HOUSING – BUYING OR RENTING

PROPERTY OWNERSHIP

FOREIGN OWNERSHIP OF PROPERTY IN MEXICO

The regulation for ownership of land is declared in the Mexican Constitution for foreigners.  It states the following regarding Restricted or Prohibited Zones for land ownership:

The Constitution declares that….. “within a zone of 100 kilometers from the border or 50 kilometers from the coast, a foreigner cannot acquire the direct ownership of the land”

HOW TO GET RIGHT OF OWNERSHIP

A foreigner or foreign corporation is allowed to obtain the rights of ownership anywhere in Mexico, including restricted or prohibited areas, through a fiduciary trust called FIDELICOMISO.  This Fidelicomiso is the equivalent of a U.S. beneficiary trust and is needed only when purchasing within restricted zones.  If you desire to purchase outside of a restricted zone, you will not need to establish a bank trust.

The Fidelicomiso is obtained through any Mexican Bank you chose.  The bank then acts as the trustee on your behalf.  A Fidelicomiso can be established for a maximum term of 50 years and is renewable every 50 years thereafter. The costs are generally around $500 U.S. dollars annually and subject to change.

With a Fidelicomiso, you have the rights of transfer of title to anyone you wish, including a third party, the right to sell the property, to rent / lease the property (this comes under a corporation and we’ll discuss further), and the bank  is the owner of the property for the exclusive use of the buyers / beneficiary.  It’s like having a mortgage.  The bank owns your property for the life of the mortgage, allowing you the all the rights of an owner.

HOW THIS IS DONE:

 The bank must obtain a permit from the Ministry of Foreign Affairs to acquire the desired property in a trust.  The bank (the trustee) is responsible to the buyer (beneficiary) to ensure fulfillment of the trust according to Mexican Law.   The Fidelicomiso is not held as an asset by the bank, but rather makes the bank fully responsible for the technical, legal and administrative supervision of the property to fully protect the buyer (beneficiary).

FIRST THINGS FIRST!


Before you even think about ownership, you must find a property, with or without a building on it, that you know has clear title and all taxes and utilities paid up to date.   Proof of those issues are on documents and must be presented to your attorney (Notario Publico) by the seller before you sign anything or hand over any deposit money.  A Notario is a government appointment lawyer and is the only type of attorney that can be used for officiating real estate documents.

CAUTION:

Many times, you will see a home / property for sale and you will later find out that taxes or other liens or encumbrances have been put on the property that you will fall into owing.

Always do your homework.  It takes more time, but it’s well worth the effort because, in Mexico, if you don’t do it right the first time, it will cost you ten times over attempting to correct the problems afterward.

Secondly, before you think of purchasing any beachfront property, make certain that the seller has the right to sell such property.  Some of the beachfront areas are off limits to any building due to possible estuaries or land preservation.

Lastly, the seller must produce all titles on the property, up to date receipts for paid taxes and all utilities.  Do nothing directly with a seller.  Always get legal help with a Notario Publico.

REAL ESTATE AGENTS / BROKERS

In Mexico, it is not required to have a formal license as an agent or broker of real estate.  There is no schooling required.  Anyone can sell you a house and call themselves a broker or agent.  Before dealing with any agent, make sure you check them out with testimonials of other people who have used them.  Ask around the area in which you wish to buy.  Expats are more than willing to share good and bad stores.  You don’t want to deal with someone who is not trustworthy or well represented if they are working with your money.

Personal story:  I tried to buy a piece of property.  When I went to see the property, I was told a different, higher price.  Why?  Because now, I was told, that the small piece of property next to the original property I wanted to buy was being sold with it and the owners would not sell just one piece alone.  So, I went for the higher price as the additional property would make the deal even better.  After hiring a Notario, I found out the land had two “separate” titles within the same family.  Now this part is very important:  I instructed the Notario that I wanted the titles joined BEFORE I sign any contracts or leave a deposit.  The owners refused to do so saying they didn’t have the money to pay for joining of the title.  As a result, I offered to pay for the costs.  The owners still refused saying they would join the titles only AFTER the sale was finalized.  This sent up a big red flag for me.  I walked away from the deal.  As it turns out, the reality is that only one of the properties was for sale, but the owner was trying to get the price for both.  Had I given them the money, I would now be in legal battle fighting this scam.  Oddly, the listing agent purchased the one piece of property.  Could he have been a family member?  Very possibly.

YOUR CONTRACT

If you decide to sign a contract and hand over a deposit, make certain there is one very specific clause in that contract…A PENALTY CLAUSE…..this protects both buyer and seller in case of any breach of contract by either party.

VALIDITY OF CONTRACT

Remember, you are in Mexico.  Therefore, if you have to enforce any actions against the seller, the Spanish version of the contract is what sets the precedent in Mexican law……not the translated version, regardless of how close to accurate the translation may be.

Make certain to hire a trustworthy translator of legal documents so that you know exactly what you are signing.

FEES:

Fees for a Notario Publico can vary.  It’s more important to find a Notario that is well known in the area.  It may cost you a little more, but if they’ve been in the area a long time and have a good reputation, you will be in good hands and know that you are dealing with an established legal firm.

The initial fees for the Fidelicomiso are around $500 U.S. dollars.  This covers drawing up the agreement and the trust.  Additional fees are based on the value of the property and will vary.  There is also an annual fee for the bank to manage the Fidelicomiso which is fairly minimal but, again, depends on the value of the property.

