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Mexico is an exciting place to live for those who are retiring, for those who are working

from home on a computer link with their company, for those who are looking for a vacation

home or an outstanding investment... above all, for those who dream of a better quality of life!

Home... the word represents security and comfort for the majority. All too often the

word, when used in conjunction with a purchase of property in Mexico creates stress, worry

and, at times has been associated with financial loss. This needn't be the case. Procedures in

searching titles and transferring property are similar to those of the United States and Canada.

The buyer of a house, condominium or lot in Mexico must ask the same questions, and should

receive answers similar to those received when buying a property elsewhere.

RULE NUMBER ONE:

SELECT THE COMMUNITY AND THE COMPANY THAT FITS YOU

In considering the purchase of something so important as a home it is necessary to

have the right people representing the buyer and his interests. This can be accomplished by

first selecting the general area where you think you'd like to live. A review of the local

newspaper or telephone directory will give a listing of the real estate companies in the area.

Through NAFTA agreements, the Association of Mexican Real Estate Professionals (AMPI), is

now affiliated with the U.S. National Association of Realtors (NAR), the Canadian Real Estate

Association (CREA), and the International Real Estate Association (FIABCI). These important

national real estate organizations are working to achieve standardization of real estate

practices and procedures throughout the world. The company you select to represent you in

your Mexican property purchase should be a member of AMPI. Not only is the AMPI member

company required to operate under a higher standard of care, and to adhere to a code of

ethics, but also it may have access to an increasing number of the properties available for sale

through computerized data bases.

Once the area is selected and a list of the AMPI companies operating there has been

obtained - interview the owners and operators of the companies. Ask for references, ask for a

professional resume. Interview carefully the persons that most impress you. The person you

select should be familiar with area, with basic real estate principles... and should impress you

with his or her honesty and drive to find what YOU are looking for. Once you have found the

person you feel comfortable with, stick with him or her and let him do his job. The sales person

who knows you aren't shopping around will generally work harder to find exactly what you are

looking for. Remember, it is your money and your commitment. Do not be pressured by

someone who is charming but who does not listen carefully enough to understand YOUR

special needs.

RULE NUMBER TWO:

EXAMINE THE NEIGHBORHOOD

Once you have selected the right community, an agent with whom you feel comfortable,

AND a possible property, check out the neighborhood. Is it new? Is it old? What will it look

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like in ten years? Are highways or other development projects planned for the future? Where

are schools, churches, shopping facilities? Are there homeowner fees for maintenance of

common areas? If so, how much are they and when are they paid? Are all the utilities in and

paid for? What does the developer have left to do? What building restrictions are there? Are

there covenants and conditions registered for the usage of the land?

In many parts of Mexico there is no enforcement of a master plan or building codes.

This can affect the changing face of the neighborhood you have selected.

RULE NUMBER THREE:

BUDGET FOR YOUR PURCHASE, CHECK TITLE AND

UNDERSTAND THE MEXICAN BANK TRUST (FIDEICOMISO)

CLOSING COSTS:

Closing Costs will range from 4% to 30% (yes, 30%!) of the total cost of your property.

The higher the price of the property, the lower the percentage of total costs for closing. This is

because certain expenses for permits and certificates are fixed, regardless of the value of the

property. Costs of transfer include title search, transfer taxes, bank fees, government permits

and notary fees. Your seller may assist in some of these; especially those related to title

search and insurance. Be sure to get a written estimate so that you will not have unwelcome

surprises at the date of transfer of title! While your real estate agent may know the procedure,

his or her specialty is to identify the correct property for you and to negotiate advantageous

terms for the purchase. The technicalities of the transfer; negotiations for permits, registrations

and so forth are generally more objectively and thoroughly handled by a neutral third party who

does not have a financial interest in the transaction.

CHECK THE TITLE:

Does your seller have a registered title to the property? Many foreign buyers, in order to

avoid the closing costs, or through ignorance, have paid for their property, taken possession of

it, and have never obtained a registered title! Ask for a copy of your Seller's title documents and

reserve the right to examine them prior to the release of any part of your payment. If they are

in Spanish have them translated and, if in doubt consult with a neutral third party about their

probable validity. It should be added that if the seller has never acquired title to the property he

is selling, it can often be remedied. The buyer should be aware of this condition, however, and

be certain that the person who accepts his offer is truly the holder of the title. Additionally, he

should make arrangements for the additional costs, if any, involved in this double transfer.

UNDERSTAND THE MEXICAN TRUST - FIDEICOMISO

Payment of the purchase price is not enough. In order to have a valid ownership

interest in the property which you are buying it is necessary to have the title recorded. This

puts the rest of the world on notice that the property is yours. If you are a foreign person

purchasing property in many parts of Mexico, including the entire Baja peninsula, the property

will transfer not to your name but to the name of a Mexican bank as trustee for your interests.

The Mexican constitution prohibits direct ownership of real property by foreigners in the

"prohibited zone", a strip of land thirty miles wide along its seacoasts and sixty miles wide along

its borders with the United States and Guatemala/Belize, as well as the entire Baja peninsula.

