LIVING
BETTER – RENTING – BUYING – BUILDING – BUYING MEXICAN PROPERTY – REAL ESTATE PROFESSIONALS - FINDING YOURS – HOW MUCH – NEGOTIATING – OWNERSHIP – FINANCING – CLOSING – TITLE INSURANCE – RECOURSE – SUMMARY - RESOURCES
The Forbes-Douglas 2003
Introduction and Welcome
Welcome to the electronic book
The Forbes-Douglas
2003 Mexico Real Estate eGuide
- a powerful tool for
informing yourself as a foreigner dealing with real estate in
Retirement in
If you are researching retirement
in
This section explains the E-Book, what is in the package, and how to use it.
You can navigate through this guide by:
Clicking on
the blue underlined links that look like this.
Most of these links are internal to the guide and will take you to another page
within the guide, but you will also find many links that lead to related or
interesting web sites (if you are online).
Pertinent
Spanish language websites have been included.
We encourage you to investigate these by use of your school Spanish or
the many translation services available.
The Next and Previous
options allow you to go the next or previous page in the E-Book.
The Back and
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words, they take you, step by step, through those pages that you've already
viewed.
If you are
looking for information about a particular topic you can use the Search function, or look at the overall Table of Contents. To access these functions quickly, simply click on
the Toolbar button.
The guide is
divided into fourteen numbered sections, most of which have numbered
sub-sections. Each section relates to a
different topic, and contains a number of pages. You can flip between the
sections using the tab buttons near the top of the page (the current section is
shown on a white tab - for example you are currently looking at the
Introduction section). On the left of each section is a menu to navigate around
that particular section.
Here is a list
of what each of the sections is about:
§
Living Better for Less in Mexico A general introduction for the foreigner to
how title to property is exchanged in
§
Rent? The advantages of renting while exploring.
§
Buy a resale home? The supply is greater and
remodeling/refurbishing is inexpensive.
§
Build your dream home? And it can be a great investment.
§
Buying Real Estate in Mexico.
§
Real Estate Professionals What you need to know about the various
professionals who can help you in the real estate acquisition process: Real
Estate Agents, Notarios Publicos, other attorneys, bank trust departments.
§
Finding Your Home Base in Mexico Learn about
RESALE HOMES, RESIDENTIAL LOTS, SUBDIVISIONS, CONDOMINIUMS, TIMESHARE
§
How much will you pay? A guide to the newcomers to
§
Negotiating for Real Estate in
Mexico A basic guide to negotiating for real
estate or any other arrangement in Mexico where you will find the Latin side,
using more formal courtesy and manners, can be so charming as to disarm your
side in the negotiation.
§
Holding Title to Real Property on
Mexico This section provides a through treatment
of how you as a foreigner can own property in
§
Financing the Purchase of
Property in Mexico A discussion of an areas in which the Mexican context is very different
from the
§
Closing Your Purchase The full discussion on the most critical
aspect of your purchase: NOTARIO PUBLICO, OTHER ATTORNEYS, CONTRACTS, COSTS, ESCROW, TITLE
INSURANCE, RECORDATION.
§
Title Insurance The new factor in the equation.
§
Recourse Your options for recourse if, after all
your due diligence, something goes wrong.
§
Summary: Insuring a
Successful Transaction A reminder of
the principal steps to a rewarding
1:22 WHAT THE 1917 MEXICAN CONSTITUTION SAYS
4:70 OWNERSHIP CONCLUSION
CESION DE
DERECHOS FIDEICOMISARIOS
12:60 ESCROW AND EARNEST
MONEY
12:70 RECORDING YOUR
ESCRITURA PUBLICA
APPENDICES: a. Internet Resources
Enjoying the
Mexican beachfront or colonial hillside town, you've decided to put down roots
in
You hear the
story again and again in
Destinations
include:
The perennially spring-like
http://www.ajijic-chapala.com/ ,
The Nayarit coast and
http://www.banderasbayregatta.com/about.html
http://www.dcarealty.com/banderasbay.htm
Historic, cobblestoned San Miguel de
Allende about 130 miles north of
http://www.internetsanmiguel.com,
http://www.san-miguel-house-rentals.com
http://www.sanmiguelguide.com/),
Upscale
http://www.vallarta-adventures.com/
Clubby Cabo San Lucas at the southern
tip of the
http://www.loscabos-tourism.com/cabo/
The Costa Maya,
http://www.allaboutcancun.com/
http://www.cancunpropertiesonline.com/,
http://www.casablancayucatan.com/)
http://www.tourbymexico.com/morelos/cvca/cvcafram.htm
http://creativeartsmx.itgo.com/
http://www.allaboutmazatlan.com/
The http://www.allaboutmazatlan.com/ south of
Jalisco,
http://www.alexandratravel.com/oaxaca/pac_lands.html
http://oaxacalive.com/askmaria/messages/2744.html
Puerto Penasco (Rocky Point) in
http://www.puerto-penasco.com/
http://www.rockypointmexico.com
http://www.penasco.com/mexico.html
and
http://www.sancarlosmexico.com/
http://www.sonorabay.com/
Most of the time there are no problems. But
occasionally press accounts raise questions about just how safe it was
to buy land in
Seven million
North Americans travel to
There are very
few consumer
protection laws here. You buy a house "as
is". There are no disclosure requirements. There are no mandatory
inspections. Get the picture? You are responsible to
become an informed buyer. Don’t count on your Realtor to point out any of the
negatives. We all learn painful lessons through this process. Do your
homework! And, be ready to accept the fact that you’ll learn as you go. Don’t
let a few surprises sour your attitude. It’s a beautiful country with kind
people. Just be careful and get good help.
Purchasing
real estate in
In the Foreign
Investment Law (FIL) of 1993 the enactment of this law,
some 95 percent of the economic bans on foreign ownership in Mexican companies
have been liberalized. Although foreign investment is still not
permitted in some Mexican industries, FIL has greatly enhanced the outlook with
respect to commercial property in
Not only is
there no requirement for foreign concerns to have Mexican partners in Mexican
companies, there also has been removal of the legal mandate that title be held
by a fideicomiso (Mexican bank trust), eliminating the annual trust fee to the
bank. In residential transactions within
"restricted zones," title still must be vested in the fideicomiso, which provides property entitlement
and not an ownership guarantee.
As these
changes move closer to full reality, property transfer
in
Prospective
buyers
outside of Mexico's borders seeking to buy tourist property, - including
housing developments, condominiums,
and timeshare
projects - can now enjoy greater legal
freedom and ownership rights under Mexico's new foreign investment law
In Mexico.
As
in the
Foreign
purchasers should be aware of the same basic issues that any prudent buyer
would consider when acquiring real estate in the
AS in the
If you are
thinking about buying property, consider renting first to see if
Something to consider is buying land and then building your home from
scratch. This can cut the cost of purchasing a home in half. If you
choose to build you will need a reputable engineer and architect, and you will
need to supervise the work on a daily basis.
In many areas
of
The cost of
living in some remote areas like Cabo San Lucas, where almost all goods must
travel a long way, can be just as high as in the
At
the present time there is no general use of title
insurance in
Property
insurance is available in
In the past,
real estate transactions in
Business
deals are processed
slowly in
The North
American Free Trade Agreement
(NAFTA) http://www.nafta-customs.org,
technology, and sweeping changes in Mexican politics have forged a closer
relationship between the
The Mexican
peso is expected to remain stable. Couple this with continued
foreign-investment law reforms and
Most
real estate transactions in
Another consideration: can the property you are thinking of buying, be readily
sold should you decide to return to the
Most real estate brokers and developers are honest and above board but should
their sales techniques be like those of a "time share" salesman
pressing for "an impending happening close" for the transaction, be
careful.
Some basic safeguards on real estate purchase do not yet exist in
For the typical person off the street, you need a notario publico to hold your
hand right from the first steps of the transaction--a title search takes him at
the most a few days. If there is any potential problem, the notario publico
will not foul his good name and will let you know immediately.
Chances are that you will never have a problem when buying real estate in
.
You will find
that you will enjoy your ownership more if you take the time to learn how to
source reliable information.
Article 27 of
While
only citizens and nationals of
The
Mexican Constitution prohibits direct ownership by foreigners of property
within fifty kilometers (approximately thirty-one and one-quarter miles) of the
seacoast and one hundred kilometers (about sixty-two and one-half miles) of
Mexico's international land boundaries - the prime areas for retirement
and/or vacation homes and apartments. As noted above, there are laws to allow
or encourage foreign investment throughout
In
coastal and border areas (the restricted zone) foreigners can have the use of
property placed in trust with a Mexican financial institution. Under such a
trust
agreement, a bank is the trustee, or actual titleholder, of the property.
