The Mexican Property Market
The “Gunslinger Days” of buying property in
Mexico are over. Banking on the words “ That’s
the way we do business here!”, and trusting "The
Seller", have given way to U.S. Title Insurance and
bonded escrow accounts. During the last ten years, property
in Mexico has become a lucrative and viable investment strategy,
bringing with it a new breed of sophisticated investors .U.S.
title insurance, bonded escrow accounts and comprehensive
title searches are “in” … promises and
handshakes are “out”.
Owning property in Mexico is easier and safer than ever,
because now there are established and well defined rules
regarding non-Mexicans owning land in Mexico. These rules
are in place to protect your ownership rights and to promote
the sale of real estate to foreign investors. The key is
a safe, established and perpetually renewable Mexican Property
Trust called a “Fideicomiso”.
Purchasing Procedure
One of the first things you should request when purchasing
property in Mexico is a copy of the lien certificate (certificado
de libertad de gravamen) on the property. It should indicate
the owner of record, surface area and classification of property
type, the legal description, and whether there are any liens
or encumbrances filed on record against the property. The
buyer can also request a certificate of no tax liability
(certificado de no aduedo) from the local taxing authority.
Legal Steps To Purchase Real Estate In Mexico:
1. Offer and acceptance and/or promissory agreement In accordance
with Mexican Law:
A letter of intent fulfills the requirements for it to be
considered to be a valid contract, with the condition that
there has been mutual consent on the part of both the seller
to transfer a specific property and the buyer to acquire
it.
2. Title Search and Conditions of the Property
This will ensure that none of the information of the Public
Registry of Property and Commerce regarding the property
is overlooked.
3. Requirements for closing and formal execution of a standard
real estate Transaction in Mexico:
* Certificate of No-Encumbrances: This certificate will
enable the Notary to assess that the property does not have
any lien or encumbrance, or any claim pending over it, and
thus can be transferred with a clean title. It is obtained
directly at the Offices of the Public Registry of Property
and Commerce and basically it must contain at least the following
information: I) the number of years of documented history
made on the property; II) the surface area of the property
in accordance with the records; III) the metes and bounds
of the property; IV) the name of the owner; V)classification
of the property (urban or rural); VI) a legal description
of the property (such as if it is owned in a trust or by
several owners); VII) the name and signature of the registar
and VIII) the official seal of the Public Registry of Property
and Commerce.
* Certificate of No-Tax Liability: This certificate
will enable the Notary Public to assess that the property
tax has been paid prior to the transfer of the property.
*
Property Appraisal and Site Survey: In accordance with
the Real Estate Law ("Ley de Catastro"), it is mandatory
to carry out a site survey on the property and do an official
appraisal. The appraisal must be done estimating the commercial
value of the property, considering its surroundings, a market
survey and zoning regulations.
4. Notary Public and Public Registry of Property and Commerce:
The function of the Notary Public is to act as an extension
of a Judge or the Government. His duty is to ensure that
a real estate transaction is formally executed in compliance
with all legal requirements. Upon the execution of the
transaction, the deed of title must be recorded at the
Public Registry of Property and Commerce of the domicile
in which the real estate, subject matter of the transaction,
is located.
A Mexican "notario" is an attorney who, after
passing rigorous examinations, is commissioned by the government
as a public notary. A notario holds high office for life,
unless he or she is removed for cause. The notario fulfills
a public function delegated by the government. Although licensed
as an attorney, the notario is not in a position to provide
either of the parties with legal advice. The notario's responsibilities
include collecting and reviewing the sales contract, property
tax and water payment receipts; ordering a bank appraisal:
freezing the property's file at the local public registry
(no documents may be recorded in a property's file during
three consecutive thirty-day periods); reviewing the property's
file to verify the legal ownership and search for liens,
encumbrances or anything that could affect the title (as
the majority of public registries are not automated, this
procedure can take from 60 to 90 days); requesting the public
registry to issue a "Certificado de Libertad de Graveneres" (Certificate
of Freedom from Liens and Encumbrances); and performing the
closing at this office where the notario handles the transfer
of the deed, tax withholding on the underlying real estate
transaction, and the recording of the documents at the public
registry.
The Most Common Choices For Purchasing Real Estate
In Mexico:
1. General Purchase Sale Agreement:
A purchase sale agreement occurs when one of the contracting
parties obligates itself to transfer the ownership of property
and the other agrees to pay a certain price in consideration
of the property rights. The contract is perfected and binding
between the parties as soon as the property and its price
are agreed upon, even when the property has not yet materially
been delivered and the price paid. All such contracts must
meet specific requirements in accordance with Mexican law
in order to exist and be valid.
There are two types of elements to the contract:
* A. Essential Elements: The essential elements of any
purchase sale agreement: consent which is granted by the
seller's agreement to transfer the real estate to the buyer,
and in turn, the buyer's consent to pay a certain price;
and object which is the purpose of the title transfer of
the real estate on the one hand, and the payment of a certain
price as consideration of the transfer.
* B. Validity Elements:
The validity elements are: legal capacity that refers to
the legal rights of the parties to enter into the contract;
and legal form, which are the formalities with which a
transfer complies in order to be perfected. For example,
real estate transactions must be in writing, and in order
for such to be binding before third parties, they must be
recorded at the Public Registry of Property and Commerce.
Basically, the fundamental obligations of the seller in a
purchase sale agreement, are: a) to deliver the property
being sold to the buyer; b) to guarantee the quality of the
property; and c) to guarantee the title (with cure in case
of eviction).
On the other hand, the buyer's principal obligation is to
comply with the payment of the price in the terms place,
and form agreed in the agreement.
2. Installment Sales Agreements withholding transfer of
title:
In this kind of agreement, the seller reserves title of the
property until full payment of the sale price is made, but
the buyer may use and enjoy the real estate until full payment
is made. Usually, this kind of agreement includes installment
payments. There are some advantages in using this kind of
agreement: First, the agreement can be recorded at the Public
Registry of Property and Commerce as being enforceable and
binding before third parties. Second, the seller is not able
to sell the property while the purchaser is in compliance
with the sales agreement, usually meaning that he is current
in his payment obligations to the seller. Finally, the obligations
of the parties are subject to what in Mexican Law is commonly
known as "Condicion Suspensiva" (suspensive condition),
which conditions the agreement to full payment of the price
to the seller.
3. Irrevocable Real Estate Trust Agreement:
This is better known as a "fideicomiso" and is
the most common instrument for the acquisition of real estate
property within the restricted zone, usually for residential
purposes. The seller, "trustor", will transfer
property to a Mexican bank institution, the "trustee",
by means of an irrevocable trust agreement. The trustee will
hold the property on behalf of a designated beneficiary (usually
the buyer). The bank is obligated to administer the real
estate only for the benefit of the beneficiary, who holds
the right of use and enjoyment of the real estate, as an
owner. The bank holds title to the property but the beneficiary
is entitled to use it and even sell the property held in
trust to any eligible buyer, providing that he instructs
the bank to do so.
