Sur Selecto – Real Estate

Frequent questions

REAL ESTATE IN MEXICO

FREQUENT QUESTIONS

As in the whole world, Mexico has its own administrative processes for the purchase of real estate.
This process is not difficult or easy, but it is a process where you need to be sure that a professional real estate agent in Mexico keeps you informed and gives you unbiased advice.

Where is it?

What is the Restricted Zone?

Here in the coastal zone of Playa Del Carmen, Cancun or the Riviera Maya we are in the restricted zone. The restricted zone is the territory from the coast of Mexico up to 50 kilometers (30.5 miles) inland, or from the border of Mexico with other countries up to 100 kilometers (61 miles) from it.

Because?

After the history of invasions, wars and loss of territory, Article 27 of the Mexican Constitution was created in 1917 to protect Mexico from foreign intervention and invasion.

Its purpose was to prevent foreign interests from buying strategic coastal and border areas of the country. Although today the danger of a foreign attack is minimal, this law continues to be a fundamental chapter of the Mexican Constitution.

At present, the restricted zone is merely a legacy of Mexican culture and history and not a tool to prevent foreign investment in Mexico. To reinforce this message, Mexico’s Foreign Investment Law (enacted on December 28, 1993) was created to protect the rights of foreigners in restricted areas and ensure the safe and legal purchase/acquisition of real estate.

Along the entire Mexican Caribbean coast, foreigners can buy real estate but the Mexican Foreign Investment Law requires them to do so through a trust.

Can foreigners buy real estate in Mexico?

Yes. Anyone of any nationality can legally purchase real estate in Mexico. Many people receive wrong information or think that this is not the case due to the existence of the so-called “zones
restricted areas” (previously called “prohibited areas”).

There are several methods to acquire a property in Mexico.

First, outside of this restricted zone, foreigners can legally acquire any type of real estate simply by paying a fee.

Second, for non-residential property, foreigners may acquire real estate through Mexican corporations (and, under certain conditions, these corporations may be 100% foreign owned).

The two main conditions are the acceptance of foreigners to be governed by Mexican laws, and that the property be registered as non-residential before the Ministry of Foreign Relations. This applies to real estate inside and outside the restricted zone.

Third, within the restricted zone, for residential real estate, the acquisition must proceed through a trust.

What is a trust?

The purchase for foreign clients is carried out through a trust that is basically a contract between the bank and the foreign buyer, which indicates that the bank is the legal representative of the buyer in Mexico. The buyer has full power over the contract and full possession of the unit.

The law dictates that any property on the coastline (50 kilometers) in Mexico can be acquired by a foreigner through a trust. This is a very simple process, the cost of which is approximately $2,500 US the first year and approximately $520 US per year from the following year. The cost covers taxes, notary fees and bank services. This trust payment is made when the unit is deeded, which is when the apartment is delivered and possession of it is taken.

If you are familiar with trusts in the United States, you will see that Mexican trusts are very similar. In a few words…the title deed is registered in the public registry. It will be stipulated that the bank created the trust and that the foreign buyer is the beneficiary (owner of the property).

The trust agreement is formalized by issuing a permit from the Ministry of Foreign Affairs. The foreign buyer is designated as the beneficiary in the trust and the rights of the beneficiaries are recorded in the public registry by a Notary Public.

The beneficiary has all the rights without restriction as any owner of the property: he can use, have possession, rent it, live in the property, make modifications, he will also have the ability to give instructions to the bank to mortgage the property, sell it, transfer the benefits to another person and any other act within the law, which is derived from owning a property. If the foreigner sells the property to another foreigner, he can assign his interests to the new buyer.

This assignment of rights must be formalized before a Mexican Notary Public, prior to the payment of federal and local taxes derived from the transfer of the rights of the beneficiary. The foreign owner will have the obligation to pay the rights of the land, for example: the annual payment of the property tax, the maintenance fees of the condominium, water, electricity, the annual Trust fee, etc.

How long does a trust last?

Typically a trust is established for 50 years and can be renewed for an additional 50 years.

In fact, trusts can be renewed at any time by application.

Another misconception and concern is that after 50 years the properties in the trust pass to the authorities, which is not true.

Can I inherit my real estate in Mexico to my friends or family?

The beneficiary has the right to name a substitute beneficiary(ies) who will receive all the rights and obligations derived from the trust contract, in case the beneficiary dies during the term of the Trust.

With this surrogate beneficiary designation, your heirs do not need to go through any probate proceedings before the Mexican courts, which could take time and attorney fees. You would only have to notify the bank about the deceased, show the death certificate and your official identifications.

Then, the bank will instruct the notary public to notarize the documents with the consequent action of registering the new owners (beneficiaries) of the property in trust.

How safe are Mexican banks? Can I trust trusts?

Yes. The Mexican bank has a responsibility as a trustee to act for the good of the beneficiary… under penalty of law. The bank will simply hold the deeds to the property in your (or your beneficiaries’) name. You as the beneficiary have the ownership rights to it. You can sell, lease, rent, build, or do anything else that a legal property owner in Mexico can do (you must obey building and zoning regulations, of course).

Many large and respectable US and international banks such as GE Capital, ScotiaBank and Santander Serfin, among others, have been and continue to be the big players in trusts in Mexico.

What does a Notary do? We’ve heard we’ll have to use one.
The Notary Public plays an important role in the purchase and sale of real estate, much more important than in most countries. The state governor designates the notary public as responsible for executing several key aspects of the transaction, such as authentication of legal documents, title and deed search (for liens or other legal and financial matters), tax collection , building permit reviews (if applicable), capital gains tax calculation, etc.

The notary is basically responsible for ratifying real estate transactions; therefore, if the property transaction is carried out without a notary and is not recorded in the public registry, then it is invalid, placing the buyer in a position where he or she can lose the property without legal recourse.

What is the typical buying process like in Mexico?

Generally speaking, the real estate transaction process is “closed” once the seller accepts a written offer to purchase and both the seller and the buyer sign a purchase-sale agreement. The section deposit is never greater than 5% of the price offered by the real estate agency.

A payment of 10 to 30% is then generally required as a deposit when the rental contract is signed.
promise of sale. Normally, developments and pre-sales request a deposit of 30% or more, while for re-sales the deposit will be less. The rest is normally paid when signing the deeds before the Notary.

If you are dealing directly with the seller, it is highly recommended that you seek the guidance of a lawyer or real estate agent before signing any contracts or exchanging money (especially since legally binding contracts in Mexico will be in Spanish).

How are closing costs calculated and who pays for them?

Closing costs are determined by the sale price. The value becomes the basis for all applicable taxes and fees.

In general, the buyer is responsible for transfer tax and the cost of establishing the Trust (if not already in existence), notary fees, filing fees, assessment tax fees, and permit trustee fees.

The average total buyer closing cost is approximately 5% to 7% of the purchase price. In Mexico, the commission for brokerage services in real estate transactions is charged to the seller, so we highly recommend you always deal with a local expert.