Buying Real Estate In Mexico

This is an article written in 2003 and translated from Spanish, but its content it is very much up to date, so I thought it will be of interest.

The author is Patrick J. Kelly.

Patrick is a member of Fredrikson & Byron’s Corporate, Mergers & Acquisitions and International Business Law Groups. He has extensive experience advising clients with regard to international corporate matters, joint ventures, mergers and acquisitions, finance, distributors and agents, employment, licensing, technology transfers, and franchising. He has extensive experience advising clients with regard to international corporate matters, joint ventures, mergers and acquisitions, finance, distributors and agents, employment, licensing, technology transfers, and franchising. He works both with US businesses expanding into foreign markets and foreign businesses seeking representation in the United States. He works both with US businesses expanding into foreign markets and foreign businesses seeking representation in the United States. While he works with clients doing business all over the world, he has particular expertise in Spain, Mexico, Costa Rica, Panama, and Latin America, generally. While he works with clients doing business all over the world, he has particular expertise in Canada, Mexico, Costa Rica, Panama, and Latin America, generally. Pat advises clients on matters ranging from entity selection and tax structuring, mergers and acquisitions, foreign investment, contracts, securing debt, labor law and real estate development and finance. Pat advises clients on matters ranging from entity selection and tax structuring, mergers and acquisitions, foreign investment, contracts, securing debt, labor law and real estate development and finance.

Pat oversees Fredrikson & Byron’s office in Monterrey, Mexico. He practices out of both the Minneapolis and Monterrey offices, traveling between the two offices as needed. He practices out of both the Minneapolis and Monterrey offices, traveling between the two offices as needed.

The Article:

