Real Estate Properties (Legal information)

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The following information is provided to assist American citizens interested in purchasing property in Mexico. While the Embassy offers this general guidance for consideration, anyone needing more specific information or assistance should consult with a reputable Mexican attorney versed in property and investment law.

Only citizens and nationals of Mexico may freely acquire real property in Mexico. Foreigners may be granted the right to own real property only under very specific conditions.

GENERAL INFORMATION

Before you invest, remember to take all those precautions you normally would follow in connection with an investment in the United States. Also be aware that investing in a foreign country with unfamiliar customs and laws and where you must communicate in a foreign language can further complicate the problems you may encounter.

The purchase of real property in Mexico is far more complicated than a similar purchase would be in the United States. This is true for Mexicans, as well as foreigners. While there are some restrictions which apply only to foreigners, there are a few pitfalls for any unwary would-be purchaser. The first difficulty is determining the owner of a given piece of property. While property ownership and sales may be registered in Mexico, registration is not required. The registered owner may not, therefore, be the actual owner and may not have the right to transfer title to the property. As there is no formal title search in Mexico, and no title insurance, the buyer has little recourse, except through the criminal courts, in the event that the sale turns out to have been fraudulent. For these reasons, the Embassy recommends that all property purchases be made through a reputable real estate agent and that the purchaser obtain the services of an attorney.

Second, property sales in Mexico are taxable with the tax falling on the vendor. Vendors, therefore, frequently request that the sale price as stated in the sales contract be lower than the price actually paid. It must be the decision of the purchaser whether to comply with this request, but, in the event of problems, the purchaser will only be able to recoup the official price stated in the contract.

Third, the only legally binding contracts in Mexico are those written in the Spanish language. If the only sales contract is in the English language, no matter how official it appears, it is invalid and unenforceable. If two contracts are signed, one in English and one in Spanish, it is important that the English version of the contract be as exact a translation of the Spanish version as possible; in the case of any discrepancies, the Spanish version will apply. Contracts written in Mexico are written as much in "legal jargon" as those written in the United States and the purchaser should not depend on his or her less-than-expert understanding of the language. If only a Spanish language version of the contract is to be signed, it is extremely important that the purchaser understands its provisions. For these reasons, the Embassy recommends that the purchaser obtain the services of a licensed, expert translator ("perito traducor") to verify language and to avoid misunderstandings. It is best not to depend on the vendor’s interpretation of contractual obligations, no matter how well-meaning or truly helpful he is or appears to be.

Only the provisions of a legal, written and signed contract are enforceable in Mexico. Obligations and responsibilities of either the purchaser or the vendor which might be contained in "gentleman’s agreement", letters of intent or other instruments which might be judicially enforceable in the United States have no meaning in Mexico. Any such conditions should be spelled out within the contract.

Once the contract is signed, it should be registered immediately even though this is not standard practice in Mexico. The purchaser should also obtain certified copies of the registered contract(s) from the notarial office and have those certified copies authenticated by the United States consular post having jurisdiction over the place of registration. While the registration of contracts is not a guarantee of legality, it does provide the greatest protection available under Mexican law. The purchaser should not depend on the vendor to register the contract.

The fees for the services recommended above will not come cheaply, and must be borne by the purchaser. The services, however, are the purchasers’ only protection against possible problems later.

CONDITIONS OF PURCHASE:

The Mexican Constitution prohibits direct ownership by foreigners of property within fifty kilometers (approximately 31 and one-quarter miles) of the sea coast 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. Regulations enacted in Mexico in 1973 permit foreigners the free use of property placed in trust with a Mexican financial institution. Under the trust agreement, a bank is the trustee, or actual title holder, 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. The bank can hold the title of the property in trust for a period of thirty years. The regulations state that at the conclusion of the thirty-year trusteeship, the property must be transferred to an entity with the "legal capacity to acquire it". This appears to mean that the ownership of the property may be transferred only to an entity having Mexican citizenship or legal status, i.e. a Mexican citizen or company. Since the trust regulations went into effect only in 1973, there have been no tests of the exact meaning of this provision. Under the 1973 regulations, all trusts must have the approval of the Secretariat of Foreign Relations before final documentation can be delivered to the beneficiary.

New investment regulations which went into effect in May 1989, provide for the sale and/or transfer of these trust properties for a second thirty-year period, under the conditions of the original trust or for a thirty-year extension of the original trust if both trustee and beneficiary agree. The new regulations also limit the powers of the Secretariat of Foreign Relations in regard to trust applications. Under the new regulations, the Foreign Relations Secretariat must act within forty-five days to deny the application presented by the trustee or the trust is approved. It is still unclear, however, whether these new regulations apply to already active trusts or only to those trust agreements signed after the effective date of the new regulations.

The investment regulations of 1989 have been amended and provide for the sale and/or transfer of these trust properties for a fifty year trust period, automatically renewable. The renewal process must be initiated one hundred eighty (180) days prior to the termination of the first trust period.

Mexican financial institutions naturally charge a fee for trust services, sometimes as a percentage of the assessed value of the trust property or as a percentage of the actual sale price or the stated sale price. Any person deciding to benefit from a trust deed should discuss the costs directly with the bank holding the trust.

