Due to the
large amount of foreigners coming to Mexico and buying Mexico Real
Estate for Sale we have put together this document to guide you as a
foreigner through the restrictions and limitations of purchasing and
selling Mexican Property. This rich country has 6,000 miles of
breath taking coastline; Mexico is very tempting for interested
foreigners. However, before purchasing it is crucial that you keep
in mind the technical and legal matters at hand.
RULE # 1
Understand
The Work of Notario Publico
A Notario is
an attorney appointed by the governor of the state in which he is
licensed. The position of the Notario is held with very high esteem
and they have responsibilities under the Mexican law. Only a Notario
has the right to register and record real estate transactions and
are responsible for the registration of deeds at the State and local
government. They also collect taxes for the Federal, State and Local
Government, which is a large part of the closing cost, addressed in
rule # 2. The Notario ensures proper transfer of all documents and
will draw up and review all of the closing documents including
deeds, trust, and registration papers. In addition, other work done
by the Notario include powers of attorney, the formation of
corporations, writing of wills, and the well-known notary stamp and
seal on numerous legal documents. The Notario also guarantees that
the property and the transfer of ownership is done in a manner
similar to a U.S. title company because the Notario verifies on the
date of deed transfer that back taxes have been paid on the property
and that there are no liens or encumbrances against the property.
RULE # 2
Understand
“The Closing Process and The Closing Cost”
It is going
to take between 45-60 days to complete the closing process.
Commonly, the buyer pays for the closing costs as well as transfer
or acquisition tax. In many closings, it is not necessary for the
buyer to be present for the closing. The closing costs are paid on
the value of the property purchased. Most Notarios require that you
pay for ½ of the estimated closing cost when they start your
paperwork and the final payment at closing. An Estimate may be
requested from any Notario and varies marginally in the cost of the
closing from one Notario to another. Closing costs are as follows:
-
Fees for the tax certificate
-
Transfer tax (I.S.A.I.) of 2% plus a fixed
amount according to a scale based on the appraised value of the
property, this goes to the Mexican government.
-
A registration fee of .05% of assessed value
of the property.
-
Average of 2% for legal notary fees.
-
Title search fees
-
Property Appraisal and miscellaneous office
expenses.
-
Total closing costs varies from State to
State because each State sets the amount of taxes. The
average in the State of Jalisco for closing
residential properties
range from 3.2 to 5.5 % of sales price. Commercial property
for new construction may be as high as 8 % because the I.V.A.
Tax (a 15% sales Tax) may be included in your closing cost.
Note: The recent closing for a condominium that sold
for $254,000 US dollars the closing cost and the trust fee were
$9,697 US dollars or 3.8 per cent. Another recent closing of a
condominium that sold for $440,000 US dollars and the closing cost
and the trust fee were $14,080 US dollars or 3.2 per cent.
RULE # 3
Understanding
“The Restricted Zone”
In Article 27
of the Mexican Constitution it clearly states, “Foreigners cannot
own property within (100) Kilometers of the Border and (50)
Kilometers of the coastline”. This is called the Restricted Zone.
However, in the 70’s the Mexican Foreign Investment Law
created two options that help foreigners that want to purchase
property in
“The Restricted Zone”.
1. A Mexican
Corporation
2. A Bank
trust (Fideicomiso)
A
corporation
If you wish to purchase property through a Mexican corporation, it
may be 100% owned by foreigners. A provision in the by-laws of your
corporation must state that the share holders must accept and will
be subject to Mexican laws. You cannot live by the laws of your own
country. The property must be registered with Foreign Affairs
Registry.
A Bank Trust (Fideicomiso)
Both foreigners and nationals may establish a Fideicomiso. (An
Irrevocable Bank trust). This trust is created with a Mexican bank.
The bank accepts the fiduciary responsibilities of a Trustee. The
Fideicomiso allows you to purchase anywhere in Mexico including the
restricted zone.
The Notario at the request of the buyer requests that a bank of your
choice act as a trustee on your behalf. The bank then will receive a
permit to acquire the chosen property in trust. The trust is
irrevocable and is established for a maximum of 50 years then it may
be renewed for another 50 years.
You are the
beneficiary of the trust and have all the benefits of direct
ownership. This includes the option to sell, remodel, lease,
mortgage, or transfer the rights to a pre-appointed heir or another
third party. The trust may also include language to by pass the
probate court with joint ownership to transfer with the rights of
survivorship.
You do have the absolute right to transfer the title to another
party at anytime.
Responsibilities of the trustee to the buyer include; exact
fulfillment of the trust. Mexican Law also states the trustee will
assume full technical, legal and administrative supervision.
It usually costs approximately $ 800 to $1,200 USD to set up a
trust. There is also an annual maintenance fee of $400 to $500 USD.
You will pay the yearly fees directly to your bank.
RULE # 4
Understanding
Your Property Taxes
Your property taxes may to be low compared to States like California
or Texas.
The assessed rate is set by each state the same as in the U.S. The
range is .04 - 2 per cent . In the State of Jalisco the rate of .08%
of the assessed property value which is determined when the sale is
made. Example: a $300,000.00 US dollar residential property is a
little less than $280.00 US dollars per year. Compare that to
what you are paying in your home State and you will see another
advantage to owing property and retiring in Mexico. Not to
mention lower cost for medicine, medical care, insurance
(car and health), food (fresh fruit and vegetables) and
clean air to breathe (basic essentials).
RULE # 5
Understanding
Financing
Interest rates in Mexico are high compared to U.S. and Canadian
rates so most transactions are made in cash. However, there are a
few banks that offer mortgages. Some developers do offer financing.
We also have U.S. lenders that have money available for U.S. and
Canadian citizens. Contact us for more information about current
interest rates and required down payments.
We do hope
that this information will prove useful during your search for your
perfect Mexican real estate vacation home.
RULE # 6
Choose a Real Estate Company you know and Trust
