FAQ's for foreigners wanting to buy property in Mexico 
Mexican Restricted Zone & Fideicomisos
Is it safe for a foreigner to purchase land in Mexico?
In 1917, the Mexican government, through the Mexican Constitution, enacted a law whereby
property can be bought by foreigners and have direct ownership in Mexico's interior areas. Property
that lies within 50 kilometers (31 miles) of the coastline or within 100 kilometers (62 miles)
the borders of Mexico is in what is considered to be the Mexican Restricted Zone. In the past 30
years Mexican laws have changed and are more accommodating to foreigners, including citizens from
the United States and all other countries allowing them to buy, indirectly, the rights to hold
and develop or make improvements and to occupy, sell or rent the property.
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How can I buy real estate within a Mexican Restricted zone if I am a foreigner?
Legal ownership is possible by using one of two methods which is generally determined by the
intended use of the land.
For residential real estate, a bank trust, known in Spanish as a fideicomiso, is the most common
method. In this scenario, the buyer has complete control of the property and owns the beneficial
interest in the trust. While the bank has technical "ownership", for a 50 year term, it has no
rights to the property, and is mandated that any dealings with the property are to be solely at
the instruction by and for the benefit of the beneficiary which may be an individual or
corporation. The fideicomiso allows a buyer to avoid inheritance taxes and to put the property
in a will, as well as the obvious rights of real estate ownership including building or
developing the property and renting out or selling the property. Foreigners are required to
obtain a permit to own the land, as is the case with 'direct deeds', from the Secretary of the
State, which is essentially an endorsement from the Mexican government of ownership of the
property. As such, a fideicomiso affords foreigners the same rights and responsibilities full
and direct ownership gives. Upon the sale of the property the buyer can assume the current
fideicomiso or can take out another one.
For commercial real estate, a foreigner will generally form a Mexican corporation, also known as
a Sociedad Anonima (SA), that buys the property, as the law permits a foreigner 100% ownership
of a corporation. One requirement is that at least one of the owners must have their FM3
immigration status. Otherwise, a Mexican citizen that may be, but is not required to be, an
owner of the corporation, must be chosen to act as an agent of the corporation for the signing
of papers related to the purchase of such property.
The property is deeded directly to the corporation and required to be used in a commercial
capacity. There are annual corporate fees and tax reports to be filed by an accountant, but this
approach avoids the initial costs of setting up and the annual fees, approximately US$300 to
$500 per year, that are associated with a fideicomiso.
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Title Insurance & Mexican Corporations
Can I buy title insurance in Mexico?
Title insurance as well as Escrow services are available in Mexico through a number of sources
including First American, Stewart and International Land Title. As in most other countries, the
title insurance company will require a deposit to begin the title search which will be credited
back to you at the time of closing. Title policies can insure the owner, lender, mortgage or
holder of any interest, as outlined by the person who buys the policy. Generally speaking, a
title insurance company will, at its own expense, defend any lawsuit affecting title.
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How do I create a Mexican Corporation Sociedad Anonima (SA)?
Once you obtain a permit from The Department of Exterior Relations, whereby you register the
name of the Mexican corporation, you then create the articles of incorporation. This requires a
"Notario" who is a keeper of the public record appointed by the state, licensed as an attorney
who passed the notario exam and is willing to forgo litigation.
After the articles of incorporation are recorded in the public record, Next is the process to
obtain necessary permits such as Hacienda, or taxes, the Department of Commerce, Department of
Immigration, State Registry, Chamber of Commerce, SIC code data base and an Import/Export permit
with certain industries requiring additional permits. It generally takes about 6 weeks to
complete the process and cost approximately US$1,000 in addition to a $500 notario fee. Hiring a
consultant to process the paper work and complete registries may involve additional fees.
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How can I confirm that a seller has legal title to a property?
A buyer should request a copy of the lien certificate or certificado de libertad de gravamen
which will indicate the owner of record including the surface area and classification of the
type of property, the legal description and if there are any encumbrances filed against the
property. A title search of the property should be performed and a copy of the title to the real
estate should be requested of the seller.
