Foreign Ownership of Mexican Residential Real Estate

By Lisa Larkin, Esq.

Lisa Larkin is an attorney in Tucson, Arizona who has owned and operated MexicoRealty.com for over fifteen years. She has consulted with countless Americans and Canadians interested in buying, selling and developing Mexican Property and she has participated in many title transfers. She has presented seminars on Buying Real Estate in Mexico since 1994 and has participated on Educational panels for the State Bar of Arizona and the Arizona School of Real Estate and Business. She was appointed to the Arizona Governor’s Task Force on Mexican Real Estate by Governor Jane D. Hull and served as a member for five years.  Through the National Law Center for Inter-American Free Trade, she initiated the effort to regulate real estate practitioners in the State of Sonora.

The question I get asked most often through my Web site is whether or not it is possible for foreigners to own real estate in Mexico. The answer is a resounding Yes! Follow the law of the country of Mexico and you can own property in Mexico, obtain title insurance on it and even get a loan for it if you qualify.

The best and most comprehensive Consumer Guide to purchasing property in Mexico was published in easy to understand language by the Arizona Department of Real Estate in 2005.  See “Buying Real Estate in Mexico” (link: www.re.state.az.us/AZ-MEX/AZ-MEX.html). This Article deals with residential property, both homes and condominiums. Read this Article for an overview of the law applicable to foreign ownership and then refer to the 39 page Consumer Guide described above if you are serious about considering a real estate investment in Mexico. If you have questions not covered by this Article, feel free to call me in the U.S. at 520-940-2024.

While the Mexican Constitution of 1917 prohibited foreign ownership of residential real property within 50 Kilometers of the coast and 100 kilometers of the border (restricted zone), changes to the Foreign Investment Law now make it possible to own property in these areas as well as in the interior of Mexico.

Foreigners can own property in the “restricted zone” through a “fideicomiso” or bank trust. Under this arrangement, a Mexican Bank holds naked legal title to the property and the buyer as beneficiary receives all of the rights of ownership. The initial term of 50 years is renewable indefinitely. Property may be used, improved, rented, willed or sold. One of the advantages of trust ownership is the ability to appoint a substitute beneficiary allowing the title to transfer upon death without probate or payment of a transfer tax. This trust arrangement allows for foreign ownership while leaving the Mexican Constitution intact.

Property outside the “restricted zone” is owned directly, like Fee Simple title in the U.S. A clause in the deed will prohibit the foreigner from invoking the protection of his own government in the event of a dispute concerning the property.

Whether the property lies within or outside of the restricted zone, the government of Mexico is not likely to expropriate your property or simply to take it away from you on whim.  They have laws of eminent domain similar to the laws in the US.  This author recommends that foreigners obtain title insurance on their purchase and further that they exercise all of the typical due diligence that is used in buying property in their own country. Due diligence begins with a comprehensive preliminary purchase contract. The contract should spell out all terms and conditions of the sale, including any contingencies for inspection or title investigation.

In the preliminary contract, the seller may ask for a deposit to be applied to the purchase price. Any deposits paid directly to the seller or real estate agent should be considered at risk. Only a detailed escrow agreement and arrangement, specifically outlining contingencies and the status of deposits upon their failure or satisfaction, will protect a buyer in the event a contingency is not met and cancellation is requested. Escrow as you may be familiar with it, does not currently exist in Mexico, but is provided by Stewart Title in Houston Texas and may be provided by others.

Escrow is probably not an option if a building is to be constructed. Buyers should take care to evaluate all risks inherent with the payment of deposits in these cases.  A title insurance commitment obtained by a builder along with a surety bond and a good record and reputation are factors to consider when contemplating such an investment.

If the property lies within the “restricted zone”, the preliminary contract will reference an existing trust which can be transferred, or a new trust which must be obtained if there has never been a trust on the property. If you are working with a real estate agent or builder, they will assist you with the trust paperwork. If you are working directly with a seller, you should get a qualified bilingual Mexican attorney to assist you. An attorney may also be utilized in any case and may be advisable. Some American attorneys are qualified to assist you in these matters as well and are more likely to carry professional liability insurance.

