By: Luis Alcocer Chauvet
When it comes to purchasing real estate in Mexico, understanding the legal aspects is crucial for a smooth and secure transaction. Mexico has specific real estate laws and practices that govern the buying and selling process, some of which might surprise you and could cause problems without the right local team of people helping you with your transaction.
Firstly, foreign investors should be aware of the restrictions and limitations imposed by Mexican law on owning certain types of properties or land near coastal and border areas, the “restricted zone”. Foreign individuals or Mexican companies owned by foreigners may purchase real estate for residential purposes within this «restricted zone» through a Mexican Trust opened in a Mexican Bank. The Trustee will retain title to the property but the foreigner would be the beneficiary of the trust rights and may use and enjoy such premises, as well as transfer the rights to a third party.
One of the key legal considerations is conducting a thorough title search. This involves verifying the ownership history of the real property and ensuring there are no liens or encumbrances that could affect your ownership rights. It is advisable to seek professional assistance from a qualified attorney who specializes in Mexican real estate law to ensure a comprehensive title search.
As an added layer of protection, in most cases, we recommend our clients obtain title insurance and use third-party, U.S.-based escrow.
Additionally, contracts play a vital role in protecting both buyers and sellers. A well-drafted offer or contract should outline all important terms and conditions of the purchase agreement, including payment terms, delivery of possession, penalties in case of unfulfillment, use of escrow, process to reach closing with a Notary Public, and any contingencies or warranties. Having an attorney produce or review and negotiate these contracts can help safeguard your interests throughout the transaction.
In Mexico, everything should be in Spanish. Even if both parties are not Mexican, all legal documents are required to be in Spanish. Depending on where you’re buying, some documents may include a courtesy English translation.
The closing process in Mexico, unlike in the USA or Canada may be lengthy, since it involves filings and paperwork with the Trustee and Notary and securing previous requirements by the government such as certificates of non-encumbrance and others and an official appraisal. This process could be handled by a closing company, that would represent the “transaction” and not a given party; or by a real estate attorney, which would represent you, the buyer, acting as a vigorous advocate, holding your interests above all others and drafting and negotiating better agreements.
The buyer pays the closing costs. However, the seller has their share of costs to bear. Buyer closing costs are usually between 3% and 5% of the purchase price.
Investing in real estate can be a lucrative venture, but property owners need to understand the tax implications involved. In Mexico, like many other countries, there are specific regulations and taxation laws that govern real estate tax. Whether you are a resident or a foreign investor looking to make a property investment in Mexico, having a clear understanding of the real estate tax system is crucial.
Further, the investors need to be careful with the following sales scenarios:
1. Buying from a Seller without Title. Many of the listings could be from sellers that do not yet have title, either because they are developers that are selling residential units before they are built; or because the property is a farmer´s land (Parcela Ejidal) under specific farmer´s laws. Any earnest monies should not be paid until the buyer´s attorney conducts due diligence on the status and good legal standing of the property and the feasibility that title may be conveyed to the buyer at the closing in reasonable timing and cost, and that all payments are made into an Escrow, and that the offer or promissory agreement includes the appropriate mechanisms to assure performance by the seller, either to convert the property from a Parcela Ejidal to private property or to complete the construction process under satisfactory security construction guidelines and satisfactory quality of finishes and infrastructure.
2. Buying in Installments. In the event of sellers or developers granting payment terms to buyers via private promissory contracts, with title not being conveyed until payment in full is received, the buyer should have the legal certainty that upon paying in full, they would get title from seller. To that effect, it is strongly advised to use a Guaranty Trust whereby the trustee bank will hold title for the buyer´s benefit and shall transfer ownership when payment in full is received, without the need for further actions by the seller.
In conclusion, navigating through the legal aspects of purchasing real estate in Mexico requires careful consideration and expert guidance. By ensuring a thorough title search, drafting comprehensive contracts with legal assistance, and being aware of any specific restrictions for foreign investors, you can make informed decisions while safeguarding your investment in Mexican real estate.
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Por: Luis Alcocer Chauvet