Buying and Selling Real Estate in San Pancho, Mexico
Mexico is very protective of its land, and rightly so. Mexico has a long history of being dominated by foreign owners. This brief history of Mexico will show why Mexico covets one of its greatest resources: its land.
As early as the 16th century, other countries were already trying to claim Mexico’s land as their own. In 1517, Hernandez de Cordoba sailed to the Yucatan Peninsula from Spain, and laid claim to Mexican lands. Mexico did not declare its independence from Spain until over 300 years later in 1822. Although they had independence, most Mexico land was still owned by the Mexican upper class, wealthy foreigners, or the Church.
After the Mexican Revolution, a new Federal Constitution was written in 1917. This new constitution regulated foreign ownership and ownership of lands by the Catholic Church. Article 27 of the constitution restricts foreigners from owning land within a “restricted zone” of 60 miles from the Mexican border or 30 miles from any Mexican coastline.
In the 1930’s, the Mexican people finally started to see their land being returned to them. Large property holdings were disassembled and redistributed in the form of cooperative farms or “Ejidos.” The people were given ownership of the Ejidos, and allowed to profit from farming and cultivating them. However, the government still owned the Ejidos.
Though the people were allowed to farm the properties and profit from their work, it was not until 1992 that they were allowed to sell the properties. The 1992 Agrarian Law recognized property rights within the Ejido and allowed for the owner of record to sell or lease the property to a non-Ejido member. The property can be removed from Federal Control and placed in the public land registry allowing it to be sold or leased. Today, thousands of acres are being removed on a daily basis from the Ejidos, added to the public lands and being sold or leased. There are well over 50 million acres of land that will go through this process to be either leased or sold over the coming years.
Yes. Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. They can indirectly own property in the “restricted zone” through the use of real estate trusts called “Fideicomisos.”
The “restricted zone” encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. Article 27 of the Mexican Constitution prohibits direct ownership of real estate by foreigners in this area of land. Foreigners can now own land in the restricted zone through the use of a Fideicomiso however.
Allowances of foreign ownership of Mexican companies, formerly limited to 49 percent, were raised to 100 percent in many enterprises. This includes development companies, hotel companies, etc. This is important because most companies no longer need prior consent from the Foreign Investment Commission or Mexican investment partners.
Mexican Federal Corporate Income Tax ranges from 25 to 38 percent, and allows provisions to offset the detrimental effects of inflation on monetary assets and liabilities, inventories and depreciable assets.
Mexico’s economy is great for foreign investors. It offers a solid communications infrastructure, ample energy supplies, low labor costs, and skilled trainable labor resources all in close proximity to the world’s largest market. In addition, the Mexican government has dedicated time and money to developing new tourist destinations with modern facilities and infrastructure in order to promote the tourism industry.
A Fideicomiso (FEE-DAY-E-CO-ME-SO) is a trust created to enable foreigners to enjoy unrestricted use of land located in the restricted zone without violating the law. It roughly translates to mean a real estate trust. It is similar to trusts set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of record. Foreigners are set up as beneficiaries of the trusts.
As with all Real Estate, prices vary according to what kind of property you are buying, where the property is located, and which banks you go through. In general, it is a lot less expensive to buy property in Mexico than in the United States, and property taxes are very low.
Up until 1973, foreigners could not own land in Mexico within the “Restricted Zone.” This was dictated by article 27 of the Mexican Constitution which states that “in a zone of 100 km. (62 miles) along any border or 50 km. (31 miles) along the coast, foreign entities cannot acquire direct ownership of the land and waters.”
The Mexican government realized that foreign interest in Mexican land could potentially have a positive impact on the economy, and began to implement a series of Foreign Investment Laws in 1973. These were modified in 1989 and modified again in December of 1993 to incorporate the provisions of the NAFTA treaty.
Mexican law currently requires that in addition to obtaining a valid entry visa, foreigners wishing to acquire property for residential usage must have the title to their property transferred to a Mexican bank. In order to do this, the foreigner must establish a land trust (fideicomiso) in which they are the beneficiary. The bank has the responsibility of ensuring that all elements of the Trust are fulfilled.
While the bank owns the real property rights, the beneficiary (equitable owner) owns the personal rights to use, rent, modify or transfer his rights to a third party. These personal rights are evidenced through a deed prepared by a Mexican Notary, signed by the representative of the trustee bank and duly registered with the appropriate local authorities.
The Foreign Investment Law of 1993 stipulates a term of 50 years for the Trust with opportunity to renew the trust for multiple 50 year increments. By requesting renewals every 50 years a property may be held by a family or business entity in perpetuity. The filing for this renewal must take place on the forty ninth year and between the sixth and seventh month prior to expiration.
Since by law, Mexican banks enjoy government protection against bankruptcy, the Trust is indirectly guaranteed by the government. For this reason, even in unrestricted zones many foreigners prefer to hold their property in Trust.
A “notario” is a government appointed lawyer who ensures the proper transfer of all real estate transactions. The notario is responsible for registering the beneficiary’s deed transferring rights with the appropriate government agencies. If ownership of the property is ever disputed, this is the ultimate proof of ownership.
The purchase/sale document, likely contains a description of the property, price to be paid to the seller, and any special terms or conditions negotiated in the sales process. It does not provide valid notice to third parties unless it is recorded in the Public Registry office of the municipality in which the property is located however.
Title to the rights of the property remain with the last legal registered owner until the buyer is formally named as a beneficiary in a public document before a Mexican Notary. While the seller holds title to the property it is his asset.
To ensure proper registry of the property, an official appraisal of the property, notarized bank instructions, a property tax certificate and certificate of no liens must be obtained. Sellers Capital Gains Tax and Buyer’s Acquisition Tax (2% of the sales price) must be paid in conjunction with registering the deed by both the tax office (Treasury) and the Public Registry. If this process is not completed, the buyer is not fully protected.
Many people only obtain a simple “buy/sell agreement” between themselves as evidence of ownership. This is not a safe method of guaranteeing ownership.
The time required to obtain your Trust varies on a case by case basis. It can take anywhere from two weeks to over 180 days, but is well worth the wait.
Just like in the United States, you do not pay for your property until you have a clear title. When buying Mexican real estate, you must get a Trust and have the rights to the property transferred to your name.
Until you do this, the legal owner of the land is still the previous owner. Your money should be held in an individually numbered, bonded and insured escrow account until your Trust is complete and the property rights have been transferred to you. DO NOT release funds to a seller until you have received your Trust.
It is against the law for a foreigner to own property in a Mexican Corporation for residential purposes. However, you must name a Beneficiary or foreign owner for the property in your Trust document. This can be you personally, multiple partners, a foreign corporation, an estate trust, a living will, or other entity. The Trustee of the Trust (the Mexican Bank) will take direction from whomever you name as the Beneficiary.
It is perfectly legal to name a U.S. Corporation as the Beneficiary of your Trust.
If you sell more than 25% of the shares in the U.S. Corporation, you have created a real estate transaction in Mexico, and all Mexican Taxes apply.
You can own a property in a Mexican Corporation and take title fee only if the property is for development or investment purposes.
You cannot own property through Mexican Corporation to by-pass the Trust process.