The Most Three Common Real Estate Questions For Mexico

I often get asked questions about real estate here in Mexico and the questions are almost always one or both of the following; can a foreigner own property in Mexico and how do I know the government will not take my property? Good questions but I would add a third they should but do not know to ask and that is, what is a Notario and why is this person so important to a real estate transaction. Like the answer to so many things here, I can truthfully say, the answers are as clear as mud!

As to foreign ownership of property in Mexico, the answer is that there are restricted areas that ownership is limited to only Mexican Nationals and these zones include areas within 100 kilometers of an international border or within 50 kilometers of an ocean. This means all the oceanfront property that most foreigners would want to buy, is limited to Mexicans only. However, there are two ways that foreigners can “own” property in Mexico’s restricted areas and of course do so safe from problems.

Many foreigners who buy property in Mexico, do so as part of a larger investment portfolio and use the property for income and write-off purposes. For these situations, Mexico’s preferred method of foreign ownership is to set up a Mexican corporation, with the investors as stockholders and the property is held as an asset of the corporation. The corporation is set up very similar to those in the US and Canada and no Mexican National must be an owner or stockholder. Foreign owned corporations are required to have a Mexican someplace within the corporate structure and that is typically done with a title, such as “Legal Representative”. It does not need to be a paid position or one with any power should the stockholders choose to do so. The logic behind this from Mexico’s perspective is that if they are going to give you many of the rights and privileges of being a “Mexican”, like owning  property in the restricted areas, they prefer you at least have a National within the corporation for benevolent reasons should the foreigner’s choose to use it. Most appoint their attorney or accountant to that position and give them specific and limited power to conduct select business for the corporation. Corporations are required to do monthly and annual activity reports to the government with the typical costs for these services usually around $1,000-$2,000 per year, depending on the activity and accounting fees.

The other way foreigners can own property in the restricted areas is with a government created and  regulated apparatus called a “fideicomiso”.  These came about in the 1980’s as a way to attract foreign owners/investors into Mexico and are often misunderstood as long term leases and such. Fedeicomisos  are a trustee/trustor arrangement in which a bank purchases the property for the foreigner and holds the property as an “administrative owner” only. They are intended for foreign owners who are not using the property to produce income. Typically this is second and vacation home buyers and they really do work very well for these sort of owners.

The “fedeicomiso” is a special title, given to usually banks, to buy and own property for foreigners. Typically, they are 50 year arrangements and are automatically renewable for the investor should they choose. This is where the long term lease misperceptions come in. As a fedeicomiso, they are required by law, and have a fiduciary responsibility, to perform all the duties required of ownership, such as paying taxes, registering papers or managing beach concessions. These are actually very difficult and time consuming tasks in Mexico, so having someone doing them for you, and having the confidence they are being done properly and timely, is really a good thing. Because they also are the actual purchaser of your property, you are much safer from being the victim of a bad transaction, always the reason people have problems later. It is also important to understand that fedeicomisos cannot account within their own corporation, the properties they hold as bank assets and can’t use these properties in any fashion; not as collateral or any investment purposes that banks typically use real assets for. They can’t put your property at risk from any bank failure.

The costs of both, a corporate operation or a fedeicomiso, are very close, both to set up and to maintain. However, the paperwork for setting up a corporation tends to be much less for the real estate people and the notarios who close these escrows, so too often foreign buyers are pushed toward corporations and end up in with cumbersome and unnecessary corporate headaches later. If I were going to own property in Mexico as a second home, I would do so without a doubt or hesitation, with a fedeicomiso. I have more confidence in their real estate management experience than I do in my own and you probably should too. If it is a money making operation, do it right and set up the corporation and operate according to Mexican corporate laws. Both are safe and if used properly, good for the foreign investor owners.

The answer to the second question is that if your real estate transaction is done properly, and given the questionable power the US government now has for taking property through the eminent domain laws there, deeded ownership is probably stronger in Mexico than in the US. The misperception about government taking private property comes mostly from a misunderstanding about the two types of property ownership in Mexico; “deeded” or “possession” ownership.