The foreign
buyer is the beneficiary of the trust having all rights to use, enjoy, and sell
the property, but is not considered the legal owner of record and his exercise
of his trust rights depends on the specific wording of
the trust agreement from which he benefits. All trusts
must have the approval of the Secretary of Foreign Relations (http://www.sre.gob.mx/) before final
documentation can be delivered to the beneficiary.
It's called
"restricted" because the only way a foreigner can buy any property
within these limits, is with a special Permit from the Mexican Federal
Government (automatically given in the bank trust), through a Bank Trust, in
which the Bank is the Legal owner of the property, and the buyer is given the
Rights to use it. At present, this Bank Trust is being legally granted for a
period of 50 Years.
When you buy
within the Restricted Zone, you only acquire
"Derechos de Uso" (Rights to use), but
you're also allowed to build, to remodel and of course, to sell it
(giving notice to the Bank). Furthermore, if you want to rent it out", you
can do so by following the instructions given by the Secretaria de Hacienda
(Tax Revenue Service http://www.shcp.gob.mx/english/index.html).
Article 27
grants the Mexican Nation ownership of the land and water within the territory
and provides that the Nation shall oversee the transfer of ownership rights to
individuals, by creating private property.
Section I of
the article grants the right to acquire directly the dominion of land only to
Mexican individuals and companies. It also gives the State the power to grant
the same right to foreigners, subject to the condition
that these foreigners agree before the Ministry of Foreign Relations to
consider themselves as Mexican nationals regarding the acquired property.
They may not invoke the protection of their country of origin with respect to
the same. If the covenant is breached, all rights to such property shall be
reverted to the Nation.
Outside the
Restricted Zone, a foreigner can acquire any type of real estate as any Mexican
National, holding the property as a direct owner complying with Mexican law.
Foreigners
(non-Mexican) are able to purchase directly in
A foreigner
legally in the country under any kind of permit can buy property. A minor detail (http://www.sre.gob.mx/ Secretaría de Relaciones Exteriores, Flores
Magon 1 anexo, Tlatelolco, México, D.F.) or any of its delegations in the States
of the Republic. This is an agreement to be considered as a Mexican
citizen in connection with the property, meaning that diplomatic
protection from a foreign government will not be invoked, and that the
alien will submit to the jurisdiction of the Mexican courts in all cases, under the penalty of losing said property.
Another
alternative is to purchase non-residential property through
a Mexican
corporation which can be, under certain conditions, 100% foreign-owned, with a provision in its by-laws
that the foreigners accept to be subject to Mexican laws and agree not to
invoke the laws of their own country. In other words, under said conditions, foreigners can acquire, directly, properties destined for
tourist, commercial and industrial use.
In the
restricted zone, title can be held in one of two ways: (1) the Mexican bank trust
is for residential or non-residential property. (2) A Mexican corporation can
hold non-residential real estate. Foreign nationals can be the sole and
exclusive stockholders of the corporation that holds the title to this
nonresidential property within the restricted zone. If you hold property on the
interior as residential and claim is as a residence in
TRUST HISTORY
It is
necessary to understand the background as to why and how bank trusts
(fideicomiso) were created for foreign ownership of Mexican real estate. In the
middle of the nineteenth century,
The Mexican
government sought a way to stop further loss of their territory. They did this
by prohibiting, in the Mexican Constitution, foreign acquisition of land along
the borders and coasts of the country. A restricted zone was created.
Verify with a
notario publico that the property you would like to buy has no mortgage and
that the seller has paid the real estate property tax and water bills.
While
zoning restrictions may not be common in commercial and residential
neighborhoods, certain areas may have building codes
to preserve colonial flavor. For instance, downtown
Historical
antecedents have limited large land-holdings in agricultural areas. Size,
irrigation, and productivity limit the amount of farmland, which can be owned
by a single entity.
The 1910
Mexican Revolution was rooted in unequal land distribution: 1% of the Mexican
population controlled 97% of the land. In response, the revolutionary
government expropriated large land-holdings, outlawed latifundios, and created
communal lands, or ejidos, occupied by rural peasant farmers. This concept
dates back to Mayan times.
Under the
Mexican Constitution, only Mexicans have the unlimited right to own freely land.
Foreigners have the right to own real property, provided they do not invoke the
protection of their home government. This means that Mexican
courts, treating foreign landowners the same as Mexican nationals, will decide
any dispute concerning land ownership.
Foreigners
have no legal recourse to the legal system of their homelands. This is done to
prevent the historic recurrence, prevalent in
The
Constitution proclaimed that all land in
Some seventy
years after the enactment of the 1917 Mexican Constitution, these small
communal ejido plots of land were seen as less productive and unable to compete
in the market economy. In 1992, the Constitution
was amended to loosen the tightly controlled ejido system, make it more
productive, and to provide ejido members with greater access to capital. The new law allowed some ejido lands to be rented out or sold
under certain restrictions.
To lessen the restricted zone limitation, the Mexican Congress
has implemented a system whereby Mexican banks acquire
the property and place it in trust for the sole "use and enjoyment"
of a beneficiary. This right includes the right to re-sell the property
at fair market value any time during the trust. Terms of the trust usually
extend to 50 years, renewable in 50-year increments with relative ease. The
buyer may choose the bank that will handle his trust, and may want to shop
around to determine where he can get the lowest fees.
As a
practical matter it may be best to use a bank your notario is accustomed to
working with and recommends.
North American
banks have traditionally been reluctant to provide mortgage
financing on trust property due to their inability to obtain title together
with potential difficulties with foreclosing in a foreign country. Mexican
banks have not entered the field due to a lack of available capital. Purchases have therefore been limited to investors with
sufficient resources to buy real estate without need for financing.
NAFTA (http://www.nafta-customs.org/)
It used to be
that the government was not happy about foreigners buying Mexican land, and
that attitude is still somewhat prevalent. The North American Free Trade
Agreement (NAFTA) has made it so North Americans can
(except on the coasts) buy property outright and receive
a fee simple title. The property is yours to keep, sell or will to your
children, just as in the
You have
decided on a long-term residence in some enchanting area of
Renting allows
you to try first and then decide.
There
are many unique areas in which to live in
Some rely on local transportation and others
bring their cars with them, allowing more options in choice of location. Some
prefer to be down by the shore and others prefer a hillside view. Some even
prefer to live in cities like
Many people
who rent move at least once if not twice before settling in to their ideal
place. Others come down here for a few months and decide they don’t like it and
move back to the States or
Be careful about entering into leases. Mexicans do not look fondly upon tenants subleasing,
something you definitely want to have the right to do. Make sure this right is
firmly stated in your rental agreement. You will also find that rentals often
come completely furnished with everything from utensils in the kitchen to
artwork on the walls, not to mention a maid and a weekly gardener.
Some rental management companies are difficult
to work with -- even difficult to find. Others do a fine job. See if you can talk to previous tenants or neighbors to check
before you sign on the dotted line. Older houses often have maintenance
needs which a new renter may have difficulty managing. It may be advisable to
hire a third party to check out the plumbing, electricity, appliances and
water.
Renting
allows the flexibility of weekly and monthly rentals or a longer-term (up to five
years) lease. If you decide
Generally, the
first month’s rent is required along with a deposit. If
there is a telephone in the rental, then a telephone deposit will also
be required. Many rentals include the gardener.
The renter is typically responsible for the maid and utilities.
Rental prices
typically vary from $200 to $2000 per month depending on what you want and where
you want to live. Rentals are at a premium during the
two high seasons (November to April and July to August).
Normal rental
values are something like 1% per month of the property value. A $200,000
property would likely rent for $2,000 per month. One-year contracts are common, with one- and three-year renewal options with predetermined
rate increase formulas.
Normally,
a cosigner is required, and a one or two-month rental deposit can be applied to the
last month's rent. The tenant usually pays for utilities, water, gas,
telephone, cable TV, and condominium maintenance fees.
Bed &
Breakfasts and Trailer Parks
Two other
options for short term living lakeside are Bed and Breakfasts and trailer
courts if you have a trailer or recreational vehicle.
Almost
all rentals come furnished. The furniture and decor may not be to your liking. If you
rent during the high seasons, choice is limited and you’ll probably have to
settle for less than you want.
Because Mexican landlord-tenant laws, which vary from state to
state, are tenant-oriented, making eviction extremely
difficult and costly, most leases tend to be written to protect the
landlord. In some areas, Mexican landlords prefer to rent to foreigners --- not
so much for higher rental income as for the foreigner's ignorance of
landlord-tenant laws.
In 1993, the
law regarding leases in
As each state
in
TERMS
The normal and
basic terms of a lease agreement are:
(1)One year
contracts are common, particularly in housing. Commercial and industrial
properties are normally leased for longer terms with predetermined formulas to
adjust the rent annually.
(2)A co-signer
or a bond is necessary in many cases.
(3)A deposit
equivalent to 1-2 months rent is normally required.
(4)Generally,
refurbishing is responsibility of the tenant.
