THE BUYING PROCESS

Foreigners may obtain direct ownership of property in the interior of Mexico. But, under Mexican law, foreigners cannot acquire direct ownership of residential property within the area 100 kilometers from the border and 50 kilometers from the coastline. This area is known as the restricted zone. It is possible, however, to acquire beneficial rights to use, improve, and enjoy property in the restricted zone through a Bank Trust or Fideicomiso authorized by the Mexican Government under the Ministry of Foreign Affairs. The Fideicomiso is established for a 50 year renewable term and grants the beneficiary the right to use, rent, modify, or sell the property. Two advantages of the bank trust are avoidance of probate and transfer tax upon sale. Property acquired for commercial use by foreigners may be owned without the need for a bank trust, provided that the property is held in a Mexican corporation. Depending on the type of business, it is often possible for a foreigner to own 100% of the Mexican corporation.

In a typical transaction, a preliminary sales agreement will be used. This is like an agreement to agree and is subject to a formal sales agreement which will be executed at closing. The preliminary agreement should provide for a price and terms -- generally, cash as financing is not readily available -- and a closing date conditioned on the issuance of the trust permit if necessary. Escrow as it is known in the United States is not used in Mexico, and real estate salespeople are not licensed or regulated as they are in the United States, so be careful of making any deposits up front.

Real estate transactions in Mexico are "closed" by a Notario Publico, an official, highly respected government lawyer who acts as a neutral intermediary. Among other things, the notary is responsible for formalization of the final real estate contract, collection of transfer and capital gains and recordation of the transfer with the Public Registry. The notary is not your lawyer, however, and as with any investment, you may want to seek independent Mexican legal counsel before proceeding.

American title insurance is available for Mexican real estate whether acquired directly or through a trust. One of the major American Title companies used is Stewart Title. The cost of the insurance depends on whether the property you are purchasing is covered by a master title commitment. The seller of the property should have this information. A foreigner interested in acquiring real estate in Mexico should take care to follow all of the formalities under Mexican law. We will inform you to what these are. We will recommend competent legal, tax, and other professional advice as you need.

If you still need a few questions answered about how it works, please contact us. We will be happy to go over it personally.

FIDEI COMISO - TRUST - FOR REAL ESTATE INVESTMENTS

WHY: For historical reasons, in 1917 the Mexican Congress considered it a matter of national security to limit foreigners from owning property within 100 kilometers (62 Miles) of the borders, and 50 kilometers (31 Miles) from the coast, this has hence been included in the Constitution. Currently, even though it is true that foreigners still cannot record direct title in the so-called "Restricted Zone", as of 1971 they can establish a Trust of Ownership using a Mexican bank's trust services (in Mexico, only financial institutions can act as trustees). Also, Mexican companies in which foreigners hold stock no longer need a trust as long as the property is for business purposes (commercial, industrial, agricultural, etc.)

HOW: On the one hand, the bank holds the title but by law it can only act under instructions of the Beneficiary ("owner", for practical purposes) of the trust. On the other hand, the owner can act just as if he had recorded direct title, with the only "limitation" in case he/she sells the property, to have the bank sign the transfer documents to the new owner. Of course, all real estate rights, obligations and profits belong to the owner.

HOW MUCH? The bank charge for (first) establishing and (yearly) maintaining the trust, varies from one institution to another, ranging from flat fees to 1 - 1.5% on the assessed value at the time of purchase. These charges are usually in Pesos and can be updated yearly.

HOW LONG? Trusts are contracted for up to 50 years and the cost to establish it is now the same regardless of the specified period; thus the bank automatically drafts a contract for the longest term, unless the client instructs otherwise.

WILL IT CHANGE? Given the trend of new laws and Mexican politics, it is almost sure that in 15 years or less, this procedure will not be mandatory. When this happens, canceling the trust will take only some paperwork that can be handled by mail plus a small notary fee

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1a.avenida norte entre calle 24 y 26
#282 Hacienda San Jose, Local 2
Playa del Carmen, Solidaridad
C.P. 77710 Quintana Roo
Mexico

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