- REAL ESTATE IN MEXICAN LAW
- I.- Laws governing ownership and real
Mexico is politically and legally organized as a federal
system. This means that two orders of laws exist: federal laws, which apply throughout the
Republic, and the local laws dictated by each of the 32 federative entities or States,
which apply only in each State.
The subject of ownership and real estate is a matter which
corresponds to the States, and which is governed principally under the 32 Civil Codes (1). However, there are some federal laws governing certain aspects
of ownership and real estate, which apply as a single law throughout the Republic and
including those concerning trade and industry and the rules on banks.
- II.- The principles of ownership
contained in the Constitution.
1) Ownership corresponded originally to the Nation
(the State), which has transferred this to individuals.
2) The Nation can regulate real estate as dictated by
3) The Nation is directly responsible for the natural
resources of the subsoil (mines, petroleum, gas, nuclear energy), waters (sea, lakes,
rivers), which cannot be transferred to individuals. These resources can be exploited
under concession (2).
4) Concessions are granted both to Mexicans, and to
the foreigners who enter into a pact with the Mexican Government to consider themselves as
Mexican for this purpose and not to invoke the protection of their Governments, which is
known as (Clausula Calvo, or Barren Clause).(3)
5) Foreigners cannot acquire the direct ownership of
real estate within an area of 100 kilometers along the borders with neighboring countries,
or 50 kilometers along the coast (restricted areas).
6) Agrarian property (rural or country properties)
consists of various categories; lots of common land (4) or
communal property granted to common land holders or communities, which cannot be
negotiated or belong to individuals. The existence of privately-owned agricultural
smallholdings is also recognized.
- III.- The different kinds of real
In addition to the principles on ownership laid down in
the Constitution, the National Assets Law and Civil Codes mention the existence of two
kinds of property: that of public dominion and that held by individuals.
1) Property of public dominion is that
corresponding to the Federation, States and Municipalities, and to special laws (5).
2) Property of public dominion can also be: property
in common use which can be utilized by anyone (such as, for instance, air space,
territorial waters, beaches, ports, roads, bridges or monuments) (6),
that used for a public service and individual property.
3) Property of public dominion cannot belong to
individuals (nor can it be transferred or prescribed, meaning that it cannot be
transmitted or acquired by prescription). In order for someone outside the Federation to
acquire property of public dominion (such as property destined for public service or
unencumbered property), such property must be released from public dominion by means of a
disincorporation ruling issued by the President of the Republic.
4) Privately-owned property consists of everything not
of public dominion (of the Federation, States or Municipalities), or agrarian common land
or communal property (which cannot be transferred or prescribed). This privately-owned
property forms the subject matter of private operations, and is governed under the Civil
Codes of each of the States.
- IV.- Public Registers.
The ownership of real estate is entered in sundry Public
Registers, depending on the type of property in question. These Registers are public, and
serve to make know the action taken in connection with real estate.
For example, the following Registers exist:
1) The Public Register for Property carried in each
State of the Mexican Republic (and at times in certain Municipalities), which records the
properties belonging to individuals. Entered here are the details of the property, such as
location, surface area and boundaries and the name of the owner, the action under which
ownership was acquired (purchase/sale, inheritance), mortgages or seizures in force over
the property and any limitations which may exist in the dominion (for example, a right of
2) The National Agrarian Register is where the
documents recording property operations and amendments and rights over common lands and
community lands are contained, together with legal or official resolutions which
recognize, create, amend of terminate common land or communal land rights and the
guaranties conferred over agrarian property.
3) The Federal Public Property Register records the
titles of ownership and possession of properties belonging to the Federal Government,
together with the decrees incorporating or releasing certain properties from public
4) Special registers exist for other types of property
(assets), such as the National Public Maritime Register,(7)
which lists the matriculations of Mexican naval vessels and artifacts; the Mexican
Aeronautical Register (8), which records the documents by
means of which Mexican civil aircraft are acquired, transferred or encumbered and the
matriculation certificates: the Industrial Property Institute (9)
in which patents, trademarks and trade names are entered; and the Public Copyright
Register (10), for recording copyrights.