(5)All
utilities as well as condo maintenance fees, telephone, cablevision and other
optional services such as special area security, are usually paid by the
tenant.
There
are more homes available for purchase than for rental. And, if you
find a home you like in an area you love, it is very
inexpensive to have improvements made to your home. You can furnish the
home and landscape the gardens to your taste.
Often, existing homes are sold furnished, so
you can move right in and take your time refurbishing and redecorating. Other homes can be "bare bones" and will
require some investment before you move in.
It can be
easier to buy but you need to be careful purchasing property in
The economy is
reasonably stable here now and both home and land prices have steadily
increased over the past few years. Property
taxes are almost non-existent and you may sell without paying Mexican
capital gains if you own the home for 24 months while having an FM3 or FM2 Visa
http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm.
Homes here are
usually purchased with cash. Until recently, financing
a home was not an option because of the high interest rates. Some owners
(Americans or Canadians) will offer terms; but this is uncommon. Homes range
from $16,000 to over $1 million. Most gringos purchase homes in the $60,000 to
$250,000 range. Like anywhere else, the higher the price, and the better the
view, amenities and quality of construction. The prices seem very cheap to
Californians, but not necessarily to Mid Westerners.
Homes tie you
down. Depending on the market and time of year, it may
be difficult to sell your home and recoup your investment. If you buy a
house and then discover you don’t like the location or your neighbors, your
options are limited. If you travel frequently, you’ll need to find either
renters or someone to look after your property. As in any country, a vacant
house is an invitation to robbery.
There are very
few consumer
protection laws here. You buy a house "as
is". There are no disclosure requirements. There are no mandatory
inspections. Get the picture? You are responsible to
become an informed buyer. Don’t count on your Realtor to point out any
of the negatives. We all learn painful lessons through this process. Do your
homework! And, be ready to accept the fact that you’ll learn as you go. Don’t
let a few surprises sour your attitude. It’s a
beautiful country with kind people. Just be careful and get good help.
Like anything
else, if you buy low and sell high, it’s a good investment. Land values have
been skyrocketing, but with diligence it’s still
possible to find fairly priced lots and build your own dream home.
You’ll go through the agonies of the building process, but you’ll likely have a
home, which will be worth, much more than you paid. The construction process is
very different in
Go on tours of
homes and understand what you want. Depending on your skill and background in
building homes, you can do-it-yourself or hire competent people to assist you. Make sure you are here while the work is being done. It is
absolutely necessary to supervise the work on a daily basis. There are
no short cuts here.
Because of
differences in Mexican and American culture things just don’t get done there
the way we think they are supposed to. It always takes longer. Be prepared for delays in getting materials and labor.
Do your homework. Most important, talk to several references
and look at the quality of work.
The steps in
buying a lot and building a home in
Land is
measured in meters, so square feet don't mean anything in the process here. You
can convert to footage for your own information, but all pricing and designing is done in meters.
When
purchasing land, you will want to have a proper sales contract, which may
include a requirement of a topographical survey (as well as a current Federal
Zone study if the property is adjacent to a body of water or adjacent to a
road).
In some areas
the Urban Panning Office establishes the allowed use of the land. For example in a few areas there are certain enforced guidelines for
use, height and density requirements, which may be different from
another colonia (neighborhood). You must check and get the information in
writing.
Many
architects also work as the general contractor. Sometimes one architect designs
and another is the general.
The contract
to build should include: detailed construction drawings and specifications,
establishment of an escrow (fight for this) for re-lease of funds at certain
points of construction, pricing (cost plus or fixed price), a time for
completion with penalties for failure to do so, bonding or a guarantee by the
builder. An
attorney who has a good reputation and experience
in real estate construction should do this contract.
The
construction supervisor and builder/architect should carefully oversee that the
construction plans and details are being followed.
Depending on
where you build, a construction permit from the city might require the
construction plans, proof of payment of property taxes, the escritura of the
property, and an ecological impact report.
If the federal
zone is going to be used for decks, pools, or any encroachment, federal
authority must be obtained from
It is very
important to be sure that he builder has proper IMSS insurance
(http://www.imss.gob.mx/) on the
construction workers in case of accidents during building. Otherwise, you may
find yourself financially responsible for any on-the-job injuries. When the
construction is complete and proper notice is given, the finiquito, or letter
of settlement for insurance coverage, should be issued. In
If the
property is to be a private residence, the owner should be sure he has
documentation of the costs of the construction and cost of the lot. The owner
should also obtain an FM3 through the Department of Immigration (http://www.inami.gob.mx/Paginas/Servicios%20Migratorios/Calidades.htm).
The FM3 is necessary to establish residency requirements in
order to be eligible for avoidance of capital gains tax upon sale.
It is
sometimes now possible to mortgage a home in
In recent
years, American and European builders have come to
For those
lucky people that bought oceanfront property, please be very much aware that
you'll have to pay a yearly "Federal Fee" for the use of your little
bit of Federal Zone (20 meters inland from the highest tide
mark). In the event that that you haven't built anything on your property yet
(if you only bought a piece of land), you will still have to pay this Fee to
the Government. Not many people know that and most Real Estate salespersons
don't tell you anything about it.
The Federal
Zone
belongs to the Nation and not to the government! The government only
administers it and issues "concessions" or permits for its use. The concession holder will have to pay for the
"rights" to use the area, but this person will never have
"exclusivity" over any land within the Federal Zone, even if
he pays for such rights. The law states that anyone can
enter such area and enjoy what it has to offer.
Usually when
there's talk of the "Federal Zone", we're referring to the beaches
and coastal areas. In these cases, and even if a property owner has paid for
the rights of the FZ, he still cannot stop the general
entrance of the folk that want to make use of the beach, etc.
Always check
with the office in charge of the Federal Zone. They are usually located in the
City Hall building.
Every
year you will need to remember that the property tax is due. Pay in
January or February to save on penalties or interest. The tax is low compared
to what you may be use to paying. The bill is paid at the Office of Catastro.
The receipt is the official "
You
will not receive a reminder or a bill in the mail. You or someone you delegate
will go to the tax office to obtain the bill in order to pay it. In most areas
the predial (property tax) is 0.1% of the assessed value, paid annually. The
taxable value of the real estate is determined at the time of sale.
In the past, if an American
company or individual received rental income from real estate located in
In most cases
the net rental income election will produce a lower Mexican tax.
So, if you rent out your home, you need to know
about taxes. The IVA is the sales tax that is charged on all goods and
services. The amount of sales tax varies by state: 10%-15%. The person
receiving payment for the service or product that you are buying collects this
tax. It is the responsibility of the person receiving
the income to collect the sales tax and pay it to Hacienda (http://www.shcp.gob.mx/english/index.html),
the national tax authority similar to IRS. This means you as the person
receiving the rent.
If
you are ever in the position of renting your home or conducting some type of
business activity in
When you are
purchasing services or goods for your business, you will want present your
cedula and ask that the receipt be made out in your tax name and number. A factura is an official receipt, which can be tax deductible. Unofficial receipts are not deductible, even though
the expense may be in the correct category to be deductible against income.
The factura
should be numbered and have the name, address and RFC number of the
company/person that is giving you the receipt. The iva
or tax may be shown separately. The cost of the product or service will be
totaled at the bottom of the factura. Look for the date the facturas were
printed and the date that they expire. A lot of
business is done in cash and an official factura becomes a record of the amount
of tax that is payable to the government.
For example, a
receipt for cleaning supplies that may be deductible cannot be used unless you
have the RFC number and details of the merchant from whom you have bought the
goods. You will want to go to an approved printer,
and he will require information from you about your business status, in order
to agree to print the facturas for you. The person/company you are paying for
services or goods will receive the original receipt or factura, and you will
turn a copy into your accountant.
Keep
cancelled facturas, as you have to account for the total number issued to you
from the printer. You are required to pay tax if you earn income, including
rental income in
You will need
to file with Hacienda, in most cases, monthly. If you are earning rental
income, you may also be required to collect a room tax.
Interview and hire a good accountant to help you do the reporting properly.
Paying taxes properly is a subject that is complex and the tax code changes. You want an accountant that stays current with the law, and
will furnish you monthly reports.
Even as a
tourist you may buy real estate in
Should you own property in you own name, a deed called an escritura publica, must
be prepared by a Mexican notario publico. In some
states in Mexico it is now possible to name beneficiaries in the deed,
but if this is not the case it is well to have a Mexican will prepared to avoid
expensive legal fees and probate at the time of death.
A
bank trust fideicomiso involves three main elements: a) The Trustee (the Bank)
acting as the Fiduciary Institution b) The Fideicomitente (the Seller) c) The
Fideicomissary (the Buyer or beneficiary).
Please note
that although we'll be using the terms "Buyer" and
"Seller", as well as "Cession of Rights," the legal
terminology for them are: Seller = Assignor, Buyer = Assignee &
"Cession of Rights" = Assignment of Rights.
