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Can I Buy
in Mexico? |
Separating
Fact from Fiction
The "Gunslinger Days" of buying property in Mexico are over. Banking
on the words "That's the way we do business here!", and trusting "The
Seller", have given way to U.S. Title Insurance and bonded escrow accounts.
During the last ten years, property in Mexico has become a lucrative
and viable investment, bringing with it a new breed of sophisticated
investors. U.S. title insurance, bonded escrow accounts and comprehensive
title searches are "in"... promises and handshakes are "out".
Owning property in Mexico is easier and safer than ever, because now
there are established and well defined rules regarding non-Mexicans owning
land in Mexico. These rules are in place to protect your ownership rights
and to promote the sale of real estate to foreign investors. The key is a
safe, established and perpetually renewable Mexican Property Trust called
a "Fideicomiso".
What is a "Fideicomiso" or Mexican Property Trust?
With the advent of North American Treaty Agreement, the Mexican
Government recognized that it was critical to make foreign investment in
Mexico safer and easier than ever. Because the Mexican Constitution
prohibits foreigners from purchasing or owning real estate within 60 miles
of an international border or within 30 miles of the Mexican Coast, a new,
safe method of holding title was created. This new instrument, modeled
after the one in Monaco, allows ownership through a Mexican Property Trust,
called a "Fideicomiso". This is a trust agreement, much like an estate
trust, giving you all the rights of ownership.
The Department of Foreign Affairs in Mexico City issues a permit to a
Mexican Bank of your choice, allowing the bank to act as purchaser for the
property. The bank acts as the "Trustee" for the Trust and you are the "Beneficiary"
of the Trust. This is not an asset of the bank; they simply act as the
Trustee to hold the Trust.
Much like Living Wills or Estate Trusts in the U.S., the Mexican Bank,
or Trustee, takes instructions only from the Beneficiary of the Trust (You).
The Beneficiary has the right to use, occupy and possess the property,
including the right to build on it or otherwise improve it. The
Beneficiary may also sell the property by instructing the Trustee to
transfer the rights to another qualified owner, or bequeath the property
to an inheritor. The initial term of the trust is 50 years, and it can be
renewed for an additional periods of 50 years indefinitely, providing for
long-term control of the asset.
You have all the rights of a property owner in the U.S. or Canada,
including the right to enjoy the property, sell the property, rent the
property, improve the property, etc. This is not to be confused with a "land
lease." The property you buy is placed in a trust with you named as the
Beneficiary of the trust - you are not a lessee. If the property you
purchase is already held in a Trust, you have the option of assuming that
Trust, or having the property vested in a new Trust.
How Long Does It Take To Get A Trust?
You should work with Federal and State Notaries for all closings, and
to secure your new Trust. (In Mexico, a Notario Publico is much different
than in the United States, more like a Clerk of Courts.) On average, you
can obtain your Trust within 60 days and in some cases, titles have
actually been transferred in as little as two to three weeks.
You would be amazed how many people have only a simple buy/sell
agreement between themselves and the seller as evidence of ownership. This
is not a safe method of ownership and is not recommended.
Rule Number 1: Always get your Trust.
When Do I Pay For My Property?
When you have clear title, exactly like you would anywhere else. By
using our U.S., bonded, third party Escrow service with Stewart Title
Guaranty, Houston Texas, your money is held in an individually numbered,
bonded and insured escrow account until your Trust is complete and the
property rights have been transferred to you.
We do not recommend that you release funds to a seller unless you have
received your Trust first. Purchasing property without receiving a Trust
is simply buying without receiving the title in your name, which is risky
and not recommended.
Fact: Until you have received your Trust, and rights to the property
have been transferred to you, the legal owner of record in Mexico is still
the previous owner.
Fact: You cannot bypass Mexican Taxes or fees by not getting your
Trust, even if you sell the property to someone else before you have your
Trust in place.
Do I Need Title Insurance?
Whether you buy real estate in the U.S. or Mexico, Title Insurance for
every property you purchase is highly recommended. You have insurance for
your car, your home and your health, why not purchase it for one of your
largest investments, your property.
Fact: U.S. Title Insurance is available for properties in Mexico
purchased by U.S. Citizens.
Fact: Just because you have a Trust does not ensure you have free and
clear title.
In a Stewart Title property search, the properties title is searched
all the way back to the Mexican Revolution. Most title searches to secure
a Trust only go back one or two owners of record.
How Can I Own My Property?
In the Trust document, you must name the Beneficiary or foreign owner
for the property. This can be you personally, multiple partners, a foreign
corporation, an estate trust, a living will, or other entity. The Trustee
of the Trust (the Mexican Bank) will take direction from whomever you name
as the Beneficiary.
Fact: You can name a U.S. Corporation as the Beneficiary of the Trust.
This is perfectly legal.
