Yes, Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own property outright within the restricted zone (see definition below). Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts to buy real estate, they must have a bank act on their behalf, much as a trust is used to hold property for minors because they also cannot enter into a contract. The following is a brief outline of the law regarding such trusts, known as a "fideicomiso." Generally an attorney is not necessary except to review your contract prior to signing. There are no standardized contracts in Mexico, so it is a good idea to have a Mexican attorney review your contract before you sign. Mexican law is very different from US and Canada Law.
Once the contract is signed, then an attorney is not necessary since the lender and Notario will be reviewing all documents and obtaining a certificate of no liens prior to closing. By using mortgage financing in Mexico, the lender will actually be "running interference" for you to make sure everything is in order before they close. The title will need to be 100% perfect or the lender will not close on the loan. For this reason, title insurance is NOT required in Mexico. It is optional for you to purchase if you choose, but most buyers chose not to purchase title insurance because the title is reviewed several times prior to the closing - usually by the legal departments of the lender, and the fideicomisario, as well as the Notario, who is an attorney. Title insurance is available through First American Title and Stewart Title International.
WHO'S INVOLVED IN REAL ESTATE TRANSACTIONS IN MEXICO?
Normally, there are four to five main players involved in any real estate transaction in the restricted zone:
A real estate company
The buyer's lawyer to review the contract (optional)
The mortgage loan broker
The Trust Bank
A public notary (Notario Publico)
All five are helpful in their respective areas in assisting with real estate transactions. If there is no loan involved, then transactions outside of the restricted zone do not involve a trust bank since it is not necessary to establish a real estate trust in those areas. All transactions with mortgage financing require a fideicomiso/bank trust in Mexico. This is a lender requirement, not a Mexican Law requirement. Otherwise the transactions are much the same. Because of the similarities of real estate transactions in general, it is easy to assume that the basic terms and principles which are familiar in the United States and Canada also hold true in Mexico. This assumption becomes easier to make when United States and Canadian real estate terminology is adopted for transactions in Mexico. Much of the paperwork is similar, if not exactly the same, as that used in the US and Canada. Although, there are many aspects of Mexican real estate transactions that are identical to procedures carried out in the United States and Canada, there are many aspects that are completely different. As a rule, a foreigner should assume nothing.
Mexican real estate transactions are not carried out in the same manner as United States and Canadian real estate transactions. The buyer must retain professionals to assist in the transaction. Real estate agents and loan brokers are not required to be licensed in Mexico. Consequently, a foreign buyer cannot always depend on the normal safeguards that would be applied to real estate transactions in the United States and Canada. Although the normal US and Canadian mortgage regulations are not required for property being purchased in Mexico, Mortgages In Mexico will make your transaction look as much like a US transaction as possible. We disclose a Good Faith Estimate at the beginning of the transaction, and we secure your private information according to US lending guidelines. The old saying "let the buyer beware" is very appropriate. Anyone can set up a real estate or mortgage brokerage company in Mexico. There are no special requirements or brokerage licenses to obtain. It is extremely important to work with an experienced real estate and lending professional when purchasing a property in Mexico. Not only do they have expertise in their industry, but they also have established teams of people they have worked with that they know and trust to get the job done effectively and honestly. Your loan broker acts similar to a quarterback on a football team by coordinating all of the "players" in the transaction to work together efficiently.
There are good reasons why the real estate industry in the United States and Canada is highly regulated. Until the real estate industry is regulated in Mexico, there will always be some real estate companies who prefer that buyers know as little as possible about real estate transactions. After all, a buyer cannot ask questions if he does not have any knowledge of the laws. If you would like some recommendations of professional real estate agents in the particular area of Mexico you're interested in, we can provide you with recommendations. Mortgages In Mexico does not receive referral fees, nor do we pay out referral fees. The people we recommend are people we know and trust. Likewise, if we have been recommended by a real estate agent or developer, be assured that they are doing so because they know us and trust us to get the job done - and not because they are receiving a fee to refer us.
Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico. Some states are beginning to look at some kind of real estate legislation, but it might be some time before this is a reality. Referrals as well as personal conversations are the best way to determine who you would like to work with. If your agent/broker speaks in generalities and can't give you references of previous customers they have worked with, then you may want to talk to someone else. Over 95% of our closed loan business has come from real estate and developer referrals. When shopping on the internet, every one looks great because of the self-promotion and accolades that they list on their websites. Mortgages In Mexico has many client testimonials and will be happy to provide you with references of previous clients we have worked with if you would like to talk to them. Additionally, we are licensed mortgage brokers listed in the NMLS registry (NMLS License # 139824 for Doug Jones, President and Mortgages In Mexico Lic# 139780). This registry requires all licensed US mortgage brokers to be a part of, and requires an FBI background check, ongoing educational requirements and testing. This is a difficult accreditation to obtain and maintain, so this is an additional assurance that Mortgages In Mexico is a reputable company to do business with. Few if any other mortgage companies operating in Mexico have gone through the rigorous requirements to be licensed in the US and through the NMLS national registry of mortgage brokers.
Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a "cédula profesional." This document is a registered license to practice law in Mexico and includes a photo of the attorney and his signature. To be sure that an attorney is licensed in Mexico, a foreign buyer should ask to see the attorney's license, or have the attorney's license number included in a retainer agreement before employing any services.
American and Canadian licensed attorneys are not licensed to practice law in Mexico and should not give advice on Mexican Law. There are currently very few Americans or Canadians who are licensed to practice law in Mexico. The fact that a person is licensed to practice law in the United States or Canada in no way allows him or her to practice law in Mexico. Mexican Law is based on Spanish Law, and US law is based on English common law.
As your mortgage broker, Mortgages In Mexico can be very helpful in saving you money. This is because we are involved in many different transactions and have contacts regular contact with banks, notaries, title insurance companies (First American Title and Stewart Title International) and the Mexican government. Mortgages In Mexico partners with mortgage lenders to locate the best rates in Mexico. Because of this we are aware of the most competitive cost and fees involved in a transaction and can make sure that the buyer is given the best possible prices. It is a good idea to consult with a tax expert who is well versed on US/Canada/Mexico taxes. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or other savings when the buyer eventually sells the property. Mortgages In Mexico can also recommend a good tax professional if you ask for a referral.
THE RESTRICTED ZONE AND "FIDEICOMISOS"
The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil; but that such ownership may be assigned to individuals. Property must be converted from ejido property to regularized property before an escritura/deed may be created in your name.
The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "restricted zone." The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the "fideicomiso," (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of record. The Mexican Government created the "fideicomiso" to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the law.
A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value to any eligible buyer.
In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up.
The bank, as trustee, must get a permit (SRE permit) from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. Banks such as BBVA Bancomer and Scotiabank provide this service. A lender will designate which trust bank they will work with, and by law, it cannot be the same bank as the lending bank. The purpose of the trust is to allow the trust's beneficiary (you) the use and exploitation of the property. The beneficiaries of the trust (fideicomisarios) may be:
Mexican corporations with foreign investment
Foreign individuals or legal entities
The law defines "use" and "exploitation" as the right to use or possess the property, including its fruits, products, or any revenue that results from its operation and exploitation by third parties or from the bank/trustee. When getting a mortgage loan in Mexico, title must be held in individual names and not as a Mexican corporation.
The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits "...considering the economic and social benefit, which the realization of such operations imply for the nation." The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future.
The Ministry of Foreign Affairs must grant any petition for a trust permit (SRE permit) that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.
There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary.
A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.
Mortgages In Mexico will work with our approved trust banks to obtain the fideicomiso for you. This is all part of the work we do to get your loan closed. Once you have your contract written, we take care of the rest of the transaction from beginning until it closes.
Information provided here by Dennis Peyton of Peyton and Associates. Dennis is a licensed attorney in the USA and Mexico. Additional comments to this text have been added by Doug Jones, President of Mortgages in Mexico. We can also recommend an attorney who is local to where you will be purchasing your property.
Peyton and Associates
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