Buying Real Esate in Mexico

As with any major purchase, the decision to buy a property or residence is governed by a multitude of factors. While there may be practical reasons why you are looking to buy- for instance, as an investment- there is always a strong emotional component as well.

Platanitos Realty is sensitive to subtle but critical issues, such as your individual taste and style, as well as more practical considerations such as location and price as well as proximity to services and shops. At the same time, our knowledge of the market gives us special understanding of the relationship between price and value and its implications to you as a purchaser.

Our goal is to locate for you a range of properties that meet your criteria and then help you find one that wins your heart. From there we will guide you through the process of negotiating and acquiring a property in Mexico.

Please take a moment to acquaint yourself with the following facts. A clear understanding of what's required can ensure a smooth transaction and help you to avoid any unforeseen pitfalls.

Can foreigners own property in Mexico?
Under Mexican law, foreigners cannot own property outright within the Restricted Zone. Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts to buy real estate, they must have a bank act on their behalf. The following is a brief outline of the laws regarding such trusts, known as "fideicomisos".

N.B. Potential buyers should always have all real estate transactions reviewed by a licensed Mexican attorney.

Who's involved in real estate transactions in Mexico?
Normally, there are three or four players involved in any real estate transaction in the restricted zone:

• A real estate company
• The buyer's lawyer
• A bank
• A public notary

All four are helpful in their respective areas in assisting with real estate transactions.

A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of sale. Additionally, an attorney can do a title search and point out any problems or alternatives a buyer may have.

Besides formalizing your real estate transaction, an attorney can be very helpful in saving you money. This is because attorneys are aware of the most competitive cost and fees involved in a transaction. An attorney can also inform the buyer regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or other savings when the buyer eventually sells the property.

Foreign Investment Law

Given the changes made for 1997 in the foreign investment Law, and the fact that a buyer can now apply for and obtain a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before entering into any contract.

The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust may be:

• Mexican corporations with foreign investment
• Foreign individuals or legal entities

It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future.

The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City.

It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition.

In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.

There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust.

This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property.

Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary. A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time.

The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law.

Generally, the law allows most activities engaged in by foreigners.

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