Fact: If you sell more than 25% of the shares in the U.S. Corporation,
you have created a real estate transaction in Mexico, and all Mexican
Taxes apply.
(This is Article 151 of the Mexican Revenue Code and is also declared
in the International Tax Treaty between the U.S. and Mexico. If this is
done, and you do not pay the Mexican Taxes, you will have created a tax
burden over the property for the new owner.)
Fact: You can own a property in a Mexican Corporation and take title
fee simple only if the property is for development or investment purposes.
Fact: You cannot own property through Mexican Corporation to by-pass
the Trust process.
Fact: It is against the law for a foreigner to own property in a
Mexican Corporation for residential purposes. |
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Rule
#1 Understand the Work of the Notario Publico (Public Notary)
The Notario ensures proper transfer of all documents and will draw
up and review all of the closing documents including deeds, trust,
and registration papers. The Notario also guarantees that the
property and the transfer of ownership is done in a manner similar
to a U.S. title company because the Notario verifies on the date
of deed transfer that back taxes have been paid on the property
and that there are no liens or encumbrances against the property.
Rule #2 Understand "The Closing Process and The Closing Cost"
It is going to take between 45-60 days to complete the closing
process. Commonly, the buyer pays for the closing costs as well as
transfer or acquisition tax. In many closings, it is not necessary
for the buyer to be present for the closing. The closing costs are
paid on the value of the property purchased. Closing costs are as
follows:
Fees for the tax certificate
Transfer tax (I.S.A.I) of 2% plus a fixed amount according to a
scale based on the appraised value of the property, this goes to
the Mexican government.
A registration fee of .05% of assessed value of the property.
Average of 2% for legal notary fees.
Title search fees
Property Appraisal and miscellaneous office expenses.
Total closing costs varies from State to State because each state
sets the amount of taxes. The average in the State of Jalisco for
closing residencial properties range from 3.2 to 5.5 % of sales
price. Commercial property for new construction may be as high as
8 % because the I.V.A. Tax (a 10% sales Tax) may be included in
your closing cost.
Rule #3 Understanding "The Restricted Zone"
In Article 27 of the Mexican Constitution it cleary states,
“Foreigners cannot own property within (100) Kilometers of the
Border and (50) Kilometers of the coastline”. This is called the
Restricted Zone. However, in the 70’s the Mexican Foreign
Investment Law created two options that help foreigners that want
to purchase property in “The Restricted Zone”.
1. A Mexican Corporation
2. A Bank trust (Fideicomiso)
A
Mexican Corporation
If you wish to purchase property through a Mexican corporation, it
may be 100% owned by foreigners. A provision in the by-laws of
your corporation must state that the share holders must accept and
will be subject to Mexican laws. You cannot live by the laws of
your own country. The property must be registered with Foreign
Affairs Registry.
A Bank Trust (Fideicomiso)
Both foreigners and nationals may establish a Fideicomiso. (An
Irrevocable Bank Trust). This trust is created with a Mexican bank.
The bank accepts the fiduciary responsibilities of a Trustee. The
Fideicomiso allows you to purchase anywhere in Mexico including
the restricted zone.
The Notario, at the request of the buyer, requests that a bank of
your choice act as a trustee on your behalf. The bank then will
receive a permit to acquire the chosen property in trust. The
trust is irrevocable and is established for a maximum of 50 years
then it may be renewed for another 50 years. You are the
beneficiary of the trust and have all the benefits of direct
ownership. This includes the option to sell, remodel, lease,
mortgage, or transfer the rights to a pre-appointed heir or
another third party. The trust may also include language to by
pass the probate court with joint ownership to transfer with the
rights of survivorship. You do have the absolute right to transfer
the title to another party at anytime.
Responsibilities of the trustee to the buyer include; exact
fulfillment of the trust. Mexican Law also states the trustee will
assume full technical, legal and administrative supervision.
It usually costs approximately $ 800 to $1,200 USD to set up a
trust. There is also an annual maintenance fee of $400 to $500 USD.
You will pay the yearly fees directly to your bank.
Rule #4 Understanding Your Property Taxes
Your property taxes may be low compared to States like
California or Texas. The assessed rate is set by each state the
same as in the U.S. The range is .04 - 2 per cent . In the State
of Jalisco the rate of .08% of the assessed property value which
is determined when the sale is made. Example: a $300,000.00 US
dollar residential property is a little less than $280.00 US
dollars per year. Compare that to what you are paying in your home
State and you will see another advantage to owing property and
retiring in Mexico. Not to mention lower cost for medicine,
medical care, insurance (car and health), food (fresh fruit and
vegetables) and clean air to breathe (basic essentials).
Rule #5 Understanding Financing
Interest rates in Mexico are high compared to U.S. and Canadian
rates so most transactions are made in cash. However, there are a
few banks that offer mortgages. Some developers do offer financing.
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