Both
parties (Seller & Buyer) will have to go before a Notario publico to have him
draw up all the legal documents required for this transaction.
In
As the Buyer
is the one who pays the Notary's fees, he/she may choose the notario publico
they want to work with. However, due to the fact that a Notary is the
Representative of the State, he/she must act impartially and cannot represent
any of the parties. Therefore, the Notario publico must
counsel both parties (Buyer & Seller), explain the legalities of what they
are doing, and interpret and write down their intentions.
EXAMINE THE
DOCUMENTS
A
buyer should always ask the seller for a copy of the public deed (escritura
publica) vesting title to the real estate. The buyer may request a copy of the lien certificate (certificado de
libertad de gravamen) on the property that 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 of record against the
property.
The buyer can
also request a certificate of no tax liability
(certificado de no adeudo) from the local taxing authority.
GO BEYOND THE
NOTARIO SEARCH
The notario
publico is responsible for the title search in Mexican transactions. However, the notario publico typically only examines the current deed
and a current lien certificate, resulting in the small possibility of an
incomplete title history of the property. A foreign purchaser always has the option
of hiring Mexican counsel or an
U.S. title company to provide an opinion on the status of title.
Title to all
real estate in the restricted zone being acquired by foreign purchasers can
only be legally vested and recorded in one of two ways. One is in a Mexican bank trust (fideicomiso) for all residentially
declared property. The other is in a Mexican corporation (which can be foreign
owned) for all nonresidential real estate.
Foreign nationals can be the sole and
exclusive stockholders of a Mexican corporation that holds fee-simple title to
nonresidential property in the prohibited zone. In any type of real estate
acquisition in
This is known
as the Calvo Clause, which is constitutionally mandated, and is contained in
all bank trust agreements. It should be noted that Mexican
banks, acting as trustee for a foreign buyer in a fideicomiso, make no warranty
or guarantee of the title to the property in the trust nor do they
provide any restitution in the event of a title defect. Foreign buyers should
consult
Investors
must recognize the absolute need to obtain authoritative information and to
hire competent Mexican counsel when contemplating any real estate
investment. In some areas Mexican laws and practices regarding real estate
differ substantially from those in the
Foreigners are
granted the right to own real property in
The real
property conveyance process in
Their
acknowledgment and certification procedure provides "judicial
certainty" to the authenticity of the process. The
land conveyance and notarial system in
However, we must never lose sight of the fact
that it is a system reliant on the performance of various people, not just the
public notary. Sellers, buyers, agents, surveyors, property recorders and
municipal employees all come into the mix. Human beings, though not intending
to do so, make mistakes.
The process of
buying real estate in
Purchase Contract…………….…… ……….Promise
to buy or Promise of Bank Trust
Details of offer and financing
options……... Details of offer
Accompanied by earnest money………….
Accompanied by down payment
Contract & earnest money in
Escrow…….. Documents handled by Notario
(a neutral 3rd
party) …………… …………(a neutral party
representing the state)
………………………………………………Down payment to
Notario or to seller
Escrow instructions……………………….
purchase-sale agreement
Deed of Trust (for financing)……………..
Rarely financed
or Fee Simple
Title ……………………….Fee Simple Title or Bank Trust (for all ……………………………………………..
foreigners) or Fee Simple Title (for ………………………… …………………Mexicans)
TWO CAVEATS:
(1) SEEK OUT RELIABLE ASSISTANCE
In the more developed area where
they exist, find a reliable real estate agent who can navigate the process. Get a recommendation or check with the nearby chamber
of commerce.
This is beginning to change. In
addition to numerous homegrown realty companies, there are several recognizable
Coldwell Banker http://www.puertopenasco-realty.net/,
http://www.coldwellbankermex.com/english/principal.html,
http://www.chapala.com/, http://www.cbpuntamita.com/ http://www.cbriveras.com/
http://www.cbcostadeoro.com.mx/ http://www.cbdomus.com/
Re/Max http://www.ajijic-chapala.com/
and Realty World.
The broker's commission, paid by the
seller, will typically be from 5% to 7% of the purchase price.
(2) EJIDOS
Be
careful in buying in communal farming areas known as ejidos. It's something
like buying on an Indian reservation. There's no deed - you buy the right to use it, but the future is uncertain. That's what happened to the Americans
in Baja California Norte who lost their homes.
And avoid putting money into
projects that aren't yet built. Permits are required to sell subdivisions, but
developers don't always get them.
·
Non-Restricted Zone: Foreigners may directly own real
property located in the interior of
·
Restricted Zone: Foreigners may indirectly own real property
located in the restricted zone through renewable fifty-year bank trust
(fideicomiso). The Restricted Zone comprises all property within 50 kilometers
(31 miles) from the coast and 100 kilometers (62 miles) from the international
land borders.
·
Commercial: If the property will be used for commercial
purposes, foreigners may incorporate a Mexican business entity, which can
obtain fee simple title to the commercial property, even in the restricted
zone.
·
Bank Trust: Under a bank trust,
a Mexican bank holds the legal title to the property for the benefit of the
buyer. The buyer, as beneficiary, has the equivalent of all of the rights of ownership including
the ability to use, rent, modify, improve, encumber and sell the property.
An additional advantage of a bank trust is the
ability to name substitute beneficiaries. Under
present law, bank trusts are created for fifty-year terms, renewable
indefinitely. Buyers may also assume existing trusts using certain precautions.
·
Contract: There are no set forms
used for purchase offers in
·
Notarios Publicos: A buyer must formalize the purchase
before a Mexican Notario publico. Under Mexican law, only
Notaries are authorized to prepare and record a property deed. Notaries
are attorneys appointed by the state government to specialize in various
matters (including real estate transactions). Notaries are also responsible for
collecting taxes at closing.
·
Property Registry: The Public Registry of Property (Registro
Publico de Propiedades) in each municipio (county) is the central recording
entity for all public documentation concerning property. In order to ensure its ownership rights against the seller and third
parties, a buyer must record all property transfers at the Public
Registry of Property for the jurisdiction in which the property is located.
(Timeshare acquisitions are the lone exception to this recording requirement.)
Notaries typically handle registration.
·
Valuation for Taxation Purposes:
Buyers must obtain a Mexican appraisal to assist in determining the
taxes for closing. Depending on the area, the taxes may be based on the
appraisal value or the purchase price. Buyers must not
under-report the purchase price to the notary.
·
Disclosure Statement: Buyers should request that the seller
provide a property disclosure statement. This document provides information
concerning the current physical, legal and economic condition of the property.
·
State Development Approval: Buyers should request a copy of
any applicable Mexican state and municipal development authorizations in order
to ensure compliance with local laws and ensure proper and timely completion of
the development construction.
·
Escrow: In most states the Notario
Publico, in effect, acts as a "Holding agent" for the involved
parties and for this reason there have been few escrow companies in
·
Ideally, buyers should require that any deposits or earnest
money be placed in a neutral escrow account and should not pay any portion of
the purchase price until the ownership or trust is transferred in the buyer’s
name. Although growing in importance, escrow is not
commonly used in
·
Due Diligence: Buyers should inspect the condition and
suitability of the property with an independent investigation and due diligence
before committing to a purchase. Buyers should also
verify all relevant information that could affect the price or the
decision to purchase, or both.
·
Title Insurance: If available, buyers
should consider a title insurance policy that will indemnify the buyer
against damage or loss arising from a defect or lien upon the title to the
property.
·
Attorneys: Buyers should consider employing a
Mexican or
·
Market Valuation: Buyers may contract an
·
Subdivisions: Purchasing property in a subdivision is
possible by acquiring a fee simple interest or the beneficiary interest in a
trust, depending on the location of the property. This is registered at the
Public Registry of Property for the jurisdiction in which the property is
located. If the subdivided lots are being offered for sale in the
·
New Construction: Building a residence is possible by
acquiring a construction permit from the local city government (municipio). A
builder must obtain title to the parcel of land, obtain a construction permit
and hire a building contractor. (See the IMSS note above.)
·
Resale Property: Purchasing resale property is possible by
acquiring fee simple interest or the beneficiary interest in a trust, depending
on the location of the property.
·
Condominium: Purchasing a condominium is possible by
acquiring an interest in a properly recorded condominium regime. A condominium regime is a Mexican legal notario
publico document that is not legally obtainable until
construction is complete. As a word of caution, buyers are commonly
asked to make nonrefundable deposits to fund construction. This practice
entails significant risk considering that buyers must make a payment without
the existence of the condominium regime designed to protect the buyer.
·
Timeshare: Purchasing a timeshare is possible by acquiring
timeshare rights in property. Timeshare rights (as opposed to real property
rights) are contractually acquired interests to use property according to the
terms of the relevant timeshare purchase contract.
