Homework: Mi Casa
Buying in Mexico can be an enjoyable investment—if you know the facts and risks.
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Historically, buying property in Mexico involved cash, a handshake, and a lot of blind faith. But since the North American Free Trade Agreement (NAFTA) went into effect in 1994, prompting modifications to Mexico’s Foreign Investment Law, the rules for buying property in Mexico have become much more defined. The process, which typically takes from 30 to 60 days, is, in some ways, similar to buying a home in the United States now that American business standards, such as title policies and third-party escrow, are more common. Still, certain procedures and regulations in Mexico can vary greatly from what buyers are accustomed to in the States.Within Mexico’s interior, foreigners can own property
outright. Under the country’s constitution, however, only nationals can own
property in the "restricted zones"—that is, any real estate situated within Baja
California, 62 miles of the Mexican border, or 31 miles of the shoreline. But
foreigners can bypass this restriction by entering into a Mexican bank trust
called a fideicomiso (pronounced fee-day-co-me-so).
Through this agreement, the bank acts as the trustee and the
buyer as the beneficiary. The Mexican bank holds the property on a fiduciary
basis with a contractual obligation to follow the trust beneficiary’s
instructions. Though the bank holds the title to the property, the buyer has
full ownership rights and can use, build on, improve upon, or borrow against the
land. The law, which is modeled after Monaco’s real estate statute, stipulates a
50-year term on real estate trust accounts and is perpetually renewable for
another 50 years, allowing foreigners to transfer ownership or will the property
to the next family generation.
"There are three parties involved in a Mexican real estate transaction," says Jonathan A. Pikoff, a real estate attorney who lives in Los Cabos and is licensed in both Mexico and Texas. "There’s the seller, the Mexican bank trustee, and the American buyer." There is also a public notary, or notario—who, in Mexico, is an attorney licensed by the state to oversee title transfers. Though some sellers and real estate companies may offer complimentary legal services to the buyer, it is advised that the American buyer hire his or her own real estate lawyer, one who is bilingual and licensed in Mexico.
"By Mexican law, all deeds must be in Spanish," explains Pikoff. "An able attorney will do a title search and ensure that there are no debts or taxes due on the property." The search will also confirm that the seller actually owns the land and does not fall under Mexico’s ejido system, which allows certain nationals, such as farmers, communal land use but not seller’s rights. Pikoff says that even if the buyer is purchasing in an American-developed community, there is no guarantee there will be no legal issues. "Consider some of these presell contracts, where you pay 30 percent up front, more money during construction, and the balance when finished," he says. "The developer is using your money to invest in the project. What if the builder ceases to work on the project and you can’t get your money back?"
Until recent years, most transactions in Mexico were paid in full at the time of purchase. "The Mexican mentality is cash only; they don’t think in terms of credit," explains Laura Zapata, president of the Riviera Maya chapter of AMPI (National Mexican Association of Professional Realtors). "Loans through Mexican banks are available, but the interest rates are so high [from 9 to 12 percent over a 15-year term] that most foreign buyers prefer to pay cash." Pikoff says that is beginning to change as well, with more American banks offering financing for vacation homes south of the border.
However, closing costs—which include transfer tax, notary fees,
public registry of property, appraisal fees, and the cost for various
certificates—are still fairly expensive, ranging between 3 and 5 percent.
"If a person is informed of the facts and the risks," says Pikoff, "buying
property in Mexico is a very manageable process and an enjoyable
investment."
Jonathan A. Pikoff,
Pikoff & Associates, 713.408.9702,
www.pikofflaw.com
Laura Zapata, AMPI Riviera Maya, 361.877.7279,
www.ampirivieramaya.com