5) There are also Registers of Persons, such as the
Merchants' Register (not very common), and the register for associations and corporations.
The Public Register for Commerce lists business associations (the most common being the
stock company). The most important information regarding corporations is noted, such as
name, domicile, purpose and by whom it is represented.
General rules on registers:
a) Registers are public, therefore any interested
person can obtain information on what is recorded and can also obtain written
certifications such as, for example, a certificate of encumbrance over a property.
b) The consequences of recording an act (contained in
a public deed) in a register are that it takes effect before third parties (all people),
not only with regard to the contracting parties. For example, a mortgage recorded over a
property advises everyone that the property guarantees a credit, loan, etc.
c) To record an act in a register, the law regulating
same establishes which are the "authentic" documents to which credibility will
be given to enter the act. These documents are, generally speaking, public deeds issued
before a Notary Public, court orders or documents of an official nature.
- V. - Real estate operations between
Properties belonging to individuals are those covered by
the vast majority of real estate operations.
Operations between individuals on agricultural property can
only be implemented with respect to properties regarded as smallholdings (agricultural or
for raising livestock), which are on the market.
As regards properties of public dominion, these must be
disincorporated before they can be held by individuals.
Properties are negotiated between persons and companies by
means of certain operations, for example purchase and sale (the most usual), donation,
inheritance, the award by legal auction of properties held under guaranty (mortgage), in
cases where a debtor fails to pay; or where, for other purposes, operations are entered
into as trustee or financial lessor.
The operations entered into over these properties are subject
to recording before a Notary Public (11). This signifies that
in order for an operation to be valid, it must be effected by means of a public deed
issued before an officer, called a Notary Public.
A Notary Public is a consultant who is an expert on certain
operations (Wills, incorporations, properties), who officially records an operation under
which a property is transferred, held as collateral or modified (sub-division, merger,
establishment of condominium).
In order to carry out an operation with regard to a property,
the Notary studies the title deed submitted to him by the owner. This title deed is
usually a public deed issued before a Notary Public.
In exceptional cases, the title can be a legal document, such
as an award (for example, an award to a creditor, a prescription).
Once the Notary has determined that the person who is going
to transfer or encumber a property holds the faculties of owner or owner's representative
or possesses sufficient rights to do so, he asks the Public Property Register to advise
him as to the situation of the property in accordance with its records. This report will
tell him who owns the property, the location, surface area and boundaries of the property,
and whether it is subject to any encumbrance, such as mortgage or seizure, or any
limitation of ownership (as, for example, an easement).
It is probable that certain operations on properties are
carried out by signature of a contract which does not take place before a Notary. This
contract is provisional and must subsequently be formalized before a Notary Public and
then recorded in the Public Register for Property in order for the operation to be valid.
Although some operations with regard to properties are closed under private contracts,
these documents, since they fail to formalize the operation, can be very risky for the
person acquiring the property.
Some of the foregoing risks are: the person appearing as
seller or transferring the property may not be the owner, the property corresponds to some
type of asset which cannot be sold (agrarian land or that coming under public dominion),
or the property may be mortgaged or subject to seizure.
- VI. The role of the Notary Public.
A Notary is a lawyer invested with the authority to attest
documents, before whom operations regarding properties can be validly carried out.
Additionally, other acts are carried out before a Notary, such as Last Wills, the
incorporation of companies, the conferring of powers of attorney or company
To be a Notary, one must be a lawyer and hold an
authorization (patent), granted to a specific number of persons by the Government of each
of the States of the Republic. Notaries are governed by a special law at local or State
level, the Notarial Law, of which 32 versions exist, one for each State.
The Notary Public holds a patent issued by the State
Government which allows him to act with this status. Notaries are advisors to the parties
in the operations authorized under their signature, and draw-up the corresponding
documents. These documents must be recorded in a special book which is authorized for such
purpose, called a protocol. One of the most important formalities of notarial performance
is for the Notary to sign the documents and affix his seal of authorization. Documents
issued before a Notary Public are public documents, valid (since no-one can object to
their validity), and are documents which, in the case of certain operations, can be
recorded in Public Registers such as that of Property (real estate), or Commerce
(corporations), as officially certified documents.