Any foreigner, regardless of his migratory status, may purchase and own outright property in other parts of Mexico. However, before the purchase can be completed, he must obtain authorization from the Secretariat of Foreign Relations in Mexico City. A condition of that authorization is that he agree, in a statement sworn before the Ministry, to consider himself as a Mexican national in respect to such property and declare that he will not invoke the protection of the government of his nationality in matters relating to that property. Indeed some trust agreements may have a clause to the effect that intervention of a foreign government may allow the trust to be declared null and void. Thus, further limiting the Embassy’s role in such cases.

By the newest changes in the Foreign Investment Law, the Trust only applies for residential properties. Today, two non-Mexican partners can establish a Mexican corporation, and then buy, under the company’s name, property for commercial, industrial, or any purpose other than residential.

Investment in resort areas always carries a greater risk than other types of real property investment. Such areas are more likely than others to attract the least reliable developers because of the transient nature of investors. Someone who does not reside locally and may not speak the language is less able to properly evaluate a vendor’s history and probably is not aware of the available sources of reliable information.

When considering the purchase of any property in a partially completed or planned development, there are certain issues to keep in mind. Real estate developers in Mexico are not required to invest any of their own funds, nor are they required to capitalize the development prior to offering it for sale. What this generally means to an investor is that the funds obtained from unit sales will go directly to construction costs -- salaries for laborers, building materials, fittings and fixtures; a portion of such funds may also be intended for the purchase of the development site. Clearly, with even the most reliable and responsible developer, such financing practices carry great risk -- variables such as exchange rate fluctuations, increases in materials costs or labor costs or natural disasters, which would not affect a properly capitalized development in the United States can, in Mexico under these financial conditions, cause the failure to complete the development stages on time or at all and, ultimately bankruptcy of the development. In the hands of a disreputable developer, such practices are a "license to steal".

"Time/share" investments in Mexico are also problematic. Some of these agreements have worked successfully for many years; others have run into considerable difficulties. As "time/share" resorts have aged, many have been sold by their original owners or have changed management companies. The new owners/managers have not lived up to the original contract obligations. They have been uncooperative in exchanging periods of use or type of accommodation, although the investors’ contracts have provided for such exchanges. Many new owners/managers have failed to accept the validity of the original contracts, and have re-sold the already contracted time. Some have allowed the level of service and the conditions of the accommodations to decline. Others have changed the governing provisions in violation of contracts or have failed to pay penalties called for in the original contracts. There is little that the Embassy can do to assist these investors beyond forwarding their complaints to the Mexican Consumer Protection Agency (Procuraduria Federal Del Consumidor or PFC), which is already over-burdened with these cases, or recommending that the investors obtain an attorney to attempt to enforce contractual obligations through the Mexican courts.

Before purchasing or leasing property in Mexico, it is advisable to consult with a reputable real estate agent. Other sources of information are the various Mexican banking institutions that have real estate investment departments, such as Centro Bancomer and Banamex. It is also important to verify the reputation and financial backing of the developer selling the property by contacting the Mexican Consumer Protection Agency (PFC) in Mexico City. Any specific legal advice should be obtained from a Mexican attorney.

DOCUMENTS:

In Mexico, property is conveyed by one party to another by means of a document called an "escritura". An "escritura" is similar to a deed, but there are some important differences. The original document is not given to the purchaser, but is inscribed in the notary’s ledger. The purchaser and vendor are given copies of the original entry into the ledger. The copy may be either hand-written or typed on official, notarial paper or may be photocopied; but must have an original signature of the notary, and should provide information on the entry of the original transaction in the notarial ledger. Be very careful to verify all information to be contained in the "escritura" prior to its entry into the ledger, correcting inaccuracies and misspellings at a later date may require the payment of all the title transfer costs a second time.

Before a reliable notary public will prepare the "escritura", he will require a document called a "Certificado de libertad de gravamen." This document, which can be obtained from the "Registro Publico de la Propiedad" either by the purchaser or by the notary, declares that the property is free of liens and encumbrances. While not always infallible, this document is another protection for the purchaser.

COMMERCIAL INVESTMENT:

Commercial and business investment in Mexico is even more complicated than residential investment and should be approached with extreme caution. The Office of the United States Foreign Commercial Service and the Mexican Secretariat of Commerce and Industrial Promotion are both good sources for information regarding the legal ramifications and procedures for commercial investment.

A few of the real estate related changes in the 1993 investment law include:

* A 49 percent limit exists and applies to holdings of series T (land ownership) stock in

enterprises that hold interest in agricultural, cattle and forest lands.

* The 1993 Foreign investment law also allows minority ( and when approved by the Foreign

Commission), majority foreign corporations and Mexican companies with foreign participation

border and seacoast purchase for industrial, hotel and commercial purposes.

The following Mexican institutions can provide additional information on real estate investments in Mexico:

BANAMEX

Lic. Eduardo Alvarez Morales
Titular Fiduciario en elArea Metropolitana
Paseo de la Reforma No. 404, piso 14
Colonia Cuauhtemoc
06500 Mexico, D.F., Mexico
(905) 225-9722, 225-9721, 225-9650

 BANCOMER

Division Fideicomiso
Area Atencion al Publico
Avenida Universidad 1200
Colonia Xoco
03339 Mexico, D.F., Mexico
(905) 621-3434 ext. 5497, 5085, 3445, 5171

*Investing in Real Estate in Mexico is available from the State Department of Mexican Affairs.

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