ROBERT FOSTER Y ASOCIADOS
Real Estate, Construction, Property Management
Frequently Asked Questions About Mexican Real Estate:
Followed by a reprint of a Robert Foster article from The People's Guide To Mexico
Followed by a reprint of a Robert Foster article from The People's Guide To Mexico
To discuss these or other issues related to purchasing a house, condo, lot,
or land in the Puerto Vallarta area, feel free to use our toll free line from the
USA or Canada: (866) 210 1324 Or email info@rfasoc.com
or land in the Puerto Vallarta area, feel free to use our toll free line from the
USA or Canada: (866) 210 1324 Or email info@rfasoc.com
"Can foreigners own property in Mexico?"
Yes. In the interior of the country, foreigners can own real estate
(whether lots, land, houses or condos) in fee simple, just like a
Mexican. Along the borders and coasts, foreigners receive a special
trust deed called a fideicomiso. A Mexican bank is designated as
trustee, and the foreign buyer is the Beneficiary. The buyer has
complete use and control of the property. Essentially, as a practical
matter, it's as if you own the property in fee simple (freehold).
(whether lots, land, houses or condos) in fee simple, just like a
Mexican. Along the borders and coasts, foreigners receive a special
trust deed called a fideicomiso. A Mexican bank is designated as
trustee, and the foreign buyer is the Beneficiary. The buyer has
complete use and control of the property. Essentially, as a practical
matter, it's as if you own the property in fee simple (freehold).
"Is Title Insurance available?"
"Is financing available?"
Yes, Stewart Title Guaranty and First American Title routinely write
policies on Mexican property now.
policies on Mexican property now.
Yes. More and more US lenders are active in Mexico and the
Puerto Vallarta real estate market. Terms and rates are competitive
with "second home" rates in the US, and are getting even better as
more underwriters come into the market. Loans are now available
to Canadian buyers as well.
Puerto Vallarta real estate market. Terms and rates are competitive
with "second home" rates in the US, and are getting even better as
more underwriters come into the market. Loans are now available
to Canadian buyers as well.
"Can I will the property to my children?"
There is no better estate planning tool than owning property in a
Mexican trust (fideicomiso). Your trust deed will already contain
the names of your designated heirs (sub-beneficiaries), and the
real estate (bienes raices) will pass to them automatically when
the owners (primary beneficiaries) have passed away. There is no
inheritance tax and no probate whatsoever when Mexican real
estate held in a trust deed passes from one generation to the next.
Mexican trust (fideicomiso). Your trust deed will already contain
the names of your designated heirs (sub-beneficiaries), and the
real estate (bienes raices) will pass to them automatically when
the owners (primary beneficiaries) have passed away. There is no
inheritance tax and no probate whatsoever when Mexican real
estate held in a trust deed passes from one generation to the next.
"Do I have to get "permission" to sell the
property?"
property?"
No. You may sell the property at any time to anyone you want.
Again, as a practical matter, it's esentially as if you owned the
property in fee simple.
Again, as a practical matter, it's esentially as if you owned the
property in fee simple.
"Will I have to pay property taxes?"
Yes, but they are stunningly low. On a million dollar (USD) home
you will pay less than $400 USD a year in property taxes. You must
pay these very low taxes, because you have the same rights as
any owner in Mexico and, it follows, the same obligations as any
owner in Mexico.
you will pay less than $400 USD a year in property taxes. You must
pay these very low taxes, because you have the same rights as
any owner in Mexico and, it follows, the same obligations as any
owner in Mexico.
"What happens to my property if the
trustee bank closes or gets into
financial trouble?"
trustee bank closes or gets into
financial trouble?"
Nothing. Your property is not part of the capital asset base of the
bank. It is known as "segregated assets" and cannot be attached
no matter what happens to the bank. Your trust would simply be
moved to another institution. (Note that many Mexican banks are
now internationally owned. HSBC, CitiBank, Scotia, etc.)
bank. It is known as "segregated assets" and cannot be attached
no matter what happens to the bank. Your trust would simply be
moved to another institution. (Note that many Mexican banks are
now internationally owned. HSBC, CitiBank, Scotia, etc.)
"Can my corporation or LLC buy the
property?"
property?"
There are several ways to acquire Mexican coastal real estate.
Most common is for a couple to buy as individuals, jointly owned,
a fifty-fifty undivided interest. But optionally, you can use your US
or Canadian corporation or LLC to purchase the property, but
there are ramifications regarding capital gains when you sell. It is
a decision to be discussed in some depth with your Mexican real
estate professional before deciding how to acquire the property.