By law, Notaries are responsible for and in charge of paying
taxes and recording operations in connection with real estate. Notaries must calculate
taxes and duties and ask their clients to pay them these amounts in order that they, in
turn, pay them to the respective tax offices.
A recent federal law (12)
created the so-called public brokers who engage in certain functions similar to those of a
Notary, but limited to operations of a commercial nature. This law clearly indicates that
public brokers can act as notaries public for the purpose of recording contracts,
agreements, acts and deeds of a commercial nature, except in the case of real estate and
powers of attorney.
- VII. Eviction and title insurance.
Any owner who sells or transfers a property by any means
is bound by law to warranty of title and right of possession.
This means that if for any reason the acquirer of the
property loses the ownership of same, whoever sold or transferred the property to him must
pay the price, contract and legal expenses and, in the case of bad faith must, moreover,
There are very few cases of eviction in Mexico; that is,
someone acquiring a property subsequently losing same, since the actions taken before a
Notary and the Public Registers provide sufficient assurance that the person selling,
transferring or granting a mortgage over a property is really the owner.
Various circumstances must apply for eviction to exist:
a) the acquirer of a property has lost same under a
b) it is lost by a formal court order;
c) that this occurs under a right existing prior to
d) whoever claims eviction has summoned the person who
sold or transferred the property to assist in his defense.
The warranty of title and right of possession is held by
everyone who transfers (disposes of) an asset, as this is provided in law. However, the
contracting parties can expressly agree that the seller or the person transferring an
asset is not bound by eviction. In the case of donation, the law states that the donor is
not bound by eviction, unless this is expressly accepted.
Title insurance does not exist in Mexico for various
a) Traditionally, the system for conferring title of
ownership and transmitting same has always been through a Notary Public, and notification
through the Public Registers of property.
b) If persons acquire properties under a public deed
issued before a Notary, they can be sure that the title of ownership analyzed and recorded
by the Notary is valid.
c) There are very few cases of eviction before the
courts in which the owner loses his property under a previous title.
d) Titles of ownership, together with mortgages and
other encumbrances over the property, are recorded in the Public Property Register which
should always be consulted in real estate operations.
e) Under the legal system to which property is
subject, nothing is required outside the Mexican tradition and system which supplements or
complements title insurance.
- VIII. The mortgage.
A mortgage is the most usual and important guaranty within
the Mexican credit system. A mortgage on property (13) is
governed under State Civil Codes. It is defined as a "collateral established on
property not delivered to the creditor, and which entitles the latter, in the event of
failure to comply with the guaranteed obligation, to be paid with the value of the
property, in the degree of preference established by law"(14).
Even when property is conveyed to another person (by purchase/sale, inheritance or auction
under seizure), the property remains subject to the established mortgage.
The establishment of a mortgage must take place by means of a
public deed issued before a Notary. The mortgage can only be established by the owner of
the property, or someone who hold powers or representation of the owner for this purpose.
The mortgage must, in addition to the property in question and the characteristics of
same, also indicate the creditor in whose favor it is granted., the obligation guaranteed,
the amount in which the mortgage is granted, and the interests and term.
Mortgages must be recorded in the Public Property Register of
the place where the mortgaged property is located, by means of the public deed under which
they are established. The degree or preference of the mortgage will be determined when
this is recorded in the Public Property Register, i.e., of the first place, of the second
place, etc. However, it is very common to indicate in the documents establishing a
mortgage that this is a mortgage in the first place, etc.
Once the mortgagor has complied with the guaranteed
obligation or paid the credit, the creditor will cancel the mortgage under a public deed
issued before a Notary. The notarial document of cancellation is recorded in the Public
- IX. Purchase/sale by installments and
with reserve of dominion.