The Mexican Federal Consumer
Protection Law provides that buyers have the irrevocable right to cancel all
timeshare purchase contracts (including resale timeshare contracts), within
five days of signing the contract in question.
Cancellation entitles the buyer to
full reimbursement of any amounts delivered to the seller. Timeshare rights vary but are generally not ownership
interests.
\
·
Negotiability of Costs: Closing
costs in
·
Buyer’s Costs: Buyers customarily
pay the following fees: 1) two percent
transfer tax based on the higher of the sale-price or appraised
value; 2) appraisal fee; 3)
trust bank fees; 4) notario publico fees; 5) trust permit fees; 6) title
insurance premiums; and 7) deed recording fee. Fees for real estate
professionals and attorneys should also be taken into account when calculating
costs.
·
Seller’s Costs: Sellers customarily
pay the following fees: 1) certification of the absence of tax
liability; 2) certification of the absence of liens; and 3) capital
gains tax on the sale. Fees for real estate professionals and
attorneys should also be taken into account when calculating costs.
·
Timing of Payments: Buyers should request an estimate of closing costs
before signing any offer to purchase. Most transaction costs must be paid in
advance of closing. Pre-closing costs include trust bank fees, trust permit
fees, some notario publico fees, document fees (including certifications of the
absence of tax liability and other liens), and appraisal fees.
·
In order to reduce the possibility of paying costs
for uninsurable property, buyers may seek an acceptable title insurance
commitment on the property before paying any transaction costs.
v
Bank Financing: Real estate financing in
There are also a growing number
of Mexican banks willing to finance under certain circumstances. Irrespective of any financing agreement, buyers should
require that title to the property (or a beneficiary interest in a trust) be
transferred into buyer’s name at the time of closing.
·
Seller Financing: Sellers may be willing to finance all or
part of the purchase price. The buyers, however,
should require that title to the property (or
beneficiary interest in a trust) be transferred
into the buyer’s name at the time of closing.
·
If not,
buyers should be aware that all payments made prior to acquiring title transfer
run several risks. These include: risk of liens
on the property by the seller subsequent to the purchase; risk of losing to
seller’s creditors in case of insolvency or bankruptcy of the seller; risk of
potential title defects; and risk of multiple sales over the same
property.
·
Also, there is the risk of future
litigation; risk of not obtaining a good and provable record of payments
made and allocation and cost of taxes upon transfer, among others. Buyers should also be aware that title insurance is not
available if title is not transferred.
·
Types of Finance Transfer: Please consult your real estate
attorney to review the options on providing security to the buyer and seller in
a financed purchase. The most common options are issuance of a mortgage,
guaranty title trust or a title retention sale.
·
These three means all require the participation of
a Mexican notario publico and registry of the resulting document at the
corresponding Public Registry of Property.
5:60
SOME POINTS TO REMEMBER:
1. Buyer or
Seller Beware. There is little compulsory licensing in
2. Title
insurance is available (but expensive) through US-based title companies in some
areas. Currently, title insurance issued
by Mexican companies is in its infancy.
3. Sales
contracts, to be legally binding, must be recorded before a notario publico. To
bind third parties to a contract, the contract must be filed with the public
registry.
4. Oceanfront
or river front properties are typically adjacent to the
Federal Maritime Zone. If there is use of and/or
construction in this zone, there is need for a concession, authorizing
the use of this federal land. A formal agreement has to be in place and annual
payments made during the term of the concession agreement.
5.
Market appraisals are not common.
The appraisals, charged by the notario publicos as
part of buyer closing costs, is only for tax evaluation purposes.
6. There are a
few Mexican and American companies offering real estate mortgages. Terms and
conditions vary by lender.
7. Be sure to
get an accurate estimate of closing
costs before you decide what your overall expenses are going to be in
purchasing real estate.
8. Determining
how and where to send money into
9. Purchasing
real estate within the coastal areas of
FINDING PROPERTY
In some of the
more popular areas to find the required property, for lease or for purchase,
you may be able to contact a reputable real estate company or a relocation firm.
In others, be prepared to go house hunting by combing the desired areas on the
lookout for lease signs or by going through all classified advertisements in
the newspapers. If available, use brokers benefiting from a MLS System.
Buyers who wish to
secure a commitment from a real estate professional and see everything that is
available on the market should consider entering into a
contract with the real estate professional that promises compensation to
the real estate professional in a minimum amount and provides for a credit
against that obligation for any compensation paid by the seller or listing real
estate professional.
Any contract
should state the real estate professional’s legal obligation to the buyer.
Historically
in
The
real estate industry in
The only
national professional real estate organization in
Critics of AMPI assert that some of the Real Estate
Brokers/Agents formed a legal unregulated Mexican association, where anyone
that sells Real Estate can become a member. Not all brokers or agents are
members.
Also, AMPI
does little to keep an eye on its members, and neither can it do anything if
one of them does something wrong. In some places, agents with rather shady
reputations have become members just so they could use the Association's
letterhead and logo.
Nevertheless,
it is clear that efforts are being made to raise the
level of professionalism.
LICENSING
At this time,
there are few Government license laws regulating real estate brokerage and
sales in
MULTIPLE LISTING
SERVICE
A couple of
electronic multiple listing services (MLS) are now operating in Mexico, this
service should soon be widely offered with the state of the art technology,
measuring up to the highest standards found in the United States.
In those few
areas (
FRANCHISING
In 1989 CENTURY 21 Mexico,
S. A. de C. V. http://www.century21mexico.com/c21ingles/index.asp
established in Mexico the first real estate Franchise System wherein "Each
CENTURY 21 Office Is Independently Owned and Operated". More than 80
CENTURY 21 franchise offices are now open to the public in more than 38 cities,
making it the major real estate network in the country.
This
multinational corporation has helped to establish performance standards
throughout the real estate industry, thereby benefiting the industry itself
as well as the consumer.
Buyers should
be aware that Mexican real estate professionals do not
generally carry liability or errors and omissions insurance. Consequently,
buyers should exercise caution.
Registry: Where state registration
exists buyers should conduct business exclusively with real estate
professionals that are registered with the state and that have complied with
required training.
Ideally,
buyers should expect and require that any real estate professional hired to
assist with the acquisition of property in
1) that all payments, including earnest money, be placed into a neutral escrow account;
2) that the purchase be handled in a manner to facilitate the
acquisition of title insurance;
3) that the purchase funds not be
released until the transfer of title or trust has been recorded in the buyer’s
name;
4) that the purchase offer be prepared according to the buyer’s
specific instructions;
5) that the buyer be provided a full
estimate of any fees and costs associated with the transaction;
6) that the real estate professional assist the buyer with all
negotiations;
7) that the real estate professional provide frequent progress
reports throughout all stages of the purchase transaction; and
8) that any purchase be contingent on a final due diligence
review, including professional and personal inspection of the property prior to
closing;
9) that the real estate professional recommend, when necessary,
consultation with persons that can assist in the transaction (civil engineers,
architects, attorneys, bankers).
Most
of these Brokers ("corredores" in Spanish) leave all the paperwork
and practically everything else in the hands of the Notary. If the Notario
publico makes a mistake (whatever it may be), they wouldn't know how to point
it out or, simply put how to ask any legal questions.
Look for
reliable real estate people. Seek out others who have bought for
recommendations. Many brokers have caused serious problems because they promise
things that they cannot deliver. That does NOT mean that ALL foreign or Mexican
Real Estate people can't be trusted (as with most people and things, there are
always good ones!) It only means that one has to be very careful, (look for the "good ones"), and has to use one's
common sense with them.
We often recommend that you "talk"
to other people. Remember that NOT everybody knows about the laws, Bank Trusts,
etc. Some of the many, many problems related to Real Estate in the past (and
still very much alive today) were caused by "information" people got
from acquaintances or friends - information that was not always right.
And although most people try to be friendly
and helpful, they are not always, or necessarily, correct - especially when it
comes to Legal Matters. Always look for people that
have already HAD positive and good experiences. And if you don't find
any, ask your own government representative to suggest what to do and to whom
to talk.
Ultimately, foreign buyers get to the point where they are
ready to have the transaction consummated and take title
to the property. In
Although the title seems to translate to the American office
of “notary public," the notario publico's training
and responsibilities greatly exceed the formalization of signatures.
Appointed by the governor of the state and the executive branch of the federal
government for a particular state "district," notarios are attorneys
who must pass two extensive examinations in order to receive their lifetime
appointments.
In a typical transaction, they will prepare the deed of
conveyance subject to the "protocolized" purchase-sale agreement. The
notario brings buyer and seller together for the formalization of the property
transfer, and they authorize the appropriate signatures upon execution of the
escritura. And lastly, after the property transfer has been formalized, the
notario will record the escritura with the public registry of property where
the property is located.
Prior to the closing, the notario's additional
duties include: examining the
documents of the selling party to ensure their accuracy and legitimacy;
verifying title, and searching the public records to determine the status of
the seller's title to the property and the existence of liens against the property.
