Law

How to Buy Real Estate in Mexico

By Lisa Larkin, Esq.

Most foreigners interested in buying Real Estate in Mexico ask this particular question "Can I own property in Mexico?" The answer is "YES!", with some restrictions. Today, Title Insurance is readily available to help protect your investment and the information provided here will arm you with the knowledge necessary to make a wise investment.

Foreigners may obtain direct ownership of Residential property in the interior of Mexico. Foreigners cannot acquire direct ownership of residential property within the area 100 kilometers from the border and 50 kilometers from the coastline. This area is known as the restricted zone. It is possible, however, to acquire beneficial rights to property in the restricted zone through a Bank Trust or Fideicomiso authorized by the Mexican Government under the Ministry of Foreign Affairs. The Fideicomiso is established for a 50 year renewable term and grants the beneficiary the right to use, rent, modify, or sell the property. An advantage of the bank trust is the avoidance of probate upon the death of the beneficiary when a substitute is named.

Property acquired for Commercial use by foreigners in the restricted zone may be owned without the need for a bank trust, provided that the property is held in a Mexican corporation. Depending on the type of business, it is often possible for a foreigner to own 100% of the Mexican corporation.

In a typical transaction, a preliminary sales agreement will be used. This is like an agreement to agree and is subject to a formal sales agreement which will be executed at closing by a Notario Publico. The preliminary agreement should provide for a price and terms and a closing date conditioned on the issuance of the trust permit if necessary. Other due diligence contingencies may be negotiated, but they are not customary. See Buyer’s Advisory.

Escrow as it is known in the United States and Canada is not used in Mexico. Depending on the state of Mexico, the real estate salespeople are not as regulated as they are in the United States and Canada, and do not carry liability insurance, so be careful of making any deposits up front to the seller or the agent. It is possible to use Escrow services in the US such as those that are available through the  Stewart Title, Houston, Texas.

If you are obtaining title to residential property in the restricted zone you will do so through a Mexican Bank Trust or Fideicomiso. If there is an existing trust on the property it may be possible to effect a transfer of beneficial interest. In either case, the paperwork will take time and personal documents will be required.

Real estate transactions in Mexico may be legally "closed" only by a Notario Publico, an official, highly respected government lawyer who acts as a neutral intermediary. Among other things, the Notario is responsible for formalization of the final real estate contract, collection of transfer and capital gains taxes and recordation of the transfer with the Public Registry of Property. The Notary is not your lawyer, and as with any investment, you may want to seek independent Mexican or U.S. legal counsel before proceeding.  The Notary will not collect and disburse funds other than those collected for payment of taxes.

In the US and Canada, depending on the state, Title Searches are routine, no or low cost and most  transfers of title are covered by Title Insurance. In Mexico, the Notary Public will conduct a title search and will require presentation of a certificate of no liens and no tax liability, but nothing is guaranteed. The only way to insure your title is to purchase Title Insurance.

At this time, Title Insurance is not widely used in Mexico but is quickly becoming more common. It is highly recommended for Mexican real estate purchases, whether acquired directly or through a trust. The cost of the insurance and title search depends on whether the property you are purchasing is covered by a master title commitment. The seller of the property may have this information, especially if you are purchasing a condominium or other real estate in a planned community.

A foreigner interested in acquiring real estate in Mexico should take care to follow all of the formalities under Mexican law. Seek competent legal, tax, and other professional advice before proceeding.