The Mexican Constitution guarantees all Mexicans to a piece of their country. If you get a piece of property from the government, or your parents, grandparents or on and on ever did, the property was given via something called “possession ownership”. With this sort of ownership, you can enjoy all the rights and privileges of ownership, including the right to will or sell your property. Basically the same as deeded ownership, except that if the government ever needs the property, they can take it and give you another “like” property in exchange. Similar to the eminent domain process in the US. This is the most common source for the misperception about property rights in Mexico. The media tends to show angry landowners with machetes refusing to leave land their families have held, often for many generations, without explaining possession ownership and how it can cause this. Deeded property is subject to eminent domain like in the US, but this is not the same as exchanging property owned via possession ownership and as I said, the laws are much stricter for the government to use the eminent domain process in Mexico than in the US, where any city, state or federal government can show a “compelling interest”, like a Wal-Mart or a new stadium for the local teams owner, as justification to take your property. Your deeded property is very safe from government seizure unless the transaction was not done properly and this leads to the third question I said most should ask.

Contract law in Mexico, and therefore all real estate transactions, are made legal through a process done by someone titled a “Notario”. This is not to be confused with a Notary Republic in the US. Notario is a title given an attorney to represent the government with the power of a judge regarding matters of contract law. Once a Notrario stamps a transaction as legal, only an actual trial law judge can reverse the action.  It is a very powerful position and because of that, the title is only given to the best attorneys in the country.

The close of escrow is a process that in Mexico, requires the Notario to research the chain of title as far back as the Spanish Crown to assure proper ownership. They of course do the standard clearing of encumbrances like back taxes or utilities and such but more importantly, they assure the integrity of the chain of title. Because the process is required and is so thoroughly done, theoretically assuring clear title, title insurance all but does not exist in Mexico. If a Notario does the job right, the risk that US tile insurance covers is eliminated. However, Notarios are human and mistakes can happen, and it is true people, both foreigners as well as Nationals, do occasionally have problems with title. That is the reason the Notario is part of that all-important question #3.

Problems with title almost always occur as the result of one of two things. A corrupt Notario, which as I say, they are human, or one that overlooks a detail that will allow a trial judge to overturn the Notario’s action at a later date, a more common event and what also often results in the stories of properties being taken from foreigners. This usually happens when at some point in the property’s history, the land was converted from possession to deeded property. Over many generations, Mexico has been giving possession owned property to individuals as well as groups, like native Indian tribes or cooperatively owned properties for groups like farmers or fisherman. If at some point, the property was sold and converted, through the Notario process, from possession to deeded property, and if that process was not done properly, often tribal family members will re-emerge years later and claim the property that would have been theirs, had it not been sold through an illegal process. This is a valid legal argument and often leaves buyers with nothing but legal recourse against their seller, who too often will never be found.

There are entire books written on this subject but the answer to the original first question is yes, foreigners can “own” property in Mexico and yes, that property is safe from being taken by any heavy handed government action. My advice to people who are buying property in Mexico is to not listen to me or anyone else regarding the buying process and to hire your own attorney to manage the entire transaction process and for that attorney to request the Notario that will be used to close the escrow. Do your research and only hire an attorney to do the transaction that you are 100% comfortable with, completely trustworthy and with many good references. Do not buy property if you can’t find an attorney that meets all three of these requirements would be my recommendation. Having your attorney conduct the transaction process with another attorney/Notario, trusted since you chose them,  will assure a bullet proof transaction. Never trust yourself or the realtors to get this done correct. Most of the time they will but do you want to take a chance on your investment being one of those that ends up with problems. It will cost a few thousand more, about the same as a title policy bought in the US for foreign property actually, but will assure clear title in a rock solid manner. Given the nature and integrity of insurance companies to pay claims of any sort, trusting an attorney and the standard legal process in Mexico is a safer way to assure clear title, in my opinion, than title insurance any day.

About talesfrommahahual

Stuck in Paradise!
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