The notario is also responsible for the collection
and payment of all applicable property taxes and government transfer taxes.
As representatives of the state, however, notarios
do not actually insure title to the real estate nor do they have any legal
responsibility for title defects. A purchaser
cannot seek restitution against a notario in the event the purchaser suffers a
monetary loss due to a title defect unless fraud, misrepresentation, or gross
negligence could be proven in a Mexican court of law.
It is not necessarily
true that title insurance is unnecessary because the notario
publico acknowledges and "signs off" on all aspects of a transaction
and that
Along with the notario publico as a key component in the
Mexican system of land registration and title certification is the Registro Publico de Propiedades (registry of the
property), the latter being the counterpart to the
American county clerk’s office. The notario typically is an attorney
with extensive real estate experience.
The notario publico has governmental
responsibility for legal admission of all real estate transfers, preparation of
documents, creation of wills, filing mortgage
documents, certifying corporate entities and other legal processes.
The notario publico also approves the preparation of the
transfer deed and a title search of the property. The public registry is the
central recording location for all public documents. Copies of all property
documents can be provided by the registry, along with the certificado de
libertad de gravámen (certificate of no liens), which shows liens or
encumbrances affecting a particular property.
Recourse in
In
Recourse against the notario publico for a mistake by the
notario publico or anyone else is not grounds for repayment - unless there is proof
of fraud, gross negligence or known misrepresentation in a Mexican court. The
court system is a slow, expensive and arduous process that most try to avoid.
In addition to the notario in many
cases you should have your own competent legal counsel. Just as you'd
carefully protect yourself when making your first real estate deal at home,
don't let your guard down in
Fully warned, go ahead and reap the pleasure of Mexican
property ownership. While your up-front costs may be
higher than you contemplated, you'll benefit from significantly lower property
taxes and utility bills. And you'll feel like a real part of
The Notario Publico is an attorney representing the Mexican
government. He is responsible to both the buyer and the seller to insure the
legality of the contract, and to the government for the collection of taxes and
capital gains for the real estate transaction.
The Notario Publico finalizes the real estate contract and
records the transaction with the Public Registry. A real estate agent may be
involved in the transaction, but it should be remembered that realtors in
The Notario Publico charges a fee for his services and the
bank charges a fee as well if a fideicomiso is involved. These fees should be competitive and are
based partly on the value of the property. Typically, a realtor will work with
one Notario Publico who will work with one bank, but
there is no reason why the buyer can't shop around, compare fees, and select
her own bank and Notario.
A Notario publico has the obligation to see that there is no
damage to any one of the parties involved in a transaction. In
the case of those contracts that do not have a special "penalty clause,”
and the amount of the Deposit covers the "penalty.”
If the Buyer backs out, and there is NO other provision for
it in the contract, it's the Notary's obligation to talk to the parties and
have them agree on the amount to pay as "penalty" from such deposit.
For that reason, any doubt that you may have about anything
concerning the transaction you're about to execute, ask him about the legality
and the fairness of it and be sure that you understand well what he explains.
If you don't speak
Spanish, and the Notario publico doesn't speak English, have someone that you
trust with you, who can translate for you. And don't be afraid to ask if you
don't understand something!
A notario is a
lawyer with a position similar to that of judges in the
Notarios are
appointed by the governors of each state and there are very few of them. Their functions are a combination of real estate lawyer, tax
assessor and IRS auditor. It is they who close real estate transactions, like
escrow officers in the
The notario
publico is a government appointed lawyer who processes and certifies all real
estate transactions, including the drawing and review of all real estate
closing documents, thus insuring their proper transfer.
Furthermore,
all powers of attorney, the formation of corporations, wills, official
witnessing, etc. are handled and duly registered through the office of the
Notario Publico, who is also responsible to the government for the collection
of all taxes involved.
In connection
to real estate transactions, the Notario Publico
obtains the following official documents which the law requires for any
transfer:
A
no-lien certificate from the Public Property Registry based on a complete title
search.
A
statement from the Treasury or Municipality regarding property assessments,
water bills, and other pertinent taxes that might be due.
An
appraisal of
the property for tax purposes.
For
additional assurance that your interests are being protected, it is often
advisable to hire your own lawyer. However, different from the
In some cases a second attorney will delay the
transaction, charge you unnecessary high fees, and have absolutely no bearing
on the situation, as it is not of his area of competence. For many real estate
transactions you do not need another attorney. The notario is completely
capable and legally authorized to carry out the transaction. In other cases a separate attorney will be an absolute
necessity. Investigate!
Mexican real
estate has sometimes been developed informally to the detriment of the foreign
(and domestic) purchaser. This is the fault of both the developers and
gullible, uninformed American purchasers and not the Mexican system.
The
"margarita syndrome" (as it is often referred to) or "trust
me, everything will get done but it takes time in
A TYPICAL STATE SUBDIVISION REGIME-SONORA
(http://www.cgeson.gob.mx/servicios/leyes/Norm)
For developing
subdivisions in
There
follows here the process in the State of
Under Article
27 of the Mexican Constitution, there are three (3) recognized property types
in the country. Article 27 defines them as private, social and public property.
In 1976, the government of
In the case of
The procedure
to authorize the development of a subdivision ("fraccionamiento") is
specified by the Office of Urban Administration (http://www.siue.gob.mx/administracion%20urban)
Secretary of Urban Infrastructure and Ecology for the State Government of
Sonora (Direccion de Administracion
APPRAISAL PROCESS
Typically, the
process to receive approval for an intended residential subdivision is as
follows: Initially, the developer must take the necessary steps to obtain a
land use License from the city council ("ayuntamiento") or local
municipal authority.
This process
includes (1) submission of an environmental impact study on the land to be
developed, (2) deeds of ownership on the property ("escrituras"), (3)
a land plan of the tract, and (4) a location map of the overall property.
The developer
must also submit a draft or blueprint ("anteproyecto") of the
proposed development. The city council will then present the draft of the
proposed project along with the land use certificate, deeds, location map and
land use plan, including a layout of the lots and blocks of the subdivision to
SIUE.
At the same
time, the city council or municipality will facilitate and obtain the
feasibility of potable water service, drainage and electrical service for the
proposed subdivision from the appropriate municipal agencies by presenting the
land use license and the land plan of lots and blocks to the respective
authorities. The developer will then receive initial approval for the intended
subdivision from the city council or municipality.
FORMAL PLAN
Once initial
authorization is granted, the developer must then submit a formal executive
development plan and all required documents to the city council or municipality
according to Article 129 of Urban Development Law 101 of Sonora. The local
authorities will present the project again to SIUE with the calculations of
water and sewer use for review, revision and approval.
Additionally,
the municipality will submit the calculations for electrical usage and street
lighting to
PUBLICATION
After the
developer donates 15% of the overall land as required to the local municipality
(which is generally utilized for common areas, green belts and/or schools) and
pays the development fees as mandated, they must publish the subdivision
approval in the "Boletin Oficial" (http://www.sonora.gob.mx).
The Boletin
gives the public notification and government approval of the intended
development. Lastly, the developer must record the agreement in the Public
Registry of Property along with the unilateral declarations of intention to
develop the property with copies going to the local tax assessor office, the
treasury department and to SIUE.
RECENT YEARS
In recent
years residential development in
Although
development considerations continue to improve in
There should
never be any reason why a buyer does not ask certain basic questions that can
provide more comfort and security when contemplating a residential purchase. In
short, ask the developer if they have an approved
subdivision and ask for a copy of the published authorization.
Also
ask them if the property (lot or residence) will be conveyed to a fideicomiso
or an escritura publica deed at the time of sale. If not, one should inquire as
to why and try to better understand the outstanding development issues that may
exist on the subdivision. In the end, you’ll appreciate the peace of mind that
comes with knowing you bought a "legal" piece of Mexican real estate
and not being in the uneasy situation of wondering when you’ll acquire good and
enforceable title.
Condominiums
are a large part of the real estate inventory in many areas. The price
range is wider; so more people can afford this form of real estate. Condominium
ownership can require less overseeing by the owner. Some areas have declared a
moratorium on new buildings; while growing areas have a number of new projects
to choose from. Supply differs in one area to the next.
To protect
condominium owners, some states in
It
is to the owner's benefit to be knowledgeable in the rules and regulations. It is a
mistake to assume that the rules and laws for condominiums are the same
everywhere.
The code
defines a condominium regime legally and imposes responsibilities and
limitations of ownership.
Each
condominium unit represents a percentage of the total individual ownership as
well as a percentage of the undivided common areas.
ESTABLISHING THE
REGIME
The developer
has to establish a condo regime legally. The public document setting out the
rules and regulations for the owners, includes: a
description of the buildings, the percentages of individual units in relation
to the whole, and the amount of common area. The city requires a warranty from
the builder that he will finish the building.
