You Can Own Property for Personal Use or Rental
By Agustin Galindo Attorney at Law,* and Patricia Ann Talley, MBA, and Editor*
Yes, foreigners can acquire property in Mexico, however, direct ownership of property in “restricted zones” is prohibited. Restricted zones are areas 50 kilometers from the beach or 100 kilometers from the border. The Political Constitution of Mexico (1917) provides in Fraction I of article 27 that only Mexicans by birth or naturalization can acquire property in restricted zones.
Mexico’s Foreign Investment Law (1993) and its regulation (1998), provide that foreigners can acquire the rights to beachfront or border property in restricted zones through a trust, (“Fideicomiso”) with a bank that will own the property for the benefit of the foreigner(s); or foreigners must set-up a Mexican corporation that will own the property, with the foreigners being stockholders of the company. The way you purchase the property, through a trust (“Fideicomiso”) or by forming a Mexican corporation, depends on its intended use.
If you are acquiring property for business purposes, for example, to operate vacation rentals, you may need to set up a corporate entity to own the property and to conduct business activities. But, if you are acquiring property solely for a private residence, it is easier to do this through a “Fideicomiso” (Trust) with a bank. Discuss the intended use of the property with your attorney so that s/he can best advise you.
Purchasing Property for Business Purposes or Rental
If you are acquiring property for business purposes, for example, to rent the property when not in use by you personally, you may need to set up a corporate entity to own the property and conduct the business activities. We refer you to the related articles below for more detail about renting your property legally in Mexico.
Purchasing Property for Private Residence
If you are acquiring property solely for a private residence, it is easier to do this through a “Fideicomiso” (Trust) with a bank.
How does the Trust or “Fideicomiso” (Fe-day-co-me-so) work?
A “Fideicomiso” is a bank trust which permits foreigners to acquire property in Mexico, even if it is located within restricted zones that are 50 kilometers from the beach or 100 kilometers from the border, for their personal use and enjoyment.
The parties to the “Fideicomiso” (Trust) are:
- The Bank: el Fiduciario
- The Seller: el Fideicomitente
- The Beneficiary/Buyer (Trustee): el Fideicomisario (foreigner)
- The Heirs (Secondary beneficiaries): los Fideicomisarios Sustitutos
The characteristics of the “Fideicomiso” (Trust) are:
- The Bank (Fiduciario) holds the title of the property for the benefit, use, and enjoyment of the foreigner (Fideicomisario)
- The duration of the “Fideicomiso” is 50 years, after which it can be renewed. During this period, the property can be transferred and the beneficiary is entitled to appoint a secondary beneficiary or secondary beneficiaries (heirs), with the understanding that such bank trust can be used as a “will” limited to the property.
- The foreign Trustee (beneficiary) may assign his/her rights to the “Fideicomiso” at any time upon the sale of the property. If the property is sold to a foreigner, the “Fideicomiso” can be transferred; if the property is sold to a Mexican, the “Fideicomiso” will be terminated.
How do we start the purchase proceedings on a piece of property?
When buying real estate, we advise you to seek the advice of a Mexican attorney who can guide you through the process. Before giving any type of down payment or committing yourself to a deal, obtain a copy of the actual escritura (property deed) from the seller, which should be given to you with no argument if everything is in order. This way a title search can be performed to verify that the title is clear, i.e., that the owner is effectively the owner and that there are no liens or domain limitations.
Again, your attorney will assist you in making all real estate transfer agreements, which must be presented before a Mexican Notary Public to be legal. Normally a down payment is required at the signing of a contract, but there is no rule on the percentage.
Formalizing the real estate purchase before a Mexican Notary Public
Once you and your attorney reach an agreement with the Seller and you have obtained a Trust Permit from a bank, the next step is to go before a Mexican Notary Public, who is chosen by the Buyer.
The Public Notary in Mexico has a purpose totally different than Notaries in the United States and Canada. In those countries, the Notary functions only to certify the signatures on documents. The Notary in Mexico, however, plays a more important role and is essential in transactions of goods and matters of business. The Mexican Notary Public is an auxiliary of our Judicial System that gives the public faith and certainty of the legality of an action signed before him/her.
All real estate transactions must be filed in front of a Mexican Notary. The Notary will check again the validity of the ownership and that the title is clear.
The three parties involved in the real estate transaction – the Seller, Trustee (Bank), and Beneficiary (Buyer) – must sign a public deed or instrument that is prepared and also signed by a Mexican Notary Public formalizing the trust, and the deed needs to be recorded in the corresponding Public Registry of Property in order to be valid before any party.
The notary’s fees, taxes (except for the income tax), and expenses to formalize a trust are customarily paid by the Beneficiary (Buyer) and may vary between 4.5% to 6% of the price of the property.
In the case of a trust, once your trust deed is registered, you need to pay your property tax and your bank fees (Trustee), annually.
What documents are needed?
The Notary Public will need from the Seller: 1. The registered deed; 2. Up-to-date tax receipts, water bills, and any other public utility bills paid up to the date of sale. The Notary Public will determine capital gains taxes.
The capital gains tax, if any, is paid by the Seller. However, through mutual agreement, it may be paid by the Buyer. Make sure you know how much this will be; the Notary will inform you of the cost before the transaction. Cash or money changes hands the minute the Seller signs over the deed, usually in the Notary Public’s office. Again, the Buyer ordinarily pays notary fees incurred, which also must be paid when the title is signed over.
If you are selling it is important that you calculate the capital gains to be paid, if any, and which are the legal tax benefits that you can legally use to reduce your taxation.
Registering the deed
The process is not over yet — the Notary Public must register the escritura in the Registro Público de la Propiedad (Public Registry of Properties). This should be done promptly so the transfer of ownership is recorded and can be effective before third parties. A typical time frame for this is around two to three months. Again, your attorney will assist you with all aspects.
*About the Authors: Agustin Galindo is a Mexican Attorney-at-Law with a master’s degree in International and Comparative Law from Southern Methodist University in Texas and holds a tax degree from ITAM in Mexico City.
Patricia Ann Talley holds a master’s degree in Strategic Marketing Planning from the University of Michigan, and a Bachelor of Science in Financial Investments & Accounting from California State University in Long Beach. A former marketing executive from Chicago, she has owned and operated businesses in Mexico for over 20 years and is a dual (American Mexican) citizen.
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