Real estate in San Pancho Mexico
Anyone purchasing property in San Pancho Mexico should consult professional legal advice before completing a transaction. Typically, the cost of hiring legal counsel is small in comparison to the total dollars invested in most real estate transactions. Legal advice has value both in the purchase process itself and also upon sale of such property in the future. Knowing that your transaction has been completed properly — and all paperwork is in order — will ensure you can fully enjoy any property you choose to purchase in Mexico.
It should be noted that all real estate transactions in Mexico requires the involvement of the notario publico. The notario publico has significantly more experience and responsibility than a notary public in the United States and thus the two should not be confused. A Mexican notary is an attorney duly authorized by each State to attest and certify that the transactions performed in his or her presence complies with all the statutory requirements and, if applicable, to withhold the appropriate transfer taxes
Mexico’s real estate marketplace continues to attract big name players from the United States. GE Capital is one major institution that provides financing for Mexico real estate purchases.
Since real estate financing is somewhat new in San Pancho Mexico the fees and rates are often higher than what you would expect in the United States or Canada. Certainly, financing finally makes it possible for many people to now make a real estate purchase in San Pancho Mexico.
Title insurance is not required when making a real estate purchase in Mexico, but it is recommended by some professionals.
Mexico has a provision in its tax code for primary residents — which can include U.S. citizens — which is quite similar to capital gains provisions found in the United States. Purchasers are encouraged to explore this provision, as it will have an impact down the road at the time of sale.
Stewart Title is active in most regions of Mexico. You may wish to explore whether additional “name” title insurance companies are active in the areas where you might make a real estate purchase. The process followed by major title companies is very similar to how these companies operate in the United States.
Should you choose to have title insurance on the property you purchase in Mexico you will need to provide the deed — called the “escritura” — to the property along with a certificate of no liens to the title company. A full title search will be performed on the property and a title commitment issued. The title commitment will show the items that will need to be addressed in order to actually secure title insurance.
In Mexico, title insurance is issued after the closing. Specifically, the necessary documentation required to be included in the title policy does not occur until after the closing has taken place and the deed is recorded. However, coverage typically occurs at the time of payment of the premium, as long as the initial commitment letter has been issued and any outstanding issues have been resolved.
Many rumors are constantly floating around about foreign investors being scammed out of all their money on Mexican real estate.
Owning land in Mexico is no longer sketchy like it was back in the old days. Due to established and well defined rules regarding non-Mexicans owning land, owning property in Mexico is easier and safer than ever. The rules protect foreign ownership rights, and promote foreign investment.
Over the last decade property in Mexico has become a practical investment strategy. Long gone are “promises and handshakes.” Investors are now protected by U.S. title insurance, bonded escrow accounts, extensive title searches, and “Fideicomisos.”
Fideicomisos are the number one way foreign investors are protected. A Fideicomiso is a safe, almost forever renewable Mexican property trust, which was established especially to protect foreign investors.
The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil; but that such ownership may be assigned to individuals.
The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the “restricted zone.” The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the “fideicomiso,” (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of record. The Mexican Government created the “fideicomiso” to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the law.
A “fideicomiso” is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value to any eligible buyer.
In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up.
Given the changes made for 1997 in the foreign investment Law, and the fact that a buyer can now apply for and obtain a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before entering into any contract.
The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust’s beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be:
– Mexican corporations with foreign investment
– Foreign individuals or legal entities
The law defines “use” and “exploitation” as the right to use or possess the property, including its fruits, products, or any revenue that results from its operation and exploitation by third parties or from the bank/trustee.
The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits “…considering the economic and social benefit, which the realization of such operations imply for the nation.” The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future.
The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry’s central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry’s state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.
There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary.
A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.