The condo
regime also sets out the rules and regulations for the owners to abide by. The
owners may amend the rules and regulations. The rights of the
owners to use the common areas, within the described purposes, is as
essential as the owners' rights to enjoy their private area.
The
most fundamental responsibility of the individual owner is to pay his
maintenance fees.
Everything
that has been said about the steps to take when buying property is applicable
to condo buyers as well. At this point, we will add the following additional
information and suggestions. Laws vary by state.
The
following is a general treatment based on the Jalisco law.
Buying a condo
may introduce you to some new words and meanings that you may not be familiar
with, such as: Asamblea, Comite de Vigilancia, Board of Directors, Bylaws, etc.
The Asamblea
Anual (Annual Meeting) is called for ALL the owners. Together and only during
this Asamblea, these owners constitute the Supreme Organ (or Authority) of the
building.
All
the decisions that must be taken in order to have the building run smoothly,
legally, etc., have to be taken and decided upon by the owners attending such
"Asamblea". One has to pay
attention to what the bylaws of your building say about it. Some Bylaws will
only let the owners attend the Asamblea if their maintenance fees are all paid
up. Others may say something else!
They will constitute the orders to be followed
by the Administrator, under the supervision of the Comite de Vigilancia
(Security Committee) or Board of Directors.
It is strongly
recommended that every owner should be present at the
Asamblea. Any and every problem that the building may have, every
situation that has to be corrected, every increase in the cost of maintenance,
etc. etc., has to be discussed and resolved (decided upon) at the Asamblea. If,
for whatever reason, you can't or don't plan to be there, be aware that you're leaving
all the decisions about your INVESTMENT in the hands of others.
If you cannot attend the Asamblea, you may
ask your Fiduciary trust bank to draw up a Power of Attorney to grant to
another person that will be there. Just be sure that he/she represents you
properly and follows your instructions, if any. You have to request that from
the bank in writing, and the person that will represent you will identify
him/herself with a valid I.D., and present such Power of Attorney before the
Asamblea begins.
By law in many
states, this Asamblea (Meeting) has to take place at least once a year, and
every legal owner must be notified according to the Civil Code of the State
they are in, or to the Bylaws of the condominium.
THE COMITE DE
VIGILANCIA
Amongst the
various important decisions taken at the Asamblea(s), are the ones to name the
Comite de Vigilancia (Security Committee) or Board of Directors, and the
Administrator, as well as any increases that may be needed in the maintenance payments.
A
legal Asamblea is one where at least 51 % of the owners are present. Otherwise, it's not legal and any decision
taken in it can be legally contested.
Another
important point to know is that at the Asamblea, ONLY the "business"
or "topics" inscribed on the agenda can be discussed. If there is a
"topic" on the agenda called "various", there may be a
discussion about whatever may be brought to the floor (that was not on the
agenda), but NO decision whatsoever can be taken with respect to any of the
topics discussed in that category.
It can be postponed to the next year or, if
it's important enough and the majority so decides, the owners may reconvene.
This time, it will be for an Asamblea Extraordinaria (Extraordinary Meeting)
that will take place at the time they decide... but that's all they can do.
In many
condominiums, notice must be given 30 days prior to the Asamblea, and must be
made public through notices posted in the building, as well as by Certified
Mail sent to each owner. Please check your own bylaws!
THE BANK TRUST
The Fiduciary
trust bank may be present at the Asamblea and can represent owners that
couldn't attend. Its presence may enable the needed Quorum of 51 % to be
reached, but it will depend on what the Trust of each condominium says about
its right to vote in any of the cases presented to the Asamblea.
There may also
be cases where the "owners" (Fideicomisarios) will have to instruct
the Bank in order to represent them at the Asamblea.
All the cases
presented at the Asamblea must be approved or denied by no less than 51% of the
owners present or legally "represented.” At some Asambleas
Extraordinarias, in which the owners must rule on special cases, a minimum of
75% of the owners present must approve (or disapprove) the motions.
Example: if
they want to change the Bylaws. The percentage varies according to the Bylaws
of each condominium, and that's another reason why we keep stressing the
importance of always reading and checking the Bylaws of the condominium you are
in.
A QUORUM
If a Quorum
cannot be reached even with the presence of the Fiduciary trust bank, and
regardless of it, and if the Meeting is held and decisions are made, then any owner may, if he/she wishes to do so, go before a Judge and complain about the illegality of the
decisions taken due to the fact that there was No Quorum. This complaint
can be presented as a group, or individually.
In these
cases, they will have to have the Power of Attorney from the Fiduciary trust
bank, in their name. Any other document that they may present will not be
valid.
The only way
for an "owner" to understand all these provisions is
to be well informed about his/her Bank Trust documents, as well as the Bylaws
of the building. If one isn't interested in being well informed, then no one
will be able to solve any of the problems that may come along, either for the
building or for the individual owner.
THE ADMINISTRATOR
The
members of the COMITE DE VIGILANCIA (Security Committee) are voted upon by
the owners present at the Asamblea. They are the ones that will ensure that the decisions taken at the Asamblea are
followed completely by the Administrator. The Committee is made up of
volunteers.
Legally, the
Committee can only supervise the work of the Administrator. It cannot become
involved in the running of the building! Also, each of its members has to have
a Special Power of Attorney from the Fiduciary Bank in order to be able to
occupy any of these posts.
Go to the
Notario publico with the Seller and the Promise of Sale Contract, sign it in
front of the Notario publico and get his/her signature and stamp with his/her
seal on it.
This way, if
by any chance the Seller does not complete the building, or the development
suffers constant "delays", or they want to increase the price, or
come up with any excuse and pretense to extricate themselves from the deal,
etc., you will have a Legal Document with Legal Security. And you could always
bring a legal action against them.
You
can also ask them to deposit a Bond with the Notary, in the same amount
you paid to them. This will allow you to recover your deposit in case they back
out for whatever reasons they may use.
On the other
hand, have also a separate Penalty Clause,
similar to the one when buying any property, so that in case that you yourself
cannot go through with the deal, the amount you should pay is less than the
amount of the Deposit or Advance Payment you gave
It's very
important that everyone attend those Asamblea(s) where the Comite de Vigilancia
(Security Committee) or Board of Directors and Administrator are to be elected.
Candidates
for the Comite de Vigilancia or the Board should possess some understanding of
administration and accounting, or at least an open-mind and common sense, as well as a
desire to learn about the different laws, customs, and systems of the place in
which they are living.
In many cases,
their members can also make or break a condominium, as
they are the ones responsible for seeing that everything runs efficiently. More
specifically, they must ensure that the operation of the condominium is
conducted according to the various laws in effect, and in keeping with
generally accepted accounting procedures. Also, keep in mind that they are the
ones that are supposed to "keep an eye" on the Administrator.
LAW CHANGED IN 1995
Again, using
the State of
On the other
hand, the Jalisco Civil Code in effect today states that these condominiums
should add some procedures that appear in the 1995 version, while continuing to
apply the other articles of the law and procedures in accord with the civil
codes in effect when they were constituted.
In the
condominiums constituted after 1995, the Comite de Vigilancia became the Board
of Directors, whose members had some rights and legal powers for some judicial
acts of the law, which the Comite de Vigilancia did not and still does not
have.
The
administrator - is the General Manager responsible for running the building and
doing everything that the word "management" implies. In
KEEP AN EYE ON THE
ADMINISTRATOR
Owners should
always look into the honesty, professionalism, ethics, etc., of the person in
charge. If, for whatever reasons, a new Administrator has to be hired, he/she
should always be found among the prospects that have good recommendations from
other jobs they've held, experience with the laws concerning condominiums (as
well as others), and a good knowledge of accounting. Needless to say, he/she
should be honest, reliable, hardworking, someone that can get along with the
owners... and, preferably, someone that really speaks
Spanish!
An
Administrator,
or General Manager as some people call them, can make
or break a condominium within a very short time. Pay close attention to
- and supervise - the way he/she behavees.
If you've ever
heard "horror stories" about administrators "misusing"
their legal power... you can believe them! The only possible comment about
these situations could be: "Where were the members of the Comite de Vigilancia
or Board of Directors?"
Both are
responsible!
That's why all
the owners should attend the Asamblea (Annual Meeting). It's an investment you
have not just a party you were invited to.
THE BYLAWS
The bylaws are
legally established at the time the first owners get together to organize the
administration and management of the building. They MUST be included as part of
what is called the "Acta Constitutiva
Investors must
recognize the absolute need to obtain authoritative information and even to hire
competent Mexican legal counsel when contemplating any real estate investment.
Mexican laws and practices regarding real estate differ substantially from
those in the
In
resort areas, time-share hawkers are rampant. Beware of the high
risks involved, because Mexican law provides very little legal protection to
the timeshare owner. If you absolutely must invest in a time-share, do so with
full warning and preferably with a stateside company. And be warned that the
resale market is extremely poor.