Though not specifically a legal title issue, a certificate of no tax liability, or certificado de
no aduedo, should be requested. In Mexican transactions it is the responsibility of the notario
publico to perform the title search but the notary generally examines only the current deed and
current lien certificate which may not provide a complete title history of the property. Accordingly,
it may be prudent to hire a Mexican attorney for a legal opinion on the status of title.
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Public Registry of Property & Notarios Publicos
What is the role of the Public Registry of Property?
Public instruments in Mexico, such as deeds, can be researched at the local Public Registry of
Property which is open to the public and exist in most cities and towns in Mexico.
It is is a government office where documents are registered allowing third parties to research
land titles and liens on titles. Any Public Instrument is required to be finalized and signed by
a Notario Publico. Public Instruments usually identify the property, include the entities
involved in the transaction as well as the notario, seller, buyer, and the bank if there is a
fideicomiso. When a Public Instrument is finalized and signed the funds change hands and the
transaction is considered closed.
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Who is involved in real estate transactions in Mexico?
Typically, there are four entities involved when consummating a real estate transaction in the
restricted zone: The real estate agent, the attorney representing the buyer, the bank and the
public notary.
Outside of the restricted zone, there is no bank involvement since a fideicomiso is not needed
in those areas. Apart from this detail most real estate transactions are the same.
To ensure a secure transaction, it is advisable to hire a Mexican attorney of your own, as
opposed to that of the seller, to perform title searches, write contracts and review conditions
and terms of a sale. The attorney should also be able to help lower closing costs due to their
knowledge of competitive rates for different services due to the wide variety of contacts and
transactions in which they are involved. The attorney should also be able to provide a "cédula
profesional", a document that is a registered license to practice law in Mexico and will include
a signature and photograph of the attorney. Only licensed Mexican attorneys can provide advice
on the law and it is good practice to include their license number on any retainer agreements.
You may want to consult with your personal attorney from your country of origin but unless they
are licensed to practice law in Mexico they should not give advice on Mexican Law.
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What is the role of Public Notaries (Notarios Publicos)?
Real estate transactions and the legal conveyance of any type of property in Mexico involve the
participation of a notario publico. Don't be misled by their title, which translates to 'public
notary', because the notario publico's responsibilities are much greater than simply the
formalization of signatures. Notarios publicos are attorneys that forgo litigation and must pass
two extensive examinations to receive their lifetime appointments and are appointed by the
Governor of the State and the Executive Branch of the federal government.
In standard transactions, the notarios prepare deeds of conveyance in accordance with the
purchase-sale agreement. The buyer and seller get together with the notario to formalize the
transfer of property and authorize the signatures upon execution of the escritura. Notario's
record the escritura with the public registry of property where the property is located after
the property has been transferred. A notario's duties before the closing include verification of
title, searching public records for status of the title and for liens against the property and
to examine the sellers documents to ensure accuracy and legitimacy.
They are also responsible to collect property taxes and government transfer taxes. As a
representative of the State, however, the notario is not allowed to insure title to the real
estate and do not have legal responsibility for any title defects.
A buyer can only seek restitution against a notario, in the event of monetary loss, due to
fraud, misrepresentation or gross negligence that is proven in a Mexican court of law.
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Closing costs & down payments
How much should I expect closing costs to be?
Common practice in Mexico is that the seller pays capital gains tax and the real estate broker's
commission. The buyer is responsible for paying the transfer or acquisition tax and all other
closing costs including the notario's fees. Federal law regarding the real estate transfer tax
allows each of the Mexican States to determine its own transfer tax rate which may range from
1-4% of the tax appraisal value which is usually less than the actual sale amount.
Additional closing costs, excluding transfer taxes, are generally 3% of the appraised tax value
or more depending on the individual State. The percentages are applied to the highest value of
either the amount for which the property is sold, the official tax appraisal or value designated by the property assessment authorities.
For transactions consummated in cash:
There is a 2% transfer tax that is based on the price of the sale.
The Deed Recording Fee into the Public Registry, varies by state, but is usually between .05%
and.06% of the purchase price.
The Notarios Publicos fee will vary depending on the notary but are usually 1% to 1.5% of the
purchase price.