(In 90% of cases, acquiring as individuals is best.)
Most common is for a couple to buy as individuals, jointly owned,
a fifty-fifty undivided interest. But optionally, you can use your US
or Canadian corporation or LLC to purchase the property, but
there are ramifications regarding capital gains when you sell. It is
a decision to be discussed in some depth with your Mexican real
estate professional before deciding how to acquire the property.
(In 90% of cases, acquiring as individuals is best.)
This is not advisable in most cases, as the law states clearly that
Mexican Corporations can buy in fee simple only if the property is
commercial, not residential. Residential property owned by
foreigners along the Mexican coast must be purchased with a
fideicomiso (trust deed).
Mexican Corporations can buy in fee simple only if the property is
commercial, not residential. Residential property owned by
foreigners along the Mexican coast must be purchased with a
fideicomiso (trust deed).
"What about forming a Mexican
corporation to buy the property in fee
simple?"
corporation to buy the property in fee
simple?"
The article below appears in the People's Guide To Mexico online. The version below is
updated and edited to reflect current market conditions.
Buying Coastal Property
By Robert Foster
Buying Restricted-Zone (Coastal and border zone) property
First, as most folks are aware, Mexican residential property in the coastal or border zones can
be legally purchased by foreigners, but only through the fideicomiso (bank trust) method set
up expressly for this purpose by the Mexican federal government. The trusts are for 50 years,
and are automatically renewable (for a nominal fee) at the end of the term, or at any point
during the term. As primary beneficiary of the trust, you have essentially all the rights of
fee-simple ownership, including the right to name an heir. (Your heir, or "secondary
beneficiary" is written into the trust at inception-thus avoiding probate. Very efficient.) You
may improve, rent out or sell the property, as you desire. The only major condition is that the
property continue to be used for residential, as opposed to commercial, purposes.
Generally, as you shop around, consider only already-deeded (escriturado) property. And
beware of two potentially risky areas that have brought a lot of heartache to foreign buyers:
developer-financed property and ejido property.
Developer-Financed Property:
You should be extremely cautious about contracting for developer-financed property. It can
work well, but you must have an experienced local realtor guide you. Developers vary widely
in their skill, integrity, and solvency. Only a local realtor will know the local landscape and
players well enough to help you avoid problems.
Increasingly, developers here structure things so that your investment is protected, even if
they go belly-up. But, unfortunately ,some developers are not quite so responsible -- with
disastrous results for the buyer. On the blithe advice of the developer, too many folks rely
solely on their "installment purchase contract," only to find years later, after making that last
payment, that the developer has gone bust. The contract, which was never a legal transfer
under Mexican law, is now completely worthless. The buyers have lost all their investment,
and have no recourse.
That's why it is critical to have a well-established real estate professional perform due
diligence on the track record and capital assets of the developer. The realtor/broker you use
should absolutely be an A.M.P.I. member...A.M.P.I. is the professional association of Mexican
realtors, with standards of admittance based on experience, ethics, and knowledge.
Don't rely on the developer's assurance that, "No hay problema," or the cynical pressure of,
"What's wrong? Don't you trust us? You're just a nervous gringo!"
Ejido Property:
Other gringos "purchase" ejido (non regularized, non-deeded,) communal property. This is
cheaper, because it carries great risk. It is technically not even legal for the ejido to sell
property to a foreigner, but it is often done nonetheless. Usually, through a lengthy
bureaucratic process, the ejido is able to "regularize" and provide title to the property after
the fact.
But, not always. In rare cases, the ejido votes to reclaim the land (along with any
improvements you may have made). When that happens, there is nothing the foreigner can
do because, strictly speaking, you don't have a legal leg to stand on. If you do buy ejido
property, understand fully the risks you are taking. Most AMPI realtors do not handle ejido
property. Those that do explain the inherent risks fully and completely.
Notarios:
All legal real estate transfers must be handled by a notario's office. This works to protect both
parties. Each notario is a specially trained and government-appointed attorney, charged with
handling real estate transactions in a manner fair to both sides. Most notario offices are busy,
highly professional places, with assistant attorneys and several secretaries on staff.
Generally, an area has several notarios to choose from. For example, PV has four or five, and
Bucerias has two.
You as buyer may choose any Notario you like. However, your AMPI realtor will recommend
one or two Notarios with whom the realtor has the most experience and confidence. The
Notario will give you an itemized estimate of all closing costs on request.
