by Ricardo Garcia

Can Foreigners Own Real Estate in Mexico?

The Answer is an Emphatic Yes!

So many people over the last year have asked me that I realized that the perception of owning in Mexico does not equal the reality - that people outside of Mexico are operating under the old rules and not the new..........Thus, I thought it prudent to outline clearly the very simple rules of ownership here in Mexico, Playa del Carmen, and in Riviera Maya.

First, The Mexican Law allows foreigners to acquire the rights to use of real estate located in the coastal and border areas of Mexico, through means of a Trust Agreement (Fideicomiso Traslativo de Dominio or simply Fideicomiso) This is the most advantageous legal instrument available for foreigners to acquire land in Mexico for residential purposes. It allows foreigners to have the same rights and obligations that real estate full-ownership provides.

Q: What is a Trust agreement ?

In the Trust deed, the present owner of the real estate (selling party) appears as the Settler and thereby delivers title of the real estate to the Trustee (a Banking Institution) who will hold the property during the term of the trust (normally 50 year-term renewable for perpetuity for subsequent 50 year-terms)

The buying party (you) appears as the Beneficiary of the Trust, meaning : the person that holds the absolute right of use and avail of the property during the trust term.

Q: What is a Trust Institution?

A Trust Institution is a Mexican Banking Institution registered and authorized to open fiduciary accounts and set up trust operations. The Trust is not an asset of the Bank. The Trustee (Bank) holds the legal title to the real estate property during the term of the trust (normally 50 year term that can perpetually be renewed for subsequent 50 year terms), and is also empowered with rights and powers necessary to achieve the objectives of the contractual agreement creating the trust.

Q: How do I set up a trust (step by step) ?

Once you make the decision to buy property and have actually selected it, the first thing to do is to select a first-class public notary to take charge of the legal issues. In Mexico, a public notary is a licensed attorney who is authorized by the State Government to provide legal formality to title transfer process in his protocol book. A public notary in Mexico have far greater legal status and competence than those in the United States.

As a normal practice, buying party (you) gets to select the notary. Normal practice also calls for the deal to be closed using notary assistance and in his presence. An agreement between buyer and seller is drawn up using a Standard Form of Agreement of promise to Buy & to Sell. In this agreement, buyer and seller set a deposit amount to be placed in escrow (anywhere from 10% to 30% of the transaction price) as well as the time period (usually 45 days) to finalize the transaction.

Drawing an adequate agreement is a key element in the operation. It should guarantee that if the deal does not go through because of property not being clear, buyer does not loose his deposit and has no further obligations to seller.

Upon agreement taking place, notary conducts due-diligence on the property, (i) confirming that no balance is due on land owner’s tax, (ii) making sure it is free from liens and encumbrances, (iii) cross checking the title in Public Records (Public Registry of Properties) to confirm that the title is in good standing, (iv) notary presents foreign buyer to the Ministry of Foreign relations as well as Commission on Foreign Investments and sets Trust. Once notary clears every item in due-diligence, the actual closing takes place (again in notary’s presence) and balance payment is exhibited.

If notary is unable to clear every item in the due-diligence, sale is cancelled by buyer, buyer recuperates the deposit (placed in escrow) and has no further obligations to seller.

Q: What documents are necessary to set up a trust ?

To set up a Trust assisted by Public Notary the following documents and information are needed :

Selling party :
A copy of the real estate title or deed indicating the exact dimensions, surface and boundaries, properly registered in Pubic Registry of Properties. Municipalities' legal description/appraisal of property, proof of payment of Landowner’s Tax for the previous 10 years.

Buying party :
a) your full name, nationality, occupation, address and phone number. (Copy of your passport, immigration form of entry to the country, phone or other utility bill to prove your address)
b) name(s), nationality, address and phone number of the substitute(s) beneficiary (ies) in case of decease of during term of the trust.

Both
The agreed purchase price in form of a Standard Form of Agreement of promise to Buy & to Sell

Q: What are the rights of the Trust beneficiary ?

As the Trust Beneficiary, you will have the right use and possession of the property. You may live on the land and undertake any alterations and improvements. You also have the capacity to instruct the Trustee on mortgaging the real estate, renting it, selling, transferring your beneficial interests to another person or corporation, or performing anyone of the acts that by law derive from the ownership.

Q: What are the obligations of the Trust beneficiary ?

He is responsible of timely payment of annual Trust Fees. He is also responsible of prompt payment of landowner’s Tax, water, sewage and utility bills and the condominium maintenance fees (if applicable)

Q: What happens if beneficiary dies ?

At the time the trust is set up, a substitute beneficiary must be named. In the event of death of beneficiary, substitute takes place of first beneficiary with the same rights and obligations as first beneficiary.

This procedure takes place with no cost to substitute beneficiary, instead of an inheritance probate proceeding before the Mexican courts, which could take time and Attorney's Fees.

Q: Can the beneficiary of the trust set up a lean or a mortgage on the property ?

Yes. Once the Trust is set up, beneficiary can offer rights of use of the property as a collateral for a mortgage.

Q: What happens when beneficiary decides to sell after some time?

He may do so at any time with the only obligation of paying capital gains tax.

A trust interest may be sold like any other interest in real estate property. Upon the sale of an interest in real estate held under a trust, the Secretary of Foreign Relations is required by law to issue a new trust permit to the buyer (if buyer is a foreigner). If property held under a Trust is sold to a Mexican National, the trust can be terminated and the Mexican National may then own the property directly.

It is important to point out that capital gains tax are exempted if Beneficiary can prove that the property was used as a home for at least two years. This is normally proved by having a dwelling or home built on the property and showing phone or utility bills.

Capital gains exemption does not apply if land is purchased and then sold as undeveloped land.

Q: Can a beneficiary rent his property ?

Yes, he may rent to anyone he desires.

Q: What costs are involved to buy properly by means of a Trust?

These are the costs related to set up a Trust : (i) authorization from the Ministry of Foreign Affairs, (ii) registration in the Registry of Foreign Investments (iii) registration in the Public Registry of Properties (iv) Public Notary fee to conduct due diligence and set up Trust (v) Bank fee (one percent of the amount of the transaction for pre-qualification analysis and the drawing up of the agreement

In all, ballpark figure for total expenses for the transaction should be between 10 % to 12 %.

Additionally, there is a yearly fee for the term of the Trust. This is usually one percent of the property value and is charged by the Bank for its services acting as Trustee over the property.

Well, I trust, if you'll excuse the pun, that all this helps you gain a better understanding on how to buy real estate in Mexico. You know, we truly live in Paradise and when own the bundle of rights and share in it's success, it makes it all the more lovely. Enjoy!

Ricardo Garcia is a Real Estate Professional in Cozumel with Cedral Homes. Cedral Homes offers vacation dream homes for sale - www.cedral.net. He can be reached via email at This email address is being protected from spam bots, you need Javascript enabled to view it . Or by phone at: Tel. +52(987) 869-1690. Fax: +52(987) 869-3003, Cell: +52(987) 800-9196, Home: +52(987) 872-7115.

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