permits? Are the any environmental (geographic, geological, protected area) concerns? Are all the permits for utilities and public infrastructure (water, power, roads) in place? Is the developer financially sound to complete the project without relying in the pre-sale? Developer track record Have developer’s previous projects been delivered on time? Have all architectural and services offers been met on past projects? What is the developer reputation in the area? As Real Estate transactions in Mexico are not regulated as they are in Canada or USA, it is very important that you get familiar with the process and either you do your own research or hire a third party to do it for you, to make sure you get a clean transaction.

Promissory Purchase Agreement, Payment Structure and Final Purchase Agreement We encourage you to request a copy of the purchase agreement, including payment structure and the necessary documentation to confirm the seller’s capacity. Take your time to review the document in detail and discuss it with an expert. Promissory Purchase Agreement / Option to Purchase Agreement... These are preliminary agreements containing the basic transactional information. They are not the instruments by which title to the property is transferred to the buyer. Even when these agreements have fewer formalities than the final agreement, you still need to review the following: i) Seller is the owner of the property ii) Absence of liens iii) If liens, obligation of seller to deliver free of liens iv) Approvals for development (zoning feasibility) v) Status of permits such as water and federal zone concessions vi) Updated on property and other taxes. Payment Structure Well established developers typically have fair payment structures in place where you make an initial payment of 25% or less and approximately 75% when you take possession and title. You can be flexible and accept other payment structures when the following factors are favorable: - Higher % of completion building progress - Short delivery time Final Purchase Agreement and Seller capacity Thorough agreement mirroring exact terms of Promissory or Option Agreement plus formalities. The final agreement is granted before a Notary Public. All obligations are met and taxes & duties become payable: - Income Tax => Seller - Real Estate Acquisition Tax => Buyer - Value Add Tax (if applicable) => Buyer - Public Registry => Buyer - National Foreign Investment Registry => Buyer Transfer of ownership occurs: - Trust Rights (if asset is within the restricted zone) - Fee simple (if asset is outside the restricted zone) - Registrations are due (final step) - Public Registry - National Foreign Investment Registry

The role of the Notary Public, Closing Procedures and Costs A Notario Publico (Notary Public) is a certified lawyer awarded by the government with a patent to act as assisting authority to verify that specific transactions are properly filed and carried out accordingly to the applicable regulations. In Mexico, all real estate transactions must be formalized in the presence of a Notary Public. Prior to the closing, the notary’s additional duties include:... 1) To examine the documents of the selling party to ensure their accuracy and legitimacy; 2) To verify title 3) To search the public records to determine the status of the seller’s title to the property and the existence of liens against the property. The parties (Seller, Buyer and Bank) appear before Notary Public for the execution of the final agreement, and he/she authorizes the appropriate signatures upon execution of the escritura (title deed). The Notary will require: Official appraisal of the property Property tax certificate Non liens certificate Bank (Trust) instructions The Notary Public is also responsible for the collection of applicable income tax and government transfer taxes. The Notary Public does not insure title nor do they have any legal responsibility for title defects. In short, a purchaser cannot seek restitution against a notario in the event the purchaser suffers a monetary loss due to a title defect unless fraud, misrepresentation or gross negligence could be proven in a Mexican court of law. Once the property transfer has been formalized, the Notary Public will record the escritura at the public registry of property where the property is located. Most experts in this matter agree on the fact that every buyer should always have his or her own attorney and not to relay on the Notary as your lawyer.. Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a cédula profesional. This document is a registered license to practice law in Mexico and includes a photo of the attorney and his signature. An attorney different than the Notary, can also inform the buyer regarding his or her legal options regarding tax planning, available vehicles for the acquisition, closing costs, etc. Good advice will translate into cost effectiveness and peace of mind. The closing costs depend on the value of the property you are buying as well as on the particular characteristics of the property’s title. That being said, closing cost can range from 5% to 8% of the value of the transaction.