U.S. citizens should be aware of the risks inherent in purchasing real estate in Mexico, and should exercise extreme caution before entering into any form of commitment to invest in property there. Investors must recognize the absolute need to obtain authoritative information and to hire competent Mexican legal counsel when contemplating any real estate investment. Mexican laws and practices regarding real estate differ substantially from those in the United States. Foreigners may be granted the right to own real property only under very specific conditions.
Whether investing through a trust mechanism in border and coastal areas or by outright purchase in Mexico's interior, U.S. citizens are vulnerable to title challenges that may result in years of litigation and possible eviction. Title insurance is virtually unknown and untested in Mexico. Also, because Mexican law recognizes squatters' rights, homeowners can spend thousands of dollars in legal fees and years of frustration in trying to remove squatters who occupy their property.
American citizens also should exercise caution when considering time-share investments and be aware of the aggressive tactics used by some time-share sales representatives. Buyers should be fully informed and take sufficient time to consider their decisions before signing time-share contracts, ideally after consulting an independent attorney. They should resist pressure to sign a contract the very day that they see the model unit. Mexican law allows time-share purchasers five days to cancel the contract for unconditional and full reimbursement. U.S. citizens should never sign a contract that includes clauses penalizing the buyer who cancels within five days.
"Can I own property in Mexico?"
The answer is "YES!"
However, there are some restrictions. Foreigners may obtain direct ownership of property in the interior of Mexico. But, under Mexican law, foreigners cannot acquire direct ownership of residential property within the area 100 kilometers from the border and 50 kilometers from the coastline. This area is known as the restricted zone. It is possible, however, to acquire beneficial rights to use, improve, and enjoy property in the restricted zone through a Bank Trust or Fideicomiso authorized by the Mexican Government under the Ministry of Foreign Affairs. The Fideicomiso is established for a 50 year renewable term and grants the beneficiary the right to use, rent, modify, or sell the property. An advantage of the bank trust is the avoidance of probate upon the death of the beneficiary when a substitute is named.
Property acquired for commercial use by foreigners may be owned without the need for a bank trust, provided that the property is held in a Mexican corporation. Depending on the type of business, it is often possible for a foreigner to own 100% of the Mexican corporation.
In a typical transaction, a preliminary sales agreement will be used. This is like an agreement to agree and is subject to a formal sales agreement which will be executed at closing by a Notario Publico. The preliminary agreement should provide for a price and terms -- generally, cash as financing is not readily available -- and a closing date conditioned on the issuance of the trust permit if necessary. Escrow as it is known in the United States is not used in Mexico, and real estate salespeople are not licensed or regulated as they are in the United States, so be careful of making any deposits up front.
Real estate transactions in Mexico are "closed" by a Notario Publico, an official, highly respected government lawyer who acts as a neutral intermediary. Among other things, the notary is responsible for formalization of the final real estate contract, collection of transfer and capital gains taxes and recordation of the transfer with the Public Registry. The notary is not your lawyer, however, and as with any investment, you may want to seek independent Mexican legal counsel before proceeding.
While not commonly used, American title insurance is available for Mexican real estate whether acquired directly or through a trust. The cost of the insurance depends on whether the property you are purchasing is covered by a master title commitment. The seller of the property should have this information.
A foreigner interested in acquiring real estate in Mexico should take care to follow all of the formalities under Mexican law. Seek competent legal, tax, and other professional advice before proceeding.
CAVEAT EMPTOR - Let the Buyer Beware!
Foreigners interested in purchasing property in Mexico should consider the following in making any investment:
Understand that Mexico is a foreign country with a unique set of laws that must be adhered to in order to acquire recognizable rights in real property. Do not expect paperwork, procedure or costs to be the same as in Arizona.
If you are purchasing in the restricted zone, you must buy through a Mexican Bank Trust. Don't use a corporation to acquire residential property. A trust is not a lease. To be sure that you are getting good title, purchase US title insurance.
Real estate agents are not licensed in Mexico and escrow as we know it does not exist. It is imperative to use qualified professionals including a trustworthy Mexican agent or attorney, possibly in cooperation with a knowledgeable U.S. attorney since the Mexican professionals do not carry liability insurance.
Insist on U.S.-style protections that are available in Mexico, including but not limited to inspections, U.S. title insurance, U.S. appraisal, and U.S. financing. You can ask to have your earnest money held by a Mexican bank in a conditional deposit subject to the satisfaction of any contingencies that you negotiate in your offer to purchase, including issuance of a bank trust if applicable. Get an estimate of closing costs before you make an offer.
When purchasing in a new home community or subdivision make sure that the improvements are in or that there has been a bond posted for the completion of the improvements. If you see an advertisement for a Mexican subdivision in Arizona, ask for a copy of the Arizona Public Report issued by the Arizona Department of Real Estate. Ask for Title Insurance and a Mexican Bank Trust.
Be patient, transactions in Mexico may take longer than you anticipate. If someone suggests that you should purchase before your trust has been issued or without a Mexican Notary Public, beware! Mexican Notaries are official government lawyers who are uniquely empowered to formalize and record real property transactions.
Your purchase of Mexican real estate should be an investment, not a gamble. Many foreigners have paid money or built improvements on property that they cannot obtain legal rights to under Mexican law. The Mexican government in many cases has taken action to help the foreigner acquire recognizable rights because of widespread fraud or ignorance. At some point the Mexican government may draw a line and refuse to regularize such transactions. Foreigners are more educated now and they may be held responsible for acting in accordance with the law.
Reference also: Real Estate Page