This is the reason for the bank trust, the "fideicomiso", which has been established under the

guidelines of the Mexican government so that foreigners may be protected in their property

acquisitions.

Whether you are purchasing in a zone requiring a bank trust or in an area where title

can be taken directly into your name, it is necessary that this transfer take place and your

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interest registered as soon as possible after the successful conclusion of the negotiations to

purchase your dream property. Until this transfer takes place you are vulnerable: the seller

may die, the heirs may be unwilling to recognize your rights in the property, you may become

involved in a lengthy and expensive probate proceeding. Meanwhile, your interest may not be

recognized by the authorities should you wish to obtain a building permit, by the bank should

you wish to borrow money and use the property as collateral or as part of your assets; by the

courts should a third party also claim an interest in the land, or, very importantly, should you

later decide to sell it.

The prudent buyer of real estate in the United States or Canada would not consider

leaving his title "in limbo" in either of those two countries; one should not do so in Mexico either.

The foreigner purchasing real estate in Mexico is buying personal, not real property if the

acquisition is on the Baja Peninsula, within thirty miles of any coastline on the mainland, or

within sixty miles of any border. The acquisition is personal property.

How does personal vs. real affect the foreigner who acquires property under a Mexican

bank trust? The effect is negligible. Instead of using the words; "transfer of title" one should

more properly say "transfer of trust rights", or, "assignment of trust rights". In practical terms

the beneficiary has full control of the property. He may direct the trustee bank to 1.- lease the

property, 2.- mortgage the property, or 3.- sell the property. The foreign owner enjoys full rights

of usage and may do anything to the property permitted under Mexican law. He enjoys the

same rights of dominion as any Mexican citizen who has direct title to the property. He may

construct a building, tear it down or modify it in compliance only with the local zoning and

planning ordinances or, if applicable, the homeowner's condominium regime.

A permit to acquire the rights in the property must be obtained from the Secretary of

Foreign Relations and the terms of the permit form a part of the deed. Currently, the term for a

trust is fifty years. Multiple renewals are permitted under the law. By requesting extensions

each fifty years a property may be controlled by a family or business entity for generations.

RULE NUMBER FOUR:

INVESTIGATE THE STATUS OF THE CONDOMINIUM REGIME

A word of caution for those who are considering the purchase of a condominium or a lot

in a subdivision. Just as in other countries, the unit, or lot must be legally described and an

individual property tax number issued. This individual property must be registered in both the

Property Tax Office and in the Public Registry of Property. Often, a developer will spend time

and energy on promoting the sale of the properties prior to completing the establishment of the

Condominium Regime. Until this is completed, legal title to an individual unit or lot cannot be

granted since there is nothing to describe! Be sure to investigate the status of the

condominium regime prior to completing the offer to purchase!

RULE NUMBER FIVE:

INSIST UPON RECEIVING A REGISTERED TITLE

The purchase/sale document signed by buyer and seller is generally legally valid

between the parties to the transaction. It most likely contains the description of the property,

the price to be paid to the seller, and any other special terms and conditions. It may be drawn

up by the parties, their agent(s), or by a third party. It should be considered as an interim

contract, however. Until the final deed is drafted by and signed before a Mexican Notary Public

and duly registered, the transfer WILL NOT provide valid notice to third parties. This final deed

must be recorded in the Public Registry Office of the municipality in which the property is

located. Mexico's land registry system functions in much the same manner as those in the

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United States or Canada.

Unless the deed for the rights of the beneficiary has been recorded, there may not be a

remedy for the purchaser who neglected to obtain a registered deed... his interest, his

investment, may be lost.

When a foreigner is acquiring residential property for which a bank trust is required, the

purchaser should receive a deed which has been signed by the bank trustee before a Mexican

Notary Public. This will name the beneficiaries and substitute beneficiaries of the trust in

accordance with the purchaser's instructions. A full description of the property must be

included, seller's capital gains taxes paid and buyer's acquisition tax paid. These receipts

should be included in the deed document which may consist of eight or ten pages, or more.

The final page of the document should bear the stamp of the Public Registry, together with

Book and Page numbers and the date on which it was recorded. If this stamp is not on the

document, the transaction has not been completed, the buyer is not fully protected.

CONSIDERATIONS IF FINANCING YOUR PROPERTY:

Until recently, most homes and condominiums were for sale for all cash or financed by

the seller. With the advent of NAFTA however, several mortgage companies have entered the

Los Cabos and Cancun, Riviera Maya marketplaces and offer long-term financing for qualified

buyers. If you are considering financing your purchase, and are buying in a location where

financing is offered, it makes sense to investigate the terms and plans available, select the

company of your choice and make lender approval a condition for the purchase.