TITLE INSURANCE

A contract of indemnity is a policy of title insurance that is a promise to pay for a loss up to the face value of the policy in the event the title is different than it is set out in the policy.  This protects the insured from suffering a loss as a result of the difference in value.

Two types of Title Insurance:

  1. For the Land
  2. For the Fidelicomiso

At times, even with the most thorough search of public records, a problem may arise with the title.  Your Title Insurance will cover you for any problems resulting from non detected flaws in the public records.

And the best part about Title Insurance is that it protects the person who has interest in the property and any of their heirs and devisees as long as the property remains in the buyers name as the beneficiary of the Fidelicomiso.

Currently, American Title Insurance is available only to foreign investors.  Your rights are protected and enforceable in the United States on your Mexico property with American Title Insurance against a U.S. company.

Remember, just as with any legal contract, make certain to thoroughly read your Title Insurance coverage to ensure that it meets all of your requirements.  Latest estimates quote fees vary from $4 -$7 per $1000 value of the property for your Title Insurance.

HOME INSPECTION

Although home inspection is not part of the law in Mexico, be advised that you should insist on having a home inspection before you enter into any agreements or pay any deposits.  There are very good engineering or architectural firms that can offer the service.

PURCHASE FINANCING


Mexico is a bit different from other countries that offer mortgages.  Most properties or homes are purchased in cash.  If you do not have the cash, and need financing, there are some American financial institutions that will lend you money to buy in Mexico.  Your local real estate agent will most likely know the people you can use for obtaining a mortgage for your home / property purchase in Mexico.

RENTING IN MEXICO

Renting property in Mexico is an easy process but there are some things you should know to protect yourself.

When you are renting for short term or long term, you should insist that all rental terms are in writing.  The general rule is that you will have to pay one or two months security and one month rent up front.  If you use a realtor, they will also receive an amount equal to one month of rent for their commission.  There are plenty of private rentals available through owners and no need for a Realty Agent.  In all instances, you will need a rental contract drawn up by a Notario Publico.

Your contract should be obtained through a Notario Publico, a government assigned attorney who is empowered to create real estate rental or purchase agreements.  Many times the Notario Publico will collect a fee equal to one month and up to three months of your rental amount.  Whatever the fee, it is worth it!

MAKING IMPROVEMENTS TO YOUR RENTAL

In most rental contracts, you will be told that if you make any improvements to the rental property, the cost is yours and it must be left behind when the lease is expired and you depart the premises.  So, keep in mind that if you want to make any improvement, they should be the type that can be removed easily and taken with you to your next location.

Example:  A mini split air conditioning unit only takes a 3 inch hole in the wall for tubing.  The compressor is outside and can be mounted with two screws onto concrete blocks.  This object can be removed, the hole filled and painted over so that there is no damage to the property.  The compressor is simply unscrewed from the blocks and the entire unit is now yours to take with you.  The same can be done with shelving, window coverings, etc. If you want rugs on the floor, don’t buy carpeting.  Only rugs can be rolled up and taken with you.

Conversely, if you cause any damage to the home, or contents of the home, including appliances, you will be responsible for repairs.  Many times, property owners have service contracts on their appliances.  Check with the property owner to see if these services are in effect.

If you have pets, make certain they are approved in your rental agreement.

Lastly, if you wish to paint some of the interior of your rental, get permission from the owner or property manager in writing before you change anything in the property.

PAGARE  NOTES

With your contract you will be required to sign promissory notes or, in essence, an I.O.U. in advance of your payments.  These are called “PAGARE” notes.  Each one will be numbered and pre-dated for the dates your rent is due for however long you have signed a lease, i.e., six month lease, six Pagare Notes.
Make certain you receive the dated and numbered note back each time you make a payment.  This is your protection and proof of payment.  Don’t leave any payments for your landlord without receiving back your pre-dated Pagare Note.

OWNER’S RESPONSIBILITY ON LEASED PROPERTY

If you find a house, condo or apartment to rent / lease, you must make certain the owner, landlord or property manager have the responsibility, in writing, for all and any structural, appliance and outdoor maintenance. We have heard of experiences where owners expect the renter to repair roof leaks, etc.  That is not your responsibility.

UTILITIES

Some rentals include internet, cable and water, so make certain to check with the owner or property manager.  In Mexico, it is very important to have at least one utility in your name.  Most people will chose to have their home telephone account in their personal name.  The reason this is so important is that many banking institutions or credit card applications require one piece of proof of a utility bill in your name.  This also holds true for any service such as cable, satellite TV or other billing type accounts.

IF YOUR RENTAL GOES UP FOR SALE

Another thing you may want to put into your rental contract is that you will not agree or be willing to show the property or allow agents to show the property if the owner decides to put the property up for sale while you are residing in the property.  This can become a tremendous inconvenience for you and, if you are not present when the property is shown by an agent or the owner, your personal belongings may not be secure.  This happened to one of our company members and, because she was scheduled for surgery, she had to make an unexpected move out of the property and incurred a legal battle to regain her pre-signed PAGARE notes.  Due to the fact that the owners decided to sell before the rental term was finalized, the renter won her case but was put under tremendous stress and expense from an unexpected and unscheduled move before her surgery.