Buying in Mexico
Purchasing real estate in Mexico may sound like a daunting task for a foreigner, but it does not have to be. Real estate laws throughout the United States vary state to state with each jurisdiction having its own unique stamp on how the transaction can be handled or how title may be held. Mexico is no different in that respect. The basic premises to purchasing real estate in Mexico are very similar to the premises for purchasing real estate in the United States, but Mexico has its own unique way of formalizing and carrying out the transaction. This is especially true when a foreign person or company is the ultimate interest holder in the property. We have included some general information below concerning the purchase of real estate in Mexico to assist you in understanding the general process and principles of becoming an owner of property in Mexico.
Foreign Ownership of Property in Mexico
The purchase of non-residential property in Mexico can be accomplished through a Mexican limited liability company which can be 100% foreign-owned. A corporate structure that has been found acceptable is that of two foreign limited liability companies (owned by a United States resident) having complete ownership of a Sociedad de Responsibilidad Limitada (which is a basically a Mexican limited liability company). Also, the real estate must be registered with the Foreign Affairs Ministry and be used for tourist, commercial and industrial use. Certain uses, such as use for agricultural purposes, may be prohibited under some circumstances.
Participants in the Mexican Real Estate Transaction
Generally, there are five to six participants involved in any real estate transaction:
• Real Estate Broker
• Buyer’s Lawyer
• Seller’s Lawyer
• Notario (notary public)
Process for Purchasing Real Estate in Mexico
In general, real estate transactions in Mexico and the United States are similar. The basic premise of the real estate transaction is that:
1) The buyer and seller come to an agreement on the terms for the purchase and sale of the property;
2) The buyer and seller enter into a promissory purchase and sale agreement stating the terms and conditions of the transaction (ie – Price, Timing, etc.);
3) The agreement is formalized in writing and a preventive notice is filed in the public registry which puts third parties on notice that there is a contract affecting the subject property;
4) Title Search is performed to determine that the stated owner is the correct party to enter into the transaction and that the title to the subject property is merchantable;
5) If it is determined that there are any title issues concerning the subject property, corrective action is taken to resolve the issues;
6) The Transfer documents and Closing Statements drafted, reviewed and approved by the parties, and their respective attorneys;
7) The Deed and/or other Transfer Documents are passed before a Notario who formalizes the documents; and
8) The Notario registers the necessary documents before the proper authorities in the jurisdiction within which the property is located.
Although real estate transactions in Mexico and the United States are similar in basic terms, the transactions are not completely the same. One of the differences is that Mexican real estate transactions are very formalistic. In a Mexican real estate transaction the basic transfer documents are provided to the Notario by the parties’ attorneys and the Notario inputs and formalizes the remaining information prior to execution. The documents for the transfer of real estate must be executed before a Notario who is commissioned by the governmental authority. Notarios are not as readily available as Notaries in the United States because there are fewer Notarios located within their jurisdictions. Another difference is that when entering Mexico to either buy or sell real estate, you must make the declaration, to the proper authority, upon crossing the border which states that you are entering the country to conduct business rather than for tourism purposes. Yet another difference in the transactions is that certain concessions may need to be obtained in connection with the property. For instance, if there is a body of water adjacent to or running through the property, there may be a concession to obtain for water rights in order to allow for use of said water.
Because of the general similarities of real estate transactions in Mexico and the United States, many believe that the transactions can be handled in the same manner. Although, transactions in the United States and Mexico may have the same or similar procedures, you should be aware that there are distinct but important differences. You should always rely on a licensed Mexican attorney to assist you through the process.
As one of the previously listed participants in the real estate transaction in Mexico, a licensed Mexican attorney should be consulted prior to the purchase. A Mexican attorney can assist in performing a title search and creating the transaction documents including the Promissory Purchase and Sale Agreement, Deed, and Closing Statement. If you intend to purchase a title insurance policy in connection with your purchase, you will need to verify with your prospective Mexican attorney that he or she will be able to provide a report to an acceptable title insurance company for issuance of a title policy.
Transaction Costs for Purchasing Property in Mexico
The total transaction cost for purchasing property in Mexico is one area that distinctly varies from purchasing property in the United States. There are several costs that are included in the purchase of rural properties such as those which have been included on this site. Those cost include but are not limited to the following:
- Acquisition Tax which is approximately 3% of the purchase price of the property;
- Cadastral Services Fee which is calculated based on the purchase price of the property and in accordance with a formula and table, which is amended from time to time and provided by the municipality;
- Registration Rights Fee which is calculated based on the purchase price of the property and currently has a cap of approximately $7,200.00;
- Notario Services Fee which is approximately 1% of the purchase price of the property;
- Title Insurance is available if requested. Like in the United States, the title insurance cost is based on the value insured. Title insurance is approximately $3.00 for every $1,000.00 of value insured. In addition to the premium for the policy, a search of the title will need to be conducted and that cost is generally about $2,500.00 per search. Both the premium and the title search fees are subject to the then current value added tax in the particular jurisdiction.
- Various other less notable fees or costs including but not limited to fees for ownership certificates and certified checks.
All of the above described taxes and fees are subject to change based on the laws in place at the time of the transaction. An estimate of closing costs, not including attorney’s fees, is approximately 5-6% of the purchase price of the property. Potential purchasers should note that all fees and/or taxes will be collected at the time of purchase by the Notario who is then responsible for remitting to the appropriate authorities.
Title insurance is available for purchases in Mexico. In the past, various companies have provided insurance for properties located in Mexico including some common and reputable companies that do business in the United States. At this time, Armour Secure Insurance, which was formerly Fidelity National Title of Mexico, has been the easiest to work with in the area where the ranches are located. A commitment can usually be issued within three weeks of receipt of the title search documents. The title insurance policy cannot be endorsed or signed over to another person or entity so it is prudent to have the policy issued in the name of the ultimate purchaser of the property.
The information contained in this site is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved in each specific transaction. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this site. Accordingly, the information on this site is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, consulting or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal, consulting or other competent advisers. Before making any decision or taking any action, you should consult a professional in the respective area for which advice and/or information is needed.
While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, the authors and publishers are not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will the authors, publishers, or its related partnerships or corporations, or the partners, agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this Site or for any consequential, special or similar damages, even if advised of the possibility of such damages.