Other means exist under the Civil Code, aside from the
mortgage, to guarantee operations in connection with property. These are treated as forms
a) Purchase/sale by installments is where the buyer
does not pay the whole price, part of this being paid subsequently in periodic
installments. These operations include a clause showing that failure on the part of the
buyer to make one or several payments will result in the purchase/sale being rescinded,
i.e., the operation is canceled. This so-called "rescission" clause must be
recorded in the Public Property Register in order that anyone interested in acquiring the
property from the buyer, is aware that an amount is owning on the price, failure to pay
which could result in cancellation of the operation. In these cases the buyer, even when
owing part of the price, already owns the property.
b) The other form regulated by the Civil Code is the
so-called "purchase/sale with reservation of dominion" under which, when the
buyer fails to pay the entire price of the operation, the seller does not transfer
ownership thereto, even though he delivers the property which the buyer can then use. In
these cases the buyer is not the owner and cannot sell, mortgage or carry out any
operation as owner. This type of purchase/sale is recorded in the Public Property
Register, and whoever wishes to carry out an operation with respect to the property must
prove that the reservation of dominion has been canceled.
In the two preceding cases, once the buyer pays the whole
price a public deed is issued before a Notary Public to cancel, in the first case the
so-called "rescinding" clause and, in the second, the reservation of dominion,
in the Public Property Register.
- X. The trust.
Trusts are governed by the General Law on Credit
Instruments and Operations and the Credit Operations Law, which are federal laws
applicable to all the Mexican Republic. This operation has its origins in the figure of
the Anglo-Saxon trust.
Under a trust, a person called the trust founder appropriates
certain assets for a lawful purpose, entrusting the achievement of this purpose to a trust
institution. The person receiving the profit or benefit from this operation is called the
trust beneficiary. In Mexico, as opposed to other countries, in principle only credit
institutions (banks) can be trustees. However, the trust founder and the trust beneficiary
can be the same person.
The great freedom allowed by this figure makes it, in
practice, widely accepted in Mexico, and it is used in many operations of very varying
There is a very common guaranty operation under which the
trust founder, as debtor, allots a certain asset in guaranty to a trustee, to the benefit
of the creditor, which is the trust beneficiary. In this type of guaranty operation, once
the debtor defaults, the trustee (bank) sells the asset given in guaranty and pays the
creditor, by means of a process agreed under the trust itself.
A trust can also be used for the administration of assets
entrusted to the trustee, in order for the latter to deliver the profits to the trust
beneficiary. For example, some shares of a stock company are encumbered in trust in order
for the bank (trustee) to exercise the rights, collect dividends, etc. This trust is also
common (and is often established in Wills) in order that, at the death of the trust
founder, amounts of money are encumbered and the proceeds therefrom delivered periodically
to the minor children, until these trust beneficiaries attain a certain age.
The trust is much used in real estate matters. For example, a
person encumbers land on which a group of houses or apartment building is to be erected,
and subsequently instructs the trustee to sell each of the houses or apartments of the
group or condominium.
Under transfer of ownership trusts, the owner of the asset is
the trust institution and the trust beneficiary is only entitled to instruct the trustee
to take certain action within the purposes of the trust: For example, to transfer the
asset to the trust beneficiary himself or to a third party, to mortgage the property, to
change the system to condominium, and others of a similar nature.
A property trust is the form utilized in order for foreigners
to be able to take advantage of, enjoy and utilize properties in the so-called restricted
area: beaches and borders. The rights thus acquired by a foreigner are very broad, being
similar to those of "acquisition" of the property, without covering the direct
dominion retained by the trustee. Properties can be used for tourist, residential,
industrial or dwelling purposes. The provisions governing these operations are contained
in the Foreign Investments Law and the Regulations thereto.
The rights of the trust beneficiary can be transmitted by any
title: purchase/sale, donation, inheritance, etc.
- XI. Financial leasing.
Financial leasing is a contract recently regulated in
Mexico under the Credit Organizations and Supplementary Activities Law,(15) which has as an antecedent the United States of America
Under this contract, the financial lessor (which can only be
an authorized institution(16), undertakes to acquire an asset
and to grant its use to the lessee, who must pay a price periodically during an obligatory
period. Upon termination of this period, he must exercise the option to acquire the asset,
extend the contract or participate in sale of the asset to a third party.
Although financial leasing is a financing method which is
generally used for movable property such as cars, machinery, computer equipment, etc., in
recent years its use has been extended to real estate.
Financial leasing over real estate is a means for financing
the purchase of a property which takes place through two operations:
a) A financial leasing contract between the lessee
(user and future acquirer of the property), and the financial lessor; and
b) A purchase and sale agreement between the owner of
the property and the financial lessor.
