By jennifer j. rose
Enjoying the Mexican beachfront or colonial hillside town, you've
decided to put down roots in Mexico and "save money" by buying in. Think
twice: you may make the deal of a lifetime, or you wish you'd never
become involved. Invest a significant amount of time before investing in
Mexican real estate. Get to know the terrain, its problems and
advantages. Work hard to understand the area, the people and the real
estate values. Get the assistance of someone who speaks and reads
Spanish fluently so that you don't miss legal nuances and idioms. Even
though you may have bought and sold real estate in the United States,
the Mexican experience is a totally new experience. You're not in Kansas
Under the Mexican Constitution, only Mexicans have the right to own land
or receive mineral or water rights. Foreigners have the right to own
real property, provided they do not invoke the protection of their
government. That sounds reasonable enough, doesn't it? All this means is
that any dispute concerning land ownership will be decided by Mexican
courts, treating foreign landowners the same as Mexican nationals.
Foreigners have no legal recourse in the legal system of their
homelands. This is done to prevent the historic recurrence, prevalent in
Latin America in the past 200 years, of a capital-exporting country
meddling in the sovereign affairs of another nation to protect a private
party's economic interests.
Foreigners are prohibited from directly owning real estate within the
"Forbidden Zones" of 100 kilometers of the Mexican border and 50
kilometers of its coasts. Within these restricted areas, foreign
ownership is possible under a fideicomiso, or bank trust.
Under the fideicomiso (pronounced Fee-deh-com-ee-so), a Mexican bank
trust is created for a period of 50 years, and the trust may be extended
for another like period. Legal title to the property is held by the
bank, as trustee, and beneficial use is held by the property buyer. Even
in non-restricted areas, the fideicomiso may be used by foreigner
landowners and Mexicans alike for the same reasons that trusts are
created in this country. Under the fideicomiso, multiple or successor
owners can be named. The costs of establishing the fideicomiso are not
great: an initial set-up cost is based upon a percentage of the property
value, and annual trustee fee is charged.
While zoning restrictions may not be apparent in commercial and
residential neighborhoods, certain areas may have building codes to
preserve colonial flavor. For instance, downtown Morelia has enforced a
historical building preservation code for the past hundred years.
Private land ownership may be barred in forested areas, natural
protected areas, reserves, biospheres and other environmentally
protected areas. That beautiful isolated mountaintop or bucolic site may
be out of reach for the same reasons that it's just real difficult to
buy a chunk of the Grand Canyon or Central Park.
Historical antecedents have limited large land-holdings in agricultural
areas. Size, irrigation, and productivity limit the amount of farm land
which can be owned by a single entity. Presumably, you're not planning
to farm in Mexico, anyway. If you're really determined to do so, there
are ways to accomplish this goal, but you'll need more legal advice than
we can give you here.
The 1910 Mexican Revolution was rooted in unequal land distribution: 1%
of the Mexican population controlled 97% of the land. In response, the
government expropriated large land-holdings, outlawed latifundios, and
created communal lands, or ejidos, occupied by rural peasants or
farmers. This concept dates back to Mayan times. Some seventy years
after the enactment of the 1917 Mexican Constitution, these small plots
of land became less productive and unable to compete in the market
economy. In 1992, the Constitution was amended to loosen the tightly
controlled ejido system, make it more productive, and to provide ejido
members with greater access to capital. The new law allowed some ejido
lands to be rented out or sold under certain restrictions.
In Mexico, anyone can offer real estate for sale. There are no license
laws regulating real estate brokerage and sales....all the more reason
to exercise caution to search out a reputable and established real
estate company. Commissions are usually about 7% of the actual sales
price, although they may be higher in resort areas.
Now that you've found your dream property, how are you going to pay for
it? Forget about financing...unless you plan to finance a stateside
property to pay for your Mexican dream. Lack of capital markets and high
interest rates force most foreign-purchased real estate purchase to be
made in that quaint tender, cash. As the Mexican economy opens, new
sources of financing may become available, but high mortgage interest
rates will make the worst of American interest rates pale in comparison
and will not create the traditional 20- or 30-year mortgages Americans
have considered the norm.
Unlike stateside real estate transactions, closing costs borne by the
buyer are considerably greater in Mexico. Customarily, the buyer pays 1)
the transfer tax, which is 2-6% of the appraised value of the land, 2)
notario's fees, usually 2-3% of the appraised value. The appraised value
used for deed (escritura) purposes is often much lower than the actual
sales price. The notario, a special breed of lawyer who has been
delegated quasi-judicial functions and acts much like public recorder,
performs what amounts to a title search, obtains "no lien" certificates,
secures an official appraisal, verifies that there are no unpaid taxes
or water bills which could cloud title, drafts the deed. All real estate
transactions must involve a notario, who has virtually no relation to
the American notary public.
The seller pays any capital gains tax and the agent's commission.
Real estate prices may be established in dollars. Don't feel that you're
being gouged as an unsuspecting American; it's common practice in
devalutionary times. Payment made by made by wiring funds from a U.S.
bank to a Mexican correspondent bank in the U.S. or to a casa de cambio.
Like many transactions in Mexico, closing may not proceed as rapidly as
in the U.S. One transaction I was involved in took two years from
acceptance of offer until possession: the owner had died intestate, and
42 heirs had to agree to the sale.
Because telephone lines are purchased by each customer, the buyer will
need to determine whether phone service is included in the real estate
purchase. Light fixtures and garden statuary which generally stay with
the property in the U.S. are often not part of the real estate purchase
in Mexico. Find out what's included and what's not to avoid surprises
when you take possession.
Because Mexican landlord-tenant laws, which vary from state to state,
are tenant-oriented, making eviction extremely difficult and costly,
most leases tend to be written to protect the landlord. In some areas,
Mexican landlords prefer to rent to foreigners --- not so much for
higher rental income as for the foreigner's ignorance of landlord-tenant
While locales can differ significantly, normal rental values are 1% per
month of the property value. A $200,000 property would likely rent for
$2,000 per month. One-year contracts are common, with one- and three-
year renewal options with predetermined rate increase formulas.
Normally, a cosigner is required, and a one or two month rental deposit
can be applied to the last month's rent. The tenant usually pays for
utilities, water, gas, telephone, cable TV, and condominium maintenance
In resort areas, time share hawkers are rampant. Beware of the high
risks involved, because Mexican law provides very little legal
protection to the time-share owner. If you absolutely must invest in a
time-share, do so with full warning and preferably with a stateside
company. And be warned that the resale market is extremely poor.
Competent legal counsel (your own, not the seller's or the real estate
broker's) is mandatory. Just as you'd carefully watch your backside
making your first real estate deal at home, don't let your guard down in
Mexico. Fully warned, go ahead and reap the pleasure of Mexican property
ownership. While your upfront costs may be higher than you contemplated,
you'll benefit from significantly lower property taxes and utility
bills. And you'll feel like a real part of Mexico as a property owner.
Copyright 1996 jennifer j. rose
Ms. Rose practices law in Shenandoah, Iowa and made her first Mexican
real property purchase in 1989. This article is general in scope and
should not be considered legal advice.
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