HOW TO BUY A PROPERTY IN MEXICO

HOW FOREIGNERS CAN PURCHASE PROPERTY IN PUERTO PEÑASCO, MEXICO.

In Puerto Peñasco, Sonora. Mexico, foreigners can purchase Real Estate without any complications. In many aspects buying a home in Mexico is just like buying a home in the United States. We do have to remember that Mexico is a country governed by civil law and the manner in which you will purchase property is different from which you are accustomed to in the United States.

HISTORY

By law, in 1917 the Mexican Constititution in it’s article 27 specified that “In a zone of 100 kilometers along the border or 50 kilometers along the coast, a foreigner cannot acquire the direct ownership of the land” these area is known as the restricted zone. But in 1993, thanks to the North America Free Trade Agreement (NAFTA) and a Mexican government with a full open mind about bringing foreign investments to keep activated a fast growing economy, the Congress decide that the Mexican foreign investment law should allowed foreigner to own direct Title to property for Commercial purposes but still, restricted direct Title ownership for residential purposes in a manner consistent with constitutional provisions.

The “Fideicomiso” or Trust (equivalent to an American beneficial Trust) can be constitute by any foreigner or Mexican citizen through a Mexican Bank in order to purchase Real Estate anywhere in Mexico, including the restricted zone. The Bank as a matter of normal course, obtains the permit from the Minister of Foreign Affairs to acquire the chosen property in trust. This trust can be established for 50 years and automatically renewed every 50 years.

TYPES OF OWNERSHIP

According to the Constitution of 1917 of the Mexican United States, there are three types of Ownership in Mexico.

1. PRIVATE PROPERTY.- This is when a property is assigned to a person, either individual or corporation (paragraph 1, Article 27 of the Constitution).

2. PUBLIC PROPERTY.- It is attributed to the State, since it is an entity with its own legal capacity and which is exercised through its different bodies and authorities, as regards the Federal, State and Local governments.

3. SOCIAL PROPERTY.- It is the property basically attributed to agrarian communities, as legal persons of social rights, in case of the EJIDOS, population nuclei with community population and land located within the different colonization districts. For example, the Law for Agrarian Reform, the Law of Human Settlements, the General Law of the National Property, that refers to the Federal maritime-land zone, the Law of Foreign Investments and the Organic Law of Federal Public Administration, there being the possibility that presently, this societal type, which in the case of Sonora comprises a large area of the land located on beaches, that tends to be used for tourist purposes, may be converted into private property, once all the requirements set for the Agrarian Law and its regulations in force, have been satisfied. It is important to establish that within or without the restricted area, foreign nationals shall require the Department of Foreign Affairs to authorize the corresponding acquisition, whether through the execution of a waiver agreement or the acquisition of Real Estate outside the restricted area, or the issuance of a permit to acquire trust rights on Real Estate located within the restricted zone. These documents are important, specially in the case of the trust because they shall be the bases of the beneficiary rights and obligations, including the way how the Real Estate residential purposes shall be used, as well as the possibilities to lease, improve and eventually transfer it, hence, the importance of this permit to which we refer. The Constitution and State laws in the State of Sonora are very important. The Civil Code specifically states that foreign nationals shall be subject to the state laws, specially in the case of Real Estate. An essential requirement for foreign nationals to acquire property rights for said property to be considered “private property”.

PROPERTY OWNERSHIP IN MEXICO

• Non-Restricted zone: Foreigners may directly own real property located in the interior of Mexico

• Restricted zone: Foreigners may not directly own real property located in the restricted zone. Instead, foreigners may obtain renewable fifty-year beneficial rights to residential property in the restricted zone through a Mexican Bank trust (Fideicomiso). The restricted Zone comprises all property within 50 kilometers (31 miles) from the coast and 100 kilometers (62 miles) from the international land borders. (Area will soon include extended coverage).

• Commercial: If the property will be used strictly for commercial purposes, foreigners may incorporate a Mexican business entity, which can obtain fee simple title to the commercial property.

GENERAL EXPLANATION OF CLOSING COSTS FOR A REAL ESTATE TRANSACTION

Bank Trust - the banks charge a fee depending upon the area in which you purchase. For example, if you purchase in Cholla Bay, you will have a flat rate because that particular subdivision is titled in a master trust. If you were to purchase in other areas such as Diamond Village or a condo, you may pay 3 - 5% of the sales price (the banks rates fluctuate quarterly) for your trust alone because the trust must first be initiated.

Notario Fees - A notario is an attorney with special qualifications and appointed by the government to a specific area. A notario is the only person legally able to register real estate transactions. Any notario may register your property. However, is it best to use a notario experienced in your specific purchase location. The notario's fees are usually based upon sales price or possibly the location of the purchase depending upon the amount of work that is involved in the transaction. For example, in Cholla Bay, a lot purchase in generally under $100,000 so the notario fee will probably not exceed $500. Anything over $100,000 will be estimated at 0.5% of the sales price (this rate quoted by Francisco Manzo Talyor, Notario 26 of Sonoyta in September 2004).

Public Registry Fee - The amount may fluctuate but is currently 0.7% of the sales price. (Puerto Penasco, Sonora, Mexico 2004)

Transfer Tax - This amount is currently 2% of the sales price.

Appraisal - The appraisal fee is estimated at $350 because that is the average price for a home appraisal. If you purchase a lot, the fee may be lower but it also depends upon whom you hire to do the appraisal. An appraisal is time sensitive (only valid for 6 months). This should be obtained after all you paperwork has been approved by the notario you are working with.

Misc. Fees - There are several other small fees that may be included depending upon the type of sale, but they are usually minimal if any.

Capital Gains - There is a possibility of a 10% capital gain "to the buyer" if the seller's appraisal is higher than the value. The payment may be negotiated with your seller if this is a concern.

Title Insurance - In Mexico, title insurance is not required but highly valuable. This insures your investment in case of fraud.


The current information is subject to change without notice.
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