You will pay an initial fee to transfer or set up a new trust and annual maintenance fees, all to the Mexican Bank. Execution of documentation necessary to transfer or initiate a trust does not constitute transfer of title, it is just a first step in completing the title transfer process. A trust cannot be issued until a building has been completed and ready for occupancy and title transfer.

In Mexico, the Notary Public or “Notario Publico” is an attorney appointed by the government to formalize certain legal documents, including real estate contracts, transfer and record titles, and collect taxes. They are uniquely authorized to transfer and record title to property but they do not function as escrow which you may be familiar with in other jurisdictions.  They do not represent either buyer or seller, they charge a fee for their services, and collect a transfer tax and capital gains tax upon the formalization of a real estate contract.  The initial contract is referred to as preliminary because only Notarios may formalize real estate contracts, and they only do so when you are ready to transfer title.

Transfer of title occurs when the Notary records the sale in the Public Registry of Property.  In preparation for the title transfer, The “Notario Publico” will conduct a title investigation on the property, including a verification that there are no liens or tax liability on the property. Since they do not guarantee their work, you must purchase title insurance in order to fully protect your interests.  

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About the beauty of Mazatlán, the land of the deer

   There is a unique city in the #1 retirement destination for Americans and Canadians according to the International Living Magazine(http://www.internationalliving.com/internal_components/further_resources/09_01_07_retirement , is a very special city for several reasons: It combines the beauty of a beach destination with the enchantment of thousands of years of history visible on its old constructions in the historic district. Also, this city enjoys the largest boardwalk in all of México, where every afternoon, all kind of people from many nationalities gather to enjoy it by jogging, skating, taking pictures of the amazing sunsets, doing yoga, getting a beer on an oceanfront bar, or a coffee with a friend, exercising in a gym while looking at the ocean, or just walking all over it while getting caressed by the sea breeze that never stops, giving us a very pure and healthy air to breath all year long. This city also enjoys the highest functional natural lighthouse in the world, adored by exercise lovers, who go day and night to bask the breathtaking views from the top with the unbeatable satisfaction of exercising. In this city, originally founded by Europeans to take advantage of the dock natural facilities, most of the population is tourist oriented, especially on tourist areas; most of the people speaks good English and will be glad to help if you have any question or need assistance, that´s why, according to recent stats 95% of tourist come back, it’s understandable that they like the warmth of this people, who always show an smile to visitors. This city, other than combining beach attractions with history, also combines the conveniences of five stars resorts with all the benefits granted by a big city (almost 500,000 inhabitants) that was here quite before the tourists discover it, having the fishing and the main commercial activity. You can still have a very nice living for only about $1000 USD a month, cheap medicines and health services at a fraction of what they are back home, beachfront hotels for as cheap as $30 USD a night, insurances lower than up north, everything you have at home for entertainment and a little more: horseback riding, beach tours, parachuting, movie theaters, lots of cultural events, whale watching, snorkeling, kayaking, nature tours, casinos, fishing, hunting…well the list may take a while to be finished, do you want to keep reading or coming to discover by yourself?

     So, this city was called “The Pearl of the Pacific” for several reasons: it has an excellent location, pretty close of the Tropic of Cancer, what means the best weather in the world, just like Cabo and Hawaii but a lot more affordable. Also, as a symbolic meaning, “The pearl of the Pacific” is a hidden treasure that not many people know about, what makes it even more enjoyable.

     This hidden treasure, this beach destination with city facilities and a lot of history, this unbeatable place to enjoy is called Mazatlán.

     I came here 9 years ago planning to stay just a couple of months and… it was love at first sight!, after being in half of the states of my gorgeous country and lived in several places, I think I have found my place to stay, I never had this lifestyle before, and that’s why I decided to share it and promote it. Hope you have the chance to come soon, believe me: you won’t regret.