The trust set-up fee is approximately US$550 with an annual fee of approximately
$650 which depends on the trustee bank. An SRE Permit from the Mexican government is required
and costs approximately $1500.
Total closing costs generally average 7%-10% of the sales price.
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How much will I need for a down payment?
The amount for down payments are determined by the buyer and seller. There is no pre determined
percentage for a down payment except if there is bank financing involved which will be
determined by the lending institution.
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Contracts & steps involved
How do I start the process of buying real estate in Mexico?
The process of buying real estate varies from case to case.
Typically you will find a property you want to purchase and will verbally agree a price. The
initial buy/sell agreement, or Convenio de Compra/Venta outlines the detailed costs, inclusions
and exclusions, and any deadlines. A deposit is usually paid by the buyer and any penalties for
cancellation are determined.
If the property is inside the Mexican restricted zone, you will need to set up a bank trust /
fideicomiso or form a Mexican corporation.
If you are buying a condo or direct from a developer in a residential development it is
important to have the notario publico ensure the developer's permits are in order.
You will obtain a copy of the Land / Property Deed from the seller which will be evaluated and
verified by the notario publico.
An official appraisal of the Land (Avaluo) needs to be done which the notario publico can help
to arrange.
You will need to provide official documents to the notario publico that can include a photo ID
such as a passport, birth certificates, marriage certificates, and your tourist or other visa to
verify that you are in Mexico legally.
The notario publico will require the seller to produce documents including the original property
deed, current tax records for the property, paid public utilities bills as well as details of
land-service fees with zero balance due.
Payment of any capital gains taxes are made at the time when the deed is signed over to you and
is done at the notario publico's office.
The Notario Publico's fees are paid at this time in addition to any other taxes associated with
the purchase of the land.
Whether you are paying with cash or bank financing you will need to have the agreed funds
available at the notario publicos office on the date the deeds are signed over to you.
Though there are no limits on how much you can transfer in or out of either country, cash or
monetary instruments with a value of or exceeding US$10,000 must be declared when you enter
Mexico (and upon entering/exiting the USA if you are in transit to Mexico from elsewhere via the
US).
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What kind of contracts and agreements are involved in a Mexican real estate transaction?
In Mexico, real estate transactions usually have two contracts. First is an offer and
acceptance, or oferta, and/or a promissory agreement, or contrato de promesa along with a
purchase-sales agreement, or contrato de compraventa. These are preliminary agreements
containing the basic transactional information and not the document in which the property title
is transferred to the buyer. The second contract is the agreement to be handled by the notario
which transfers the title to the buyer. This may come in different forms. It can be a real
estate trust agreement, or contrato de fideicomiso, a reserve title agreement, or contrato de
compraventa con reserva de dominio, or an assignment of real estate trust rights, or contrato de
cesion de derechos fideicomisarios.
The Civil Code defines an agreement, or convenio, as an
accord, or acuerdo, between two or more persons to create, transfer, change or terminate
obligations. In Mexico, real estate contracts are required to be recorded with a notario publico
and must be filed with the public registry of property to effectively become binding on third
parties. The buyer's attorney should write the sales contract or promissory agreement, after a
written offer has been accepted, because this is the most important document in the process
determining terms and conditions of the transaction.
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Real estate & capital gains tax
How do Capital Gains Taxes work in Mexico?
The process to determine capital gains taxes in Mexico is different from the United States. In
Mexico, the gain from the sale of property is treated as ordinary income and taxed at a rate of
up to 35%. In order to determine the gain, subtracted from the purchase prices, is the original
land cost and depreciated construction cost, based on the number of years the property was held
and adjusted for inflation based on the official consumer price index, the cost for additions,
modifications and improvements, made on the property excluding maintenance, and commissions paid
to real estate broker by the seller, closing costs, including all expenses, taxes and fees paid
by the seller. The Notario retains the calculated gain and forwards it to the Mexican tax
authorities. The seller is then able to deduct this amount against their annual tax return.
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Do I need to pay real estate taxes on my Mexican properties?
Generally speaking, property taxes are low in Mexico. The assessment tax appraisal which is
completed by a competent and licensed appraiser is legally required for a closing and the values
are determined at the time of the sale.
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