Foreigners are legally entitled to own real estate in Mexico, and tens of thousands of them do. As with real estate transactions in your home country, due diligence is required when purchasing real estate in Mexico. A real estate professional will assist you to avoid pitfalls when you are looking for a home or investment property. At Lakeside, we have one of the most effective Multiple Listing Associations in Mexico. (It is not valid to assume that all cities or regions have such associations.) The Grupo Inmobiliario del Lago (G.I.L.) requires that all member realtors are fully trained in Mexican real estate law, and regulations governing their behavior are enforced rigidly by the local association. Look for the G.I.L. logo when selecting a realtor. It is your guarantee of professionalism in real estate. Combined with your Notary Public, they will provide you with complete confidence in your real estate transactions.
If you plan to purchase real estate for an investment, be aware that Mexican law allows you to sell only one property in a calendar year. You also have to provide a power bill or your phone bill in your name if you want to avoid capital gains tax. The capital gains tax is 30% of the net profit from the sale. This tax will be collected (i.e. deducted from the sale value) by the notary at the time of closing. If you purchase a home for the purpose of renting it, you may have the power bill and/or phone bill in your name, and you may be able to avoid the capital gains tax at the time of disposition.
If you plan to purchase real estate along the ocean, be aware that land within 50 kilometers of the shore line can only be purchased by a foreigner in a trust. You hold the land and can do with it what you like, but it is officially owned by a bank, which administers the trust on your behalf. Of course, the bank will charge an annual fee for this privilege. The trust is called a “fideicomiso”. Apart from a little extra paperwork to set it up, and the annual administration fee, it is not an onerous system. For this and land within 100 kilometers of the border, you will need to obtain a permit from the Secretary of Foreign Affairs. The property can be sold when you are ready to dispose of it just as though you had clear title. The “fideicomiso” may include named beneficiaries and, in fact, is a real advantage, as your heirs can replace your name with theirs on the trust when you die and carry on using the property.
Recent changes to Mexican real estate regulations have made it possible for non-residents to purchase a home or a condo without having to place it in a trust. This is important for people who cannot spend a lot of time in Mexico, but want something of their own that they can come to for a week or two at a time throughout the year. Again, this works well in the case of death, as heirs that also might not want to be residents can still assume ownership and use the property.
If you intend to assume ownership of property directly, a deed, called an “escritura” will be produced in your name by a Notary Public. Joint ownership is also common. In Jalisco and some other states it is possible to name beneficiaries on a deed as long as they are in direct line of descent (i.e. mother, father, children) of the owner(s). Other beneficiaries of a title have to be named in a will (see our notes on Legal Affairs). Check to see if the state in which you will be living includes beneficiaries in an “escritura”.
Real Estate transactions are processed by a Notary Public in Mexico. These professionals are lawyers by training and have spent a minimum of 3 years working in a Notary Public’s office. They receive their appointment through a rigorous set of state administered examinations and are the only person who can officially transfer property and issue an “escritura”. As purchaser, you have the right to choose the Notary who will handle the deal.
One critical step in the process is to validate the current “escritura” – does the seller legally own the land and have the right to sell it? In Mexico there are many landholdings that go back decades, if not centuries. In the absence of formal wills, the land may now be jointly owned by many people several generations removed from the original owner. No single person or even a group of these owners can legally sell the land without the full consent of everyone who is considered a legal part-owner. Sometimes establishing this ownership and obtaining the necessary permissions can take years. This is the responsibility of the Notary, as is advising you of the complications of the case. Before placing a down payment, it is advisable to obtain a copy of the “escritura” to ensure it is valid and transferable. If your “great deal” turns out to be one of the above types of properties, you may wish to reconsider, but at least you will know what you are dealing with.
A Notary is also very useful if you are purchasing a property from a developer. Not only will the Notary check the validity of the deed, but he/she will also check that the construction permits are in place and fully paid, and that all Social Security payments for workers are up to date. Stories abound regarding builders who have privately sold a new house to an unsuspecting foreigner without having paid the Social Security for their workers and sometimes also the sub-contractors. The new owner(s) may become liable for all such outstanding payments as soon as the deed is transferred.
Another pitfall a Notary will help avoid is the “purchase” of “ejido” land. “Ejido” land is uncultivated communal land that was set aside by the government in 1856 for the exclusive use of Mexicans. It can be re-titled to a Mexican citizen, but the process is long and complex. Any “purchase” of “ejido” land by a foreigner will not be recognized by a Mexican court. If you build a house on “ejido” land, any Mexican can take over the house and legally live in it (or right beside it).
To purchase property you will need to provide your passport and marriage certificate (if joint ownership is desired) as well as your immigration or tourist documents.
The seller will have to provide the above plus the deed; tax receipts; and evidence of water payments, subdivision (“fraccionamiento” or “condominio”) fees, and any other utility bills, paid up to the date of sale. Registration of the “escritura” in thePublic Registry of Properties will be done by the Notary Public and will usually take two - four weeks. If there is capital gains tax to be paid, it will be paid by the seller. The Notary will calculate the cost, and deduct the amount at the time of closing. The buyer ordinarily pays notary fees incurred, which also must be paid when the title is signed over.
A real estate professional will assist you to avoid all the pitfalls and allow you to enjoy the process when you are looking for a home or investment property. They will also recommend a reliable Notario, and help assure your peace of mind as you go through the purchase process. For those who want a little extra assurance, title insurance companies now exist throughout Mexico, and will provide that service for a fee. Most of these companies are subsidiaries of American firms and exercise the same diligence in their work that one would expect north of the border. Your realtor can refer you to a title insurance company.