Foreigners (non-Mexican) can purchase real estate in Mexico. They may directly own rural or urban land in the interior of Mexico with certain limitations on specific agricultural tracts.
In the restricted protected zone, a Trust Deed is used. These protected areas include 100 kilometers along all-natural borders, 50 kilometers along coastlines, and all of Baja California. Banderas Bay is primarily in the restricted zone.
The Trust Deed is established through a Mexican bank, giving foreign buyers rights to buy, sell, remodel, and bequeath to their heirs. As of 1994, the Foreign Investment Law allows these deeds to be established for 50 years and renewable before termination. This public deed is called an escritura.
In the restricted zone, title can be held in one of two ways:
- The Mexican bank trust is for residential property. If you are buying a condo or home to reside in full-time or part time, and even rent at times, this is when you need the Trust. If you want to have a company build commercial, retail, or other real estate to hold or sell, you can use the Mexican corporation, which can hold non-residential real estate.
- A Mexican corporation can hold non-residential real estate. You want a very experienced attorney and real estate agent to create a commercial property with a Mexican Company. If you hold property as residential and claim it as a residence in Mexico, you can be eligible for a partial exemption of capital gains tax. Certain restrictions do apply.
The public notary in Mexico is responsible for the transfer of real estate. The notary’s responsibilities are much greater than what we are familiar with in the United States. The notary in Mexico is appointed by the governor of the state and the executive branch of the federal government of a particular state.
A notary is an attorney who has additional specialization and has passed an extensive exam. He/she is appointed for life unless they are found to be unable to carry out the responsibilities of their job.
The deed (escritura) is prepared from the purchase-sale agreement. The escritura, as well as all closing documents, is in Spanish. English translations are courtesy translations, only.
Prior to closing, the notary examines the documents of the seller to verify title. A search of the public records is done to determine further status of the title and if there is the existence of liens against the property.
The notary is responsible for the collection and payment of property taxes and government transfer taxes, and the HOA fees of the condominium are current. If a seller owes capital gains, that is determined by the notary. This tax is collected and paid by the notary to the government, when due.
The escritura, or public deed, names the seller conveying and the buyer receiving the property, in addition to the legal description. The terms of the bank trust (fideicomiso) agreement are incorporated into the escritura.
There should also be a description of the metes and bounds of the land, and a plat. In the case of construction, there should also be a floor plan or footprint of the building on the land. Manifestation of the construction is important to register.
A buyer should also receive evidence that utility services on the property have been paid to the date of closing. At closing, the notary meets with the buyer and seller to formalize the transfer by requiring appropriate signatures upon execution of the deed. The escritura is then recorded with the public registry where the property is located.
The buyer pays closing costs, with the seller paying any capital gains taxes, real estate fees, trust assumption, or cancellation.
Closing costs are typically higher than costs for buyers in the United States and Canada. Costs include approval and formation of the bank trust (50-year, renewable), tax appraisal, no-lien certificate, real estate transfer tax, and notary services.
Currently, we use an estimate of 5% of the purchase price for closing costs.
This article is based upon legal opinions, current practices, and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.