A very
important part of the home search process is determining the value of a
prospective purchase. It is helpful for newcomers to
In many areas
of the world, the appraised Tax Value (Catastro) is the same as the Commercial
Value (selling price). In
The Catastro
value of all properties is a fraction of the Commercial Value. While the
Catastro value is used by the notario publico to determine closing costs and
the annual tax payment (Predial), it is not effective
for comparing Commercial Values.
NEIGHBORHOOD COMPARATIVES
In the
Because homes in
Another way of
determining the Commercial Value of a property is to look at a rental
income/sales price ratio. Common in the
In
This
is the preferred system of determining the Commercial Value of properties. A
replacement value appraisal is determined by adding the value of the lot to the
depreciated value of the construction, adding as needed for special amenities.
LOTS--MEASUREMENTS:
As
1 METER = 3.3
FEET
1 SQUARE METER
= 10.76 SQUARE FEET
1 HECTARE =
2.4 ACRES
1 ACRE = 4100
SQUARE METE
VARIABLES:
A
(http://www.chapala.com, http://www.chapalaguide.com/, http://www.ajijic-chapala.com/ )
Several
variables affect lot prices. The more desirable the location,
the higher the price of the raw land. For example, in the
The desirable
area follows the highway from East to West and includes several small
subdivisions in addition to the neighborhoods and villages of Riberas del Pilar, Mirasol,
Land values in
this area range from $25.00 USD to $100.00 USD per square meter. Lots with no
view, in areas with few amenities and low maintenance will be at the low end of
the scale. As the location improves geographically-into the center of the
village, or higher on the mountain with more view, or in a neighborhood with
larger homes, or at lakefront, or a commercial location along the highway, the
price escalates.
IMPROVEMENTS
Lots which
include improvements will generally be priced proportionally higher, to cover
the price of these amenities or construction. A lot may include some of the
following: water permit and street connection (la toma), retaining walls,
terracing walls, landscaping, driveways, compacted building platform, or any
construction, i.e.: gates, underground water storage (el aljibe), storage sheds
(las bodegas), septic system (fosa septica), well (pozo de agua), or sewage
system connection in the areas where this service is available.
It
is prudent to be extraordinarily cautious when offered land which does not
currently receive water from a recognized source. Do not depend on the well across
the street, or the water from the neighbor, unless this is offered in writing.
Land without water has very little value.
To appraise an
existing home, all of the improvements are added to the cost of the lot along
with the cost of all construction.
The value of
new construction in the
Multiply the
square footage by the average cost per square foot. Add the lot and included
amenities from the lot section.
From this
total, subtract approximately 1% per year of age to allow for obsolescence of
style and general wear and tear. Major defects or extremely dated properties
would require a larger depreciation deduction.
To this
figure, add a value for a satellite system ($1500 USD), pool ($10,000-$18,000
complete), telephone line ($200 USD), pressure system ($700 USD), water
purification system ($500 USD), pumps, furnishings, appliances, and other
amenities
To this
figure, add some space to allow the owner to negotiate with the buyer, and
finally, add the standard 6-7% commission on homes, (10% on lots or commercial
property) plus sales tax (IVA-15% on the commission).
This figure
will be somewhere near the asking price of the property in question.
Occasionally, visitors encounter homes that seem, even in light of this
information, "overpriced". Buyers should make an offer that they feel
reflects the value of the property as they perceive it.
RESALE HOMES
Existing homes
will range from re-sales that are just a year or two old, to a number of 15 to
30 year-old homes, the "fixer-uppers" frequently sought out by smart buyers.
They realize that due to lower cost of construction labor, they can easily redo
and update these still sound and sturdy homes.
It
is hard for newcomers to realize just how low labor costs are in
COURTESY
In negotiating
for real estate or any other arrangement in
You should use
the first meetings in the negotiations to learn and judge the character and
personality of the people involved. It is also important to learn to adjust and
be compatible with the way business is done in
Good
negotiators want to know the names and titles of their opponents. They also
want to know about the other side's business or personal backgrounds.
There is a
hierarchy of power in the group to be used to one's psychological advantage.
The less senior members of the team arrive to do the set up and opening remarks
or discussion. The powerful member of the team will make an appearance or speak
later.
The beginning
of the meeting will involve a period of casual conversation and keen
observation. To rush this part of the process will be
negative to the other side, even considered rude.
COMMUNICATION
You may wish
to talk in concrete terms, making all intentions and feelings perfectly clear.
The Mexican negotiators do the opposite, deliberately being ambiguous in order
to leave their position open to various interpretations, creating more
"options." They may say that they do not understand a point and ask
for further clarification, when they really do understand.
On the other
hand, if they do not understand, they may not ask for clarification, in order
to not lose face. Be aware that you need to verify that
there is understanding of issues as you go through them. Don't always
look for conclusive answers. A firm "no" is not likely.
"Maybe" or "let's discuss it later', will be more typical.
Conversely, "yes" is not a final answer, either.
The challenge
you will have is to narrow your differences so as to understand the other side.
Good rules of thumb are to be well-prepared, calm, polite,
appreciate silence, and look relaxed.
If you are not
truly bilingual, you will need to rely on someone you trust to help you with
the interpretation of the meanings of the words and inferences being used. You
should use as your interpreter someone who understands the nature of the
business being discussed as well as someone who is loyal to you. Not
understanding the language well opens you up to misinformation and manipulation.
Don't talk
down to the other side and don't expect them to appreciate any comparison to
how thing are done differently in your country. You are not in your country but
theirs. Don't be afraid to bring up legal issues as soon as the informal,
personal, getting-to know-you preliminaries have taken
place.
PRICES IN DOLLARS
Because of the
greater inflation on
Like
many transactions in
FIXTURES
Because
telephone lines are purchased by each customer, the buyer will need to determine whether phone service is included in the real
estate purchase. Light fixtures and garden statuary which generally stay
with the property in the
Land titles
are symbolic because the title is what a purchaser gets when he purchases real
estate rather than actual delivery of the property. It is highly important that
a purchaser have the best assurance possible that his title is good, unencumbered
and free of flaws.
Knowing little
or nothing about titles, most real estate buyers rely on the advice of others.
It is conceivable that a title could be completely lost irrespective of the
customary assurances available. Foreign purchasers of real estate in
POSSIBLE TITLE
DEFECTS
The
land registration and title certification process in
Moreover, little if no legal recourse is afforded the purchasing
public against the public notario publico who closes all real estate
transactions in
Where
available, a title insurance policy issued on Mexican property may be
considered to provide a comfort and security benefit to foreign purchasers
against title pitfalls resulting in eventual Mexican lawsuits and monetary
losses.
When you buy
property outside of the Restricted Zone, meaning any other place within the
You
won't need a Bank Trust, but you will still need a permit from the Secretaria
de Relaciones Exteriores (Secretary of Foreign Affairs). Besides that,
all the other steps for the transaction are about the same, including what is
said about renting out your property.
CONDOS
Also note that
in case you own a condo outside of the Restricted Zone, as there is no bank to
represent anyone, you'll still have to have a majority of 51% of the votes at
the Asamblea in order to make everything legal regarding any decisions taken.
The
only difference between a condo within the restricted zone and one outside of
it is that there is no bank trust needed outside of the restricted zone, and
the possible advantage of this difference concerns the payment of capital gains
taxes.
Everything
else written about condominiums
within the restricted zone applies to all condominiums. PLEASE read the bylaws
of your condominium carefully, until you understand them and know what it's all
about! (The "Regimen de Condominio" is a Legal Regime.)
CAPITAL GAINS TAX
If you own
property (not including undeveloped lots) outside of the Restricted Zone, and
you can prove that it has served as your private residence for at least two (2)
years prior to the sale, the fiscal law exempts you from paying capital gains
taxes. If you cannot prove it, you will have to pay up. This exemption only
applies to individual taxpayers, not corporations.
A foreigner
can own Mexican coastal property in the restricted zone indirectly through a
fideicomiso bank trust. Legal title to the property is held by the bank, as
trustee, and beneficial use is held by the property buyer.
Even
in non-restricted areas, the fideicomiso may be used by foreigner landowners
and Mexicans alike for the same reasons that trusts are created in this
country.
Under the fideicomiso, multiple or successor owners can be named. The costs of
establishing the fideicomiso are not great: an initial set-up cost is based
upon a percentage of the property value, and annual trustee fee is charged.
The restricted
zone provisions seemed desirable when the constitution was written in the revolutionary
times of 1917. Later in the twentieth century,
1. It
encourages the flow of foreign capital into
2. Foreign
ownership in the restricted zone is held in a trust institution, which must
have a permit from the Secretary of Foreign Relations. Through the use of the
trust, there is compliance with the Mexican constitution in regard to
non-Mexican ownership of real estate..