A property purchase in Mexico can be just as safe as it is back home… if it is done correctly!

 

There are four ways to hold property in Mexico:

 

1. The Mexican Bank Trust or Fideicomiso

Foreigners can own property fee simple in the interior of Mexico, including valuable sites in such tourist destinations as Cabo, Cancun, Chapala, Cuernavaca, Mexico City, Puerto Vallarta, and San Miguel de Allende.

However, foreigners are technically prohibited from holding title to property in the so-called “Prohibited Zone” along the nation's coasts and borders. This restricted area was established under the Mexican Constitution, Article 27th, and it extends to within 30 miles (50 km) of any coastline or 60 miles (100 km) of either border. Also included in this zone is the entire Baja Peninsula.

The Bank Trust was created in the early 1970’s to promote tourist and retirement investments along popular coastlines by Mexican President Luis Echeverria, who authorized the 30-year Bank Trust program. This is the most common method to hold real estate in Mexico.

The Bank Trust must be established at an authorized Mexican Bank in their Trust Department. In December 27, 1993, President Salinas extended it to 50 years. Bank Trusts are perpetually renewable at the discretion of the owner. The property you hold in a Bank Trust is yours to improve, build, sell, leave in your estate, etc. You'll enjoy all the same rights you have in your U.S. fee simple real estate via the Bank Trust.

Thus, a permit to establish a trust can be obtained for a period of 50 years and then renewed multiple times thus establishing perpetuity for owners of rights in Mexican properties...

When it is time to sell, you may assign your rights to the buyer, or the buyer may obtain a new bank trust permit, as he or she desires. The cost for the permit and registration in the foreign investment registry is currently about 2,000 dollars and bank trust administration fees generally range from 400 dollars to 550 dollars annually. Title, whether through direct ownership or a trust, should be recorded in the local Public Registry.

 

2. The Mexican Corporation

In the last several years, this form has become popular, especially with American attorneys. With this figure, you create a Mexican corporation, which may be owned 100% by foreigners (you and your spouse, for example) and then the Mexican corporation will own the property 100%, in a fee simple deed or Escritura, without the need of a Bank Trust 

 

3. The Mexican Land Lease

Nearly every day a client asks, "Can I get a 99-year land lease?" A land lease for more than 10 years is not legal and never has been.

In addition, there is another form that some buyers or “renters” lease, for example with a 10 + 10 + 10 agreement with a Mexican landowner. However, if at the end of the first 10 years the landowner decides he does not want to recognize that second 10-year lease you thought you had, he does not have to do so. You have no recourse because you entered into that agreement which was designed to circumvent Mexican Law, thereby giving you no legal status to use the Mexican Court System.

If you lease land, the lease should be 9 years and 11 months to stay within the lease land laws. It is possible and perfectly legal for the Mexican land owner to give you a new 9 year 11-month lease at the end of your first 9 years 11 months and so on.

You should lease land only if you are limiting your second home investment to a small amount and only if you can obtain a 9 year 11-month lease.

Just be sure the total investment you are willing to pay for the structure on lease land is an amount you can average over a 10-year period and be willing to "walk away" from at the end of your first lease period of 9 years 11 months. That may not be the case, but know it could be the case given the property values rising in this area at such a rapid rate, especially large parcels. 

Lease Land Fees: Land lease payments run about $150.00 to as much as $600.00 per month. Most leases have a "cost of living" adjustment at the end of your lease for the next lease term. Usually there's a 10% fee when you sell your structure that goes to the landowner and your buyer will probably have a nominal increase in the rent as well. Usually a 10% increase. 



4. Federal Zone Concession

No one, including Mexican nationals can own property in the Federal Zone, which is described as 20 meters (about 66 feet) from the mean high tide line. This property is owned by the Mexican Federal Government under the Federal Maritime Land Zone Law. It is possible for foreigners and Mexicans to obtain use of the beach land for a reasonable fee under a concession granted from the Federal Government. This concession grants temporary use for things such as decks, pools, patios, and landscaping.

These fees vary depending upon the use of that portion of the property, for instance, if you garden and landscape that part of the property, there could be no fee. If you have a deck, pool or patio in the Federal Zone the fee could be $50.00 a month. If all are part of your home are in the Federal Zone, the fee will be appropriately higher.

 

Important additional information about buying in Mexico:

Be certain that you and your agent are dealing with the owner of record or his or her legitimate power of attorney.  Insist upon receiving a copy of the seller’s deed as a condition of your offer.  If you and /or your agent don’t understand Spanish, get it translated.

 

Title and Title Insurance

One of the most important aspects of protecting a real estate investment is making sure the title to the property is in proper order. A title guaranty or title insurance policy protects your ownership and use of the property by guarding against unknown and hidden risks that may cause you loss or affect your ownership.

Select a neutral third party to handle the transfer of your title. Escrow companies now operate in Mexico, and are authorized under the Mexican Commercial Code. These escrow companies, similarly to the U.S. escrows, perform services as neutral third parties and/or consultants in the transfer of titles. Since there is no licensing for these companies, it is wise to insist on references and an examination of track records in much the same way you would in selecting the realtor representing you. There are several U.S. title companies operating in Mexico, such as Stewart Title, First American, Land America Title, and First Land Services Title.

 

Covered title risks include:

  • Invalid documents executed under expired/non-existent power
  • False assumption of identity concerning the legitimate property owner
  • Liens and financial burdens charged to the previous property owner
  • Non-registered property easements
  • Hidden heirs of previous property owners

 

What does a title guaranty provide?

  • Payment of legal expenses to defend a guaranteed title
  • Payment of valid claims up to the value of the guaranty
  • Thorough investigation of the title prior to issuance of title guaranty

A title guaranty is purchased for a one-time fee and once acquired, protects the policy holder as long as there is an interest in the property. Title insurance is a contract of indemnity that protects the property rights transmitted to a new property owner/lender and indemnifies the policy holder against damage or loss arising from a defect in the title to real property.

 

Escrow Services

When purchasing property, one of the most important considerations for both a buyer and a seller is under what conditions the transaction funds will be safely held and distributed by an independent party. In an international transaction, this issue is even more important and often complicated, as either the purchaser or the seller may not be familiar or comfortable having funds deposited in an unfamiliar jurisdiction or with an unfamiliar attorney or bank. Utilizing escrow services provides cost-effective security to all parties in the real estate transaction.