Real estate in Mexico is governed by a set of rules that finds its
origin in the Constitution of 1917. More detailed rules can be
found in the Mexican Foreign Investment Law and its
Regulations, which are available online in English. The election
of Calderon, who served for six years, also gave high optimism
to investors, as it showed political stability in the country.
The Restricted Zone, which is 100 kilometers from Mexico’s
international borders and 50 kilometers from its coastline, has
specific regulations for residential and commercial properties.
Residential properties must use a trust, while commercial
properties must use a Mexican company. Failure to comply with
these regulations can result in high penalties.
Ejido property, which refers to communal farms, can also be
privatized under the Agrarian Law of 1992. The process requires
a vote of 75% of the ejiditarios, which can be hard to achieve.
Once the privatization process is complete, the title is issued
and recorded in the Agrarian Registry.
The Federal Zone consists of the first twenty meters of beach-
front property on firm traversable ground, measured from the
high tide. Properties that border the beach area are subject to a
2000 meter rule. It is important to ask for beach concessions
during the due diligence process.
Water rights are another important issue in Mexican real estate.
Dry river beds or washes (“arroyos”) are a common issue in Baja
California. Depending on the size of the river bed, federal
property can be 5 to 10 meters to each side. Environmental
impact studies must also be conducted before any development
can be made, in compliance with the Ley Gral de Equilibrio
Ecologico y la Proteccion al Ambiente.
Residential property ownership must go through a trust, called
Fideicomiso, which requires a permit from the Ministry of
Foreign Affairs. This requirement was established in the 1993
new foreign investment law. Some investors recommend using a
Mexican company instead. However, using a trust loses the
chance of the income tax exemption on homes, and the current
corporate tax rate is at 28%. An asset tax from 1.8% to 1.25%
applies starting from year four and is non-deductible.
Notaries in Mexico operate differently from those in the United
States. State law prohibits the use of “notario publico” in Texas
to prevent confusion. Closing costs can be expensive, and
buyers should budget around 5%, with 2% of which being the
transfer tax. Property taxes are generally low.
The normal structure of real estate transactions involves a
Promise to Purchase Agreement, down payment, and closing
before a Mexican notary public. Presales are common, but they
pose a challenge as the builder uses the buyer’s money to build
their home. Delivery versus title issues and penalties must also
be considered.
High mortgage rates in Mexico are a challenge for lenders, as
labor union priority and tax liens can pose issues. Common
documents required during closing include certificates of no
liens and no debt, proof of water payment, preventive notice
from the notary public, and possibly a power of attorney with an
apostille stamp from the Secretary of State in Austin.
In the sale of a residence by a foreigner, a tax of 25% of gross or
one third of profits applies, and the full price must be declared
in the Promise to Purchase public deed.
Buying real estate in Mexico as a foreigner has become easier
with the changing of the Mexican Foreign Investment Law.
However, foreigners may not directly acquire real property in
the restricted zone. In order to buy property in this area, a trust
is necessary, where a Mexican bank holds actual title to the land
while a foreign beneficiary, the purchaser, has the right to use,
enjoy, or even sell the land, and receive the future proceeds.
When purchasing a property in Mexico, it is important to use
the services of qualified and knowledgeable Mexico licensed
lawyers, real estate brokers, lenders, and title insurance
companies. American lenders now offer up to a 70% loan to
value mortgage on a property in the Los Cabos and Baja Sur
area, with shorter terms such as 2 to 5 years, although they may
be amortized over 20 or 30 years, and may require minimum
FICO credit scores.
The use of a title company is also important in that it can
provide escrow services so that the money paid for the purchase
of a property is not distributed until the appropriate time, and
after the appropriate due diligence and written documentation
has taken place.
When buying a condominium or a timeshare or other fractional
ownership of real property, it is very important to make sure
you and your lawyer have properly reviewed all condominium
regimes, rules and regulations, and related documents.
Other important factors to consider include making sure the
Seller has the valid legal right to sell the real estate you are
considering to buy, using a well-respected real estate agent that
is familiar with the Baja Sur area, using a lawyer that is licensed
and fluent in both English and Spanish, and utilizing the
services of a title company, for both escrow services and title
insurance.
Foreigners, including Americans, are allowed to acquire land in
almost any part of Mexico, except for the restricted zone. The
restricted zone is defined as the strip of land 100 km from the
border and 50 km from the beach. However, foreigners can still
purchase land in the restricted zone through a trust agreement
with a Mexican bank. A Mexican company with foreign
investment can acquire fee simple title in the restricted zone for
purposes other than strictly residential.
To purchase land in the restricted zone, a trust agreement with
a Mexican bank is required, where the bank holds the title of the
land while the foreign beneficiary has the right to use, enjoy, or
sell the land, and receive the proceeds. The process involves
obtaining trust permits and entering into the trust agreement,
which is renewed every 50 years.
To transfer the title of the property, a notary is required to
ensure that all legal formalities are followed, and the transaction
is recorded in the local Public Registry of Property. The notary’s
role is to ensure that the law is followed, but not to provide legal
advice.
The acquisition process generally includes two steps: the
Promise to Purchase and Sell, which is a legally binding
expression of the parties’ intention to make a contract in the
future, and the Definitive Purchase Sale Agreement, where the
title of the property is transferred.
Mexican real estate custom does not include the use of escrow,
so it is recommended to use escrow through a title company
for the buyer’s protection.
Notary Publics - USA v. Mexico
The roles of Notary Public and Notario Publico differ
significantly despite their similar names, which can be traced
back to the Latin word “notarius” for “clerk.” The term “Notary
Public” has a unique definition in Texas and should not be
translated literally into Spanish, unlike the “Notario Publico” in
Mexico. While the Notary emerged in the 13th Century as a Papal
appointee, the Mexican Notario Publico is heir to the Roman
system, and the Texas Notary Public is a descendant of its
English cousin.
The qualifications to become a Texas Notary Public are minimal.
In contrast, to become a Notario Publico in the Federal District
of Mexico, candidates must meet several stringent criteria,
including being Mexican by birth, having studied under a notary
for at least six months, and being a legal professional with the
title of lawyer. The population of Texas is served by
approximately 360,000 registered notaries, while Mexico City,
which has a population of 9 million people, is served by only 243
Notario Publicos. Positions for Mexican Notario Publicos are
limited, making them highly sought after due to their high
earning potential.
.The powers and duties of a Texas Notary Public are minimal and
include taking acknowledgments, protesting instruments,
administering oaths, taking depositions, certifying copies of
documents not recordable in the public records, and attesting
that a disinterested party notified the validity of a document.
However, a Notario Publico in Mexico City has much broader
powers and duties, including being an arbitrator, a mediator,
issuing judicial opinions, intervening in judicial proceedings,
and ensuring that various documents, such as wills, deeds,
powers of attorney, and establishment of trusts, conform with
the law.
Mexican Notario Publicos also ensure the payment of taxes, and
failure to do so properly can result in personal liability.
In Mexico, every company’s incorporation, the buying and
selling of all types of real estate, the establishment of deeds and
wills, and the creation of mortgages must be protocolized by a
Notario Publico. The Mexican Notario Publico also serves as a
protector of the law, ensuring legal inconsistencies are avoided
in various documents. In contrast, a Texas Notary Public’s
primary duty is to verify a signer’s identity and signature and
attest that the signer personally appeared before the Notary at
the time of notarization, without verifying the truth of the
statements in the document.
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Notary Publics - USA v. Mexico