Although these are two operations, they can both be contained
in the same notarial document.
Under the first operation (financial leasing), the financial
lessor undertakes to acquire the property indicated by the lessee, to deliver the property
to the latter, permit him to utilize same over a long period of time and, upon termination
of the contract, to transmit the property to said lessee should the latter so wish. The
lessee, for his part, undertakes to pay a price or periodic rent, and to elect an option
upon termination of the contract, which include acquisition. This contract should be drawn
up in writing and be ratified before a Notary Public, as it is an operation concerning a
The second operation is the purchase and sale of the property
carried out between the financial lessor and the owner. This contract is drawn up before a
Notary Public, gives rise to all the usual taxes for this type of operation, and the
public deed is recorded in the Public Property Register, which will show the financial
lessor as owner of the property. It is advisable to record the financial leasing contract
in the Public Register, under the folio corresponding to the property, in order to advise
third parties that the property forms part of a contract in which the lessee is entitled
to acquire same in the future.
When the term of the financial leasing contract comes to an
end, if the lessee wishes to acquire the property (which is usually the case), a
purchase/sale operation takes place between the financial lessor (owner), and the lessee
as buyer. This operation is no longer subject to acquisition tax, but must be recorded in
the Public Property Register in order to show the lessee as new owner.
- XII. The acquisition of property by
Foreigners, whether individuals or corporate entities, can
acquire property in Mexico except in the so-called restricted area since, under Article
27, Section I of the Mexican Constitution, foreigners cannot acquire direct dominion over
properties within an area of 100 kilometers along the borders, or 50 kilometers from the
For this purpose, two classes of properties exist:
a) Those which lie outside the restricted area, which
can be directly acquired by foreigners, and
b) The properties within the restricted area, over
which foreigners cannot hold dominion or have direct ownership.
Due to a reformation of the Foreign Investment Law and a
Resolution issued by the Ministry of Foreign Relations(17),
in order to acquire properties outside the restricted area it is only necessary for
foreign individuals (citizens of the countries with which Mexico maintains diplomatic
relations) to present a document before the Ministry of Foreign Relations which contains
the covenant to which Article 27, Section I of the Constitution refers, under which the
foreign acquirer waives his right to ask his Government for protection to defend the
property acquired (Clausula Calvo). This notice is given prior to notarizing the property,
as the covenant known as the "Clausula Calvo" must be recorded under the
In the case of properties located within the restricted area,
where foreigners cannot hold direct dominion, the Foreign Investments Law distinguishes
between two types of property: that for non-residential activities and that considered
a) In the case of non residential property
(time-sharing, industrial, commercial or tourist activities, real estate projects and
others(18), these can be directly acquired by foreign
individuals and corporate entities upon obtaining permission from the Ministry of Foreign
b) In the case of residential property (exclusively
housing), foreigners cannot have direct dominion and can only obtain permission to
utilize, enjoy and exploit same through a trust. This trust has been, for many years, a
very common operation for allowing foreigners to enjoy properties in Acapulco, Cancun,
Puerto Vallarta and other tourist and Mexican border areas.
Under this type of trust an owner, as trust founder,
irrevocably transfers to a trustee (bank) a house, condominium or property to the benefit
of the foreigner, trust beneficiary (individual or corporate entity), who can utilize,
enjoy and exploit same and issue instructions for it to be transferred to another person,
being able to engage in practically all the activities of owner, without having the
"direct dominion", which is held by the bank. These trusts can last for 50 years
and the trustee (bank) must request permission from the Ministry of Foreign Relations to
In this matter of the acquisition of property by foreigners,
Mexican companies having foreign investments can only effect acquisitions in the
restricted area under the same requirements established for foreigners: for example, a
- XIII. Costs and taxes: Some aspects
involved in real estate operations.
The transfer of real estate in Mexico is encumbered under
sundry taxes and duties. Some of these taxes are of a federal nature and others of a local
nature, either State or Municipal.
