How can foreigners own property in Mexico?

Foreigners may obtain direct ownership of property in the interior of Mexico. The most important restriction is contained in the Article 27 of the constitution, which states “that foreigners cannot own property 100 kilometers (60 miles) of the border and 50 kilometers (30 miles) of the coastline.”  The government, however, provides two ways to get around this restriction: through the use of a Trust (Fideicomiso) or a Mexican corporation. 

The Trust (Fideicomiso)

Three parties are involved in the trust: The trustor (the owner of the original property), the trustee which is the bank) and the beneficiary (the person who will receive the benefits of the trust).

The Trust (Fideicomiso) does not give direct ownership to the foreign beneficiary. Instead, it establishes the legal basis by which the bank holds legal title to the property in order to act on the foreigner behalf. This trust deed assures the foreign buyer of all rights and privileges of ownership. The trust can be established for a term of 50 years and is renewable any time during its existence, forever. The costs to establish a fideicomiso trust vary from bank to bank. However, the range is approximately $1,000 to $1,500 US dollars for the trust set up and about $300 to $500 US Dollars for each year’s maintenance of the trust. 

The buyer is the beneficiary and has all the rights of enjoyment of the property including the ability to remodel, lease, mortgage, pass to their heirs or sell the property at any time. 

Bank trusts are established by a Mexican Notario (Notary), following the receipt of a permit by the Minister of Foreign Affairs. This procedure is routine due to the large number of foreign property owners. The forms are standardized and the entire process is usually completed by the notary as part of the closing procedures. 

What can the foreigner beneficiary expect from the trust agreement?

• The beneficiary can occupy the property for the life of the trust.
• Title to the property can be transferred to the foreign beneficiary in the event that he acquires legal capacity to hold such property, or to any legally qualified person he/she may designate.
• The trust can also be heired to your family by naming them as substitute beneficiaries in the event of your death. The property can also be sold to a person legally authorized to own land or to a foreign via a trust.
• The property may be rented with prior approval from the Ministry of Foreign Affairs. Beneficiaries are allowed to modify their property. Construction, in accordance to local zoning regulations, is permitted at the owner’s expense.

The Corporation

Ownership of property through a Mexican corporation is an interesting and potentially lucrative alternative. First of all, as long as there are two or more parties to the corporation, a Mexican corporation can be wholly owned by foreigners, a Mexican citizen no longer need to be part of a Mexican corporation to be valid. Secondly, a Mexican corporation can own property outright, eliminating the need for a fideicomiso trust and their respective fees. This means that you, as sole owners of corporation, own the property essentially in “fee simple”, similar to the U.S.

Finally, by establishing the property in a corporation, you can then legally rent out the property, thereby generating attractive income if you are in a prime vacation destination.

Mexican corporations are set-up similarly to those in the U.S. with by-laws, articles of incorporation and the issuance of stock. You should discuss the pros and cons of forming a Mexican corporation for the purpose of purchasing real estate is relatively simple and can be accomplished with in 2 weeks and generally costs from $1,500 to $2,500 USD, depending on the complexity and number of partners involved. 

How is the Closing Procedure?

Once your offer of purchase and sale has been accepted, the closing process begins. To validate the Offer of Purchase and Sale, a deposit (normally 10% of the purchase price) is required. The money is held either by your attorney, Notario, real estate agent or placed in an escrow account. These funds are held during the time needed to close. The balance is payable upon the signing of the trust deed or deed at the office of the Notario. Most real estate agents have one or two Notarios with whom they usually deal. 

In order to obtain the trust deed or deed, the Notario will:

• Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a non-lien certificate and tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes.
• Obtaining a permit from the Minister of Foreign Affairs to establish the trust deed.
• Prepare all documents for both buyer and seller.

How long does the Closing Process take in Mexico?

In most cases, a real estate transaction in Mexico can be closed in 60 working days for a cash transaction or 90 working days for a transaction involving financing. However, due to Mexican Holidays, permit delays, Trustee Bank paperwork etc. delays can occur. These delays are not considered defaults by Buyer or Seller as they are events beyond their control. 

What type of fees can be expected when purchasing a property in Mexico?

Closing costs are determined by the declared value, which is usually the same as the sale price. The value becomes the basis for all related taxes and fees. Generally, the seller pays for real estate fees; the buyer is responsible for the transfer tax and the cost of establishing the bank trust (if it is not already in existence), notary fees, registration fees, tax appraisal fees, and trust permit fee. The buyer’s total closing costs average between 4% - 8% of the purchase price. 

How much will I be charged for property taxes?

Mexico’s annual property taxes (Impuestos Prediales) are 0.25% of the assessed value for tax purposes. These municipal taxes are published at the end of January and must be paid at the local tax office. If payment is made by the end of February, you may eligible to benefit from 10% discount. 

(Discover Mexico Magazine, Summer 2007).