In unprecedented numbers, Americans are buying real estate in Mexico, whether it is an industrial park in Ciudad Juarez, a community of artists in San Miguel de Allende or a beach popular as Cancun, Puerto Vallarta and Cabo San Lucas. Para los que son nuevos a esta experiencia, el proceso puede ser frustrante y confuso. For those who are new to this experience, the process can be frustrating and confusing. Los abogados del Grupo de Ley Internacional de Fredrikson & Byron puedan ayudar con diligencia propia, negociaciones, documentos y transacciones de cierro de propiedades inmobiliarias comerciales y residenciales. Lawyers Group International Law Fredrikson & Byron can help itself with diligence, negotiations, documents and transactions close of commercial and residential real estate. Because we enjoy legal insurance and the process for buying real estate are substantially different between the United States and Mexico, it is important to seek the advice and assistance of consultants, legal and real estate experience when it comes into the Mexican real estate market. One of the first steps when buying real estate in Mexico is to first find property. Although this seems obvious, the buyer must first visit the property to ensure that appears as announced. You must be aware that the Mexican real estate agents are not regulated by the state or federal government, but if there are laws that prohibit fraud in Mexico, there is no disclosure requirements for sellers or real estate agents as those in the United States. Los compradores encontraran una variedad de expertos y profesionales. Buyers will find a variety of experts and professionals. As with any compromise, it is good to have a recommendation from someone who knows the honesty and capability of the property owner. The rule in Mexico is still Caveat Emptor (buyer has to be careful). The next step is to determine whether the buyer can seize the property directly through a trust or through a Mexican corporation or a limited liability company formed by the buyer. The purchase of real estate in Mexico by non-Mexican citizens is regulated by the Mexican Foreign Investment Act 1993. Although non-citizens could directly from seizing property in the interior of Mexico, purchases made within the “Forbidden Zone”, an area 100 km from the border or 50 miles of coastline, are limited. Prior to the enactment of the Mexican Foreign Investment Act 1993, foreign buyers generally could buy residential or commercial real estate in the Forbidden Zone only through a Mexican Trust. While the Foreign Investment Law was amended in 1998 to allow more flexibility for commercial purchases by foreigners in Mexico, buyers of residential properties have yet to buy property in the Forbidden Zone through a Trust. The Trust was formed by contract between the seller (beneficiary) and the bank (trustee) to provide the beneficial use of the property for a term of 50 years. The Trust may have multiple beneficiaries and can be renewed for an additional 50 years. The beneficiary can rent, sell or transfer the property at any time. The contract between the trustee and the beneficiary indicates low terms which the trustee can take action with respect to the real property located in the Trust. The trustee takes right to the property by the beneficiary and get the permits required of Mexican government.The trustee can not affect or transferr property without instruction and approval of the beneficiary.  For foreigners, used to be entitled to direct real estate property, this agreement may appear suspicious, but the Trusts are common and relatively easy to use. Those buying properties for commercial purposes will be happy to know that 1998 amendment to the Foreign Investment Law provides opportunities of direct ownership for foreign buyers looking to buy real estate in the Forbidden Zone for commercial purposes. With such that the commercial intent is not limited by the Foreign Investment Law, the buyer can buy through a Mexican corporation which is 100% formed by foreigners or a limited liability company. Once the buyer has determined how to buy real estate, it is necessary to revise the real estate law. The Mexican registration system is not convenient or as easy to use as the records in the United States. While some records have been computerized, others have yet to be searched by hand and require local experts to find them. All transactions of real estate must be registered with the Public Registry of the capital or any other big city in the state where the property is located. To revise the right to the property, buyers should obtain copies of the title to instruct the owner of the property.Copies of the titles can be obtained at the Registry of the area in which the land is located. Failure to register is a mistake.The property can be registered in one of the two sections of the Public Register. The terrain is entitled to clear and without charges is registered in the section reserved only for possessions; this means that the owner can only claim to have possession, not necessarily ownership.The other record may mean that others may claim ownership, and in the best case, they can make it difficult to sell in the future. No discussion of buying real estate in Mexico is complete without at least a brief mention of Ejidos. After the Mexican revolution, the government institute a program of land reform to divide the properties of large land and distribute the land to agricultural cooperative of farmers known as ejidos. Historically, the ejido land could not be sold to private owners.While some laws have changed, buying ejido ground is still difficult and should only be done with a clear understanding of the risks involved. There are ugly stories of buyers purchasing ejidos, and developing commercial properties in the field, only after the ejido to dispute the validity of the sale and demand the recovery of ground saves developed commercially.If you intend to buy land from a ejido do it with caution and only if you have a good legal representation. Buyers should proceed with an inquiry with the authorities to see if any taxes imposed on the property is due to take into account the amount owed and paid at closing.The tax office is located in the town where the property is located or the closest city to the rural land. It is normal for buyers to draw a contract with a vendor, but keep the lie that those who register with the public record is a summary of the contract by the notary.The contract will be copied to the title which will be filed in the Register. The buyers who speak little or no Spanish should insist that the documents are bilingual, but only the documents written in Spanish can be registered in the Register.  Do not rely on the estate agent or lawyer who tells you that the both documents  in Spanish and English have identical terms, if you can not read the Spanish version that will be recorded. We have many examples of transactions in which the buyer think that the versions were identical, only to discover later that some important terms were different because the real estate agent or attorney Mexican failed to confirm the changes that were made to the Spanish version for release in English. The documents that are on file with the Registry have to be prepared and filed by a notary public.  In Mexico, public notaries are lawyers with special commissions from the government to authenticate and record government bonds and other important documents such as wills, corporate organizational documents and contracts and titles of real estate properties .While most are professionals and are detailed in their preparations for government bonds, it is a good idea to have someone who can compare the version of the purchase contract in English to ensure that the title reflects precisely the terms previously agreed . It is essential also to ask the notary to ensure that after the title is drawn, is properly registered. Usually notaries charge a percentage of the cost of buying up to a level of real estate transactions; make sure to get a budget and fees in writing before the close. Once the title of the property is formalized and filed with the Registry, the purchase is completed. A brief last word on financing and insurance law. Most Most real estate transactions in Mexico are treated in cash, except if the property is a condominium ownership by an American company which is financed through an American bank. Most American banks are still a bit hesitant to finance purchases in Mexico. Most policies available are written in the United States and are enforceable under the statute.