For the person transferring the property, generally in the
case of purchase and sale, Income Tax of a federal nature is applicable, arising from the
profit on the operation, i.e., by the difference between the cost of acquisition and the
selling price. This tax is calculated by updating the acquisition cost (with official
inflation indexes) of the property, and can amount to up to 35% of the profit. Calculation
and provisional payment of the tax is made by the Notary.
Certain acquisitions of property are exempt from this tax,
such as those arising under an inheritance, a donation among ascendants and descendants in
a straight line (grandparents, parents, grandchildren) and between spouses; or that
relating to a property which has been inhabited for the last two years by the person
transferring same. Another important tax is the so-called Property Acquisition or transfer
of dominion tax, which is of a local nature (State or Municipal) and is established under
the different laws of the States of the Republic. This tax can be from 2% to 4% of the
commercial value or price of the property. The Notary is also responsible for withholding
and paying this tax.
In addition to these taxes, dues are payable for recording
the operation in the Public Property Register of the property's location. These dues are
established under local laws and can be in a fixed amount, or represent a percentage of
the value of a property (for example, 0.5%).
To summarize, operations in connection with a property can,
including taxes, dues, expenses and notarial fees, represent between 4% and 8% of the
value of the property, depending on the State where it is located and some other
- 1.- All references made to the
Civil Code in this work correspond to the Civil Code for the Federal District.
2.- Special federal laws exist
which govern these matters, such as: the agrarian law, the mining law, the national waters
law, the forestry law and the general law on national assets.
3.- Under the so-called
"Clausula Calvo" mentioned in Article 27, Section I of the Constitution and in
the Foreign Investment Law, the State can grant foreigners the right to acquire dominion
of the lands, waters and their accessions, "always providing that they agree before
the Ministry of Foreign Relations to consider themselves as Mexican in connection with
such assets, and not to invoke therefor the protection of their governments in connection
with same; under the penalty, should they fail to keep the agreement, of forfeiting the
assets they have acquired thereunder to the benefit of the Mexican Nation".
4.- Common land holdings represent
a social interest corporation, made up by Mexican peasants with a patrimony consisting of
the lands, woods and waters delivered by the State at no cost under an ownership which
cannot be transferred, transmitted, seized or prescribed, the purpose of which is the
exploitation and operation of their natural and human resources through the personal work
of its members to their own benefit. A community is a form of agrarian organization
operating under a system similar to that of the common land holding.
5.- Laws exist in the different
States of the Republic, in addition to the General Law on National Assets, which regulate
the assets of each State. For example, the Net Worth System and Public Service Law governs
assets of public dominion in the Federal District.
6.- These assets are listed in
Article 29 of the General Law on National Assets.
7.- This Register is regulated
under the Navigation Law.
8.- This Register is referred to
by the Civil Aviation Law.
9.- The regulation of patent,
trademark and trade name registers is contained in the Industrial Property Law.
10.- This Register is provided
for under the Copyright Law.
11.- It is thus established in
the Civil Codes and Notarial Laws for the different States of the Republic. For example,
Article 78 of the Notarial Law for the Federal District mentions that: "The transfers
of properties whose value, under a bank appraisal, exceeds thirty thousand pesos, and the
establishment or transmission of federal taxes estimated at more or less this amount, or
which guarantee a credit in an amount higher than that mentioned, must be recorded in a
public deed before a Notary Public
12.- The Public Brokerage Law of
December 29, 1992.
13.- In addition to the mortgage
of property, other laws govern special mortgages such ass the maritime mortgage on
vessels, the mortgage on aircraft or the industrial mortgage over all the assets of a
14.- Article 2893 of the Civil
Code for the Federal District.
15.- Financial leasing was
governed in Mexico for the first time in the year 1982. The law currently regulating same
was published on January 14, 1985.
16.- Authorization for a stock
company to engage in financial leasing is granted by the National Banking and Securities
17.- The reformation of Article
10-A was published on December 24, 1996, and provides that the Ministry of Foreign
Relations can determine, by resolution, those cases in which foreigners do not require
permission, but need only give notice. The corresponding Resolution was published on March
18.- A definition of non
residential purposes is to be found in Article 5 of the Regulations to the Foreign
Investments Law, in force as from October 7, 1998.
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