Contracts, especially real estate, are a Notaria's raison d'etre.
To clarify; you won't necessarily work directly with the notario himself -- most likely you'll
work primarily with one of his staff attorneys, through your AMPI realtor. That's perfectly
adequate.
A professional AMPI realtor will draw up a formal buy-sell agreement ( a "Contrato de
Compraventa Definitiva" -- a definitive and legally binding sales contract -- from which
neither party can back out without specified penalties. Usually this will require you, the
buyer, to place a ten percent deposit in escrowed-in-trust funds. Most AMPI brokers use
either Stewart Title or First American Title to escrow, and to disburse funds at closing. You
should insist that your deposit be placed in a formal, true escrow account with a neutral third
party. I would not recommend that you allow your realtor to hold funds. There is no reason to
do so, and most AMPI realtors avoid handling deposits.
The notario office does all the paperwork to prepare for closing, which usually takes about six
weeks. They do the title search, set up your foreign ownership trust with a bank, and ensure
that there are no oustanding liens or encumbrances. Finally, when all is ready, they will host
the closing in their office. At the moment the seller signs the 'escritura' (deed) over to the
buyer, funds are disbursed by the escrow company. "Trato hecho." (Done deal.) You'll get a
preliminary copy of your 'escritura' on the spot, and in a couple of months, a final copy
reflecting that it has now been recorded in the public registry.
The closing costs vary, but as a rule of thumb, buyer's closing costs run about 5-6 percent of
the purchase price. That includes your first-year trust fee; the fee to the notario for handling it
all; foreign permit; appraisal fees; etc. (If you happen to buy from another foreigner -- and
assume the existing trust -- you can save a few hundred dollars or more in closing costs.)
Traditionally, and even now, the vast majority of deals in Mexico are cash deals. But
increasingly, US lenders are offering dollar-based mortgages on Mexican property. The rates
and terms are increasingly competitive, and similar to second-home terms in the US. Loans
are available to Canadian or US citizens.
A few owner-carry situations can be found. Generally, these are 3- to 5-year contracts. This
can be really sticky if problems arise. Especially if both parties are foreigners. Litigation here
drags on forever, and if both litigants live outside the country -- well, what a mess.
Some good news: Property taxes, even in PV, are stunningly low. On a $200,000 (US dollars)
house, expect to pay the equivalent of well under $100 (yes, one-hundred) US a year.
However, as a foreigner, you will also have to pay an annual trust maintenance fee to the
bank that holds title-in-trust (the fideicomiso) to your property. This averages around
$400-500 (US) yearly.
In sum, purchasing coastal-zone property can seem complex and confusing. But so long as
you involve a notario and AMPI real estate professional from the get-go, your rights will be
protected.
Robert Foster
updated and edited to reflect current market conditions.
Buying Coastal Property
By Robert Foster
Buying Restricted-Zone (Coastal and border zone) property
First, as most folks are aware, Mexican residential property in the coastal or border zones can
be legally purchased by foreigners, but only through the fideicomiso (bank trust) method set
up expressly for this purpose by the Mexican federal government. The trusts are for 50 years,
and are automatically renewable (for a nominal fee) at the end of the term, or at any point
during the term. As primary beneficiary of the trust, you have essentially all the rights of
fee-simple ownership, including the right to name an heir. (Your heir, or "secondary
beneficiary" is written into the trust at inception-thus avoiding probate. Very efficient.) You
may improve, rent out or sell the property, as you desire. The only major condition is that the
property continue to be used for residential, as opposed to commercial, purposes.
Generally, as you shop around, consider only already-deeded (escriturado) property. And
beware of two potentially risky areas that have brought a lot of heartache to foreign buyers:
developer-financed property and ejido property.
Developer-Financed Property:
You should be extremely cautious about contracting for developer-financed property. It can
work well, but you must have an experienced local realtor guide you. Developers vary widely
in their skill, integrity, and solvency. Only a local realtor will know the local landscape and
players well enough to help you avoid problems.
Increasingly, developers here structure things so that your investment is protected, even if
they go belly-up. But, unfortunately ,some developers are not quite so responsible -- with
disastrous results for the buyer. On the blithe advice of the developer, too many folks rely
solely on their "installment purchase contract," only to find years later, after making that last
payment, that the developer has gone bust. The contract, which was never a legal transfer
under Mexican law, is now completely worthless. The buyers have lost all their investment,
and have no recourse.
