How do you purchase property in Mexico?

Since 1973, non-Mexican citizens have been able to purchase property in Mexico, with only coastal and border properties owned through a trust deed established with a Mexican bank. Foreigners may directly own rural or urban land in the interior of Mexico, with certain limitations on specific agricultural tracts.

Financing

Real estate transactions in Mexico are generally cash transactions, with limited cases of owner financing available. The high cost of money (interest rates) has made financing properties unattractive to most. Until recently, there has been an absence of mortgage company services in the Republic. There are now foreign companies making medium term loans available. You may wish to investigate this.

Trust Deed Ownership in Mexico

How does the trust deed work?

The bank (known as the trustee) holds the trust deed for the person who is purchasing the property (known as the beneficiary). This property is not part of the bank’s assets and cannot be subject to a lien or attached for bank obligations. The beneficiary has all ownership rights to the property and may sell, lease, mortgage, pass to heirs, etc., or do any other legal thing with the property.

Why trust deed ownership?

The trust agreement was established by the Mexican government for foreigners interested in owning property in Mexico. It has the benefit of the bank "overseeing" the deed. A further benefit has been that co-owners can be listed on a trust deed using "and/or," solidaridad activa. Upon the demise of one the property automatically goes to the other and probate is avoided. The importance of the designation "and/or" cannot be understated as this allows either to sell the property and does not require the agreement and signature of all parties. Another advantage is that a beneficiary can be named, which also avoids probate. This beneficiary may be unrelated to the owner.

How long does the trust deed last?

As of 1994, trusts may be granted and extended in 50-year periods. If you purchase property currently held in a trust deed, a new 50-year period can be established or the existing trust deed may be assigned. Trusts are renewable at any time by simple application. Multiple properties may be held in one single trust.

It was never the intent that the properties pass back to the government at the end of the trust period, which has been a common fear of purchasers. This just does not happen.

Trustee Fees

There is an annual fee charged by the trustee bank for management of the trust. The amount charged varies. Ask your real estate professional for current bank fees.

How are trust deeds established?

The "fideicomiso" or trust is established by a Notary. In Mexico, the designation of an attorney as a Notary represents a high level of legal standing, and their services are required for the transfer of real estate. Because of the large number of foreign-owned properties in Mexico, and especially in areas such as Ajijic, establishing a trust has become a routine procedure. It is not a complicated process, and standard forms are utilized. As part of the escrow process, your Ajijic Real Estate will assist you in your dealings with your notary.

Direct Deed Ownership

The deed is the history of the property and will indicate who is the legal owner. The Direct Property Deed (Escritura Publica en Dominio Directo) is outright ownership of the property. The buyer is listed on the deed as the direct owner. There is no yearly or administration fee, as there is with a bank trust. However, with a Direct Property Deed there is a process of application for each foreigner who is registered on the deed. The process of receiving a notice for a direct deed from Relaciones Exteriores takes a minimum of two weeks and is taken care of by the buyer’s notary of choice.

As of September, 1995, a beneficiary can be designated in a Direct Property Deed. Probate is no longer automatic with a Direct Property Deed and a will is not essential to pass on the property when an owner of record dies. A beneficiary in a Direct Property Deed must be a spouse, parent or offspring. There is no "and/or" designation in a direct deed. For all property owners a Mexican will is strongly recommended. A notary can help you structure your will. If you live in Mexico a will is recommended.

The Closing Process

The Agreement

Congratulations. Once an "Offer to Purchase Agreement" has been accepted, the closing process begins.

Escrow

The offer to purchase is always validated by a ten percent (10%) deposit, held in a U.S. dollar escrow account by Ajijic Real Estate when the offer is in dollars and in a peso account when the offer is in pesos. The balance is payable upon the signing of all papers at the office of the "Notario" or Notary. Funds are held in escrow during the time needed to complete the closing process.

Obtaining Your Deed

In order to obtain the deed for your property, your sales associate will work with the Notary to complete the following steps:

• Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a no-lien certificate and tax statement from the Treasury Department (Hacienda). Additional checks are made to ensure there are no outstanding water bills or municipal taxes.

• Obtain a permit from the Ministry of Foreign Affairs to establish direct deed ownership (if applicable). You must apply for this several weeks before the closing.

• Establishment of the Bank Trust or Fideicomiso.

• Obtain the appraisal for the assessed value of the property.

• Prepare all documents for both buyer and seller.

When all of these items have been completed, the buyer transfers the remaining funds due into the escrow account and the Notary presents the legal transfer papers to be signed. The Notary is the attorney of record and the unbiased, official representative of the government. The Notary has a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view. The buyer and seller need not be present at the closing, but may be represented by their Ajijic Real Estate Sales Associate via a power of attorney. The buyer chooses the notary, as pays the notary fees and attendant closing costs directly.

Closing Costs

Closing costs are paid by the buyer, and to some extent depend on the value of the property. They include a transfer tax, legal Notary fees, a property registration fee, and fees for the tax certificate, title search fees and property appraisal, as well as miscellaneous clerical expenses. Your Ajijic Real Estate Sales Associate can supply you with a detailed pre-closing cost estimate from the Notary once an offer is made.

The seller pays all capital gains taxes and real estate fees. Simply stated, capital gains is a thirty-five percent (35%) tax on the difference between assessed values at the time of purchase and sale, with adjustments made for inflation. Your Sales Associate can provide you with detailed information on future capital gains taxes, and assist you in your tax planning.

Maintaining Your Property In Your Absence

For condominium owners, maintenance and security is usually handled by the Condominium Owners Association, paid for via monthly fees.

Property owners who will be away from their homes for any length of time may want to consider a property management company. Ajijic Rentals can provide full property management services for you, which may include maintenance and repairs, pool cleaning, payment of employee salaries, payment of utilities, payment of taxes, forwarding mail, etc. They can also find renters for you, collect the rent, and maintain your home. Ajijic Rentals may be contacted at 52 (3) 766-1716.

Property Taxes

Property taxes are very low in Ajijic, and in Mexico as a whole. The property tax rate, known as "predial," is eight-hundredths percent (.08%) of the assessed value. If paid annually it is discounted further! The assessed value for property tax purposes is determined at the time of sale. An example would be that a condo purchased for $150,000 USD would be assessed about $100 USD annually in property taxes.

Utilities

Public services, including water, gas and sanitation, are lower than comparable services in the United States of America or Canada, with electricity being similar, depending on usage.

Rental Potential

In Ajijic, there exists a very strong rental market for both homes and condos, and Ajijic Real Estate has an experienced rental agency that can manage your property for you. Good properties that are well maintained can be expected to rent quickly and easily.

Insurance

The various types of insurance, including automobile, property, liability, damage, and earthquake are all readily available in Mexico, at low relative costs.