That's why it is critical to have a well-established real estate professional perform due
diligence on the track record and capital assets of the developer. The realtor/broker you use
should absolutely be an A.M.P.I. member...A.M.P.I. is the professional association of Mexican
realtors, with standards of admittance based on experience, ethics, and knowledge.
Don't rely on the developer's assurance that, "No hay problema," or the cynical pressure of,
"What's wrong? Don't you trust us? You're just a nervous gringo!"
Ejido Property:
Other gringos "purchase" ejido (non regularized, non-deeded,) communal property. This is
cheaper, because it carries great risk. It is technically not even legal for the ejido to sell
property to a foreigner, but it is often done nonetheless. Usually, through a lengthy
bureaucratic process, the ejido is able to "regularize" and provide title to the property after
the fact.
But, not always. In rare cases, the ejido votes to reclaim the land (along with any
improvements you may have made). When that happens, there is nothing the foreigner can
do because, strictly speaking, you don't have a legal leg to stand on. If you do buy ejido
property, understand fully the risks you are taking. Most AMPI realtors do not handle ejido
property. Those that do explain the inherent risks fully and completely.
Notarios:
All legal real estate transfers must be handled by a notario's office. This works to protect both
parties. Each notario is a specially trained and government-appointed attorney, charged with
handling real estate transactions in a manner fair to both sides. Most notario offices are busy,
highly professional places, with assistant attorneys and several secretaries on staff.
Generally, an area has several notarios to choose from. For example, PV has four or five, and
Bucerias has two.
You as buyer may choose any Notario you like. However, your AMPI realtor will recommend
one or two Notarios with whom the realtor has the most experience and confidence. The
Notario will give you an itemized estimate of all closing costs on request.
Contracts, especially real estate, are a Notaria's raison d'etre.
To clarify; you won't necessarily work directly with the notario himself -- most likely you'll
work primarily with one of his staff attorneys, through your AMPI realtor. That's perfectly
adequate.
A professional AMPI realtor will draw up a formal buy-sell agreement ( a "Contrato de
Compraventa Definitiva" -- a definitive and legally binding sales contract -- from which
neither party can back out without specified penalties. Usually this will require you, the
buyer, to place a ten percent deposit in escrowed-in-trust funds. Most AMPI brokers use
either Stewart Title or First American Title to escrow, and to disburse funds at closing. You
should insist that your deposit be placed in a formal, true escrow account with a neutral third
party. I would not recommend that you allow your realtor to hold funds. There is no reason to
do so, and most AMPI realtors avoid handling deposits.
The notario office does all the paperwork to prepare for closing, which usually takes about six
weeks. They do the title search, set up your foreign ownership trust with a bank, and ensure
that there are no oustanding liens or encumbrances. Finally, when all is ready, they will host
the closing in their office. At the moment the seller signs the 'escritura' (deed) over to the
buyer, funds are disbursed by the escrow company. "Trato hecho." (Done deal.) You'll get a
preliminary copy of your 'escritura' on the spot, and in a couple of months, a final copy
reflecting that it has now been recorded in the public registry.
The closing costs vary, but as a rule of thumb, buyer's closing costs run about 5-6 percent of
the purchase price. That includes your first-year trust fee; the fee to the notario for handling it
all; foreign permit; appraisal fees; etc. (If you happen to buy from another foreigner -- and
assume the existing trust -- you can save a few hundred dollars or more in closing costs.)
Traditionally, and even now, the vast majority of deals in Mexico are cash deals. But
increasingly, US lenders are offering dollar-based mortgages on Mexican property. The rates
and terms are increasingly competitive, and similar to second-home terms in the US. Loans
are available to Canadian or US citizens.
A few owner-carry situations can be found. Generally, these are 3- to 5-year contracts. This
can be really sticky if problems arise. Especially if both parties are foreigners. Litigation here
drags on forever, and if both litigants live outside the country -- well, what a mess.
Some good news: Property taxes, even in PV, are stunningly low. On a $200,000 (US dollars)
house, expect to pay the equivalent of well under $100 (yes, one-hundred) US a year.
However, as a foreigner, you will also have to pay an annual trust maintenance fee to the
bank that holds title-in-trust (the fideicomiso) to your property. This averages around
$400-500 (US) yearly.
In sum, purchasing coastal-zone property can seem complex and confusing. But so long as
you involve a notario and AMPI real estate professional from the get-go, your rights will be
protected.
Robert Foster
email info@rfasoc.com
email: robert@rfasoc.com