If the seller will be financing your purchase, request that title be transferred to you and a

pledge guarantee contract executed guaranteeing payment. Traditionally, sellers have

preferred to hold title to the rights in their name and transfer title to the rights only upon receipt

of payment in full from the buyer. Meanwhile, however, the seller may die, may disappear, may

go bankrupt... a risky situation for the buyer. The prudent buyer will insist upon a transfer of

title and registration of a mortgage or pledge in which he gives his rights in the property as

security for payment of the remaining purchase price. In the event of default by the buyer, the

seller must conduct a proceeding similar to a judicial foreclosure in the United States and

Canada. It is troublesome, as is any foreclosure in any country in the world but not notably

more problematical. The registered title and recorded pledge or mortgage provide the buyer a

greater comfort level in his investment. The lender also enjoys protection in having his loan

recorded and will have an established legal proceeding to follow in the event of default by the

buyer.

CLOSING COSTS.... OR HOW TO AVOID UNPLEASANT SURPRISES.

Mexican law says that taxes must be paid on the higher of the following: purchase price

OR appraised value. Since many appraisals are lower than the actual selling price your taxes

will be considerably lower if the appraisal value is declared. Payment on this basis has taken

place for many years in many parts of the country. It is, however, illegal. Should you choose to

pay your costs based upon this basis, please be aware that: 1. it is violation of the law and 2.

your tax base will be low for declaration of value in the property when you sell it. Furthermore,

if you are financing your property through an institutional lender, full value must be declared.

Following is an example of some of the steps involved in obtaining a registered title.

The costs for same will vary with the property and a written estimate should always be obtained

prior to initiating the process.

OFFICIAL APPRAISAL:. The appraisal must be made by an appraiser who is usually an

architect and who is recognized as a Perito Valuador, Official Appraiser, by the property tax

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authorities in the municipality where the property is located. This is required prior to completing

any transfer of title. If an institutional lender is involved, a commercial appraisal may also be

required.

FOREIGN RELATIONS PERMITS: If the property you are purchasing is already in a trust

(fideicomiso) you may either: request assignment of the rights to you, or may request a new

trust for fifty years. If a new trust, a permit from the Secretary of Foreign Relations is required.

Whether a new trust or an assignment of rights, the deed in the new buyer’s name must be

registered in the National Foreign Investment Registry. When considering a new trust or an

assignment of rights, the factors to be considered are: 1. Remaining term of the existing trust -

when will it need to be renewed?; and 2.-What are the annual bank fees under the existing

trust?

If the permit has an unexpired term of less than fifteen or twenty years and/or the annual

bank administration fees are more than $500.00 U.S. dlls., it probably makes sense to obtain

the permit for a new fifty year trust with a bank offering more attractive fees.

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NOTARY FEES - The Mexican Notary Public is an attorney who has practiced his profession

for at least five years and has been appointed by the governor of the state in which he is

practicing. His duties and obligations include; drafting of the deed, calculation of seller’s capital

gains taxes and buyer’s acquisition taxes and to "give faith" to the validity of signatures. The

persons signing before him must prove they are who they say they are. Because the

responsibility and potential liability for the actions of the Mexican Notary Public are considerably

higher than those of Notaries Public in the U.S. and Canada, the notary’s fees will also be

substantially higher than those charged on the other side of the border. These fees are based

upon a rate schedule reviewed and approved annually by the College of Notaries Public and

are tied to the amount declared in the property transfer.

I.V.A. - The Impuesto Sobre Valor Agregado (I.V.A.) is a value added tax which is charged on

all services. It is 10% of the value of services provided on the Baja Peninsula and 15% for

services provided on mainland Mexico. Many trustee banks are headquartered on mainland

Mexico, thus the I.V.A. charged on their services will be 15%. IVA taxes must be paid on

services provided by the Notary, the appraiser and any other professionals whose services you

use

BANK ADMINISTRATION FEES: If title to your property is in a bank trust there will be annual

fees for the administration of same. Over the past few years there has been a substantial

decrease in annual fees and it makes sense to shop around for the most favorable rate for the

property being purchased if a new trust is contemplated. If an assignment, new rates may

possibly also be negotiated. Traditionally, trustee banks have not sent annual statements. It is

important to request a statement from your trustee bank at least ninety days prior to the

anniversary of the trust and pay on time to avoid penalties, or to contract with a company

providing this payment service.

TITLE SEARCH AND INSURANCE: A title search is always a worthwhile investment. An

investigation will generally indicate the registered owner, the chain of title, and will indicate

liens, if any, against the property at the time of the investigation.

Title insurance, issued when the new deed is registered, guarantees the marketability of

the property and is a requirement by most institutional lenders. There are currently three US

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title insurers offering policies on Mexican properties. In the event there is a problem with title,

the insurer is obligated to defend the owner’s rights in the property and/or indemnify the owner

against financial loss. Investment in a title policy puts the financial risk on the insurer, not the

buyer who may not be able to defend the property as well as a major insurance company.

PROPERTY TAXES: are a municipal tax and income benefits the municipality. Typical rates

for residential dwellings is 6.5 (pesos) per 1,000 and 13 per 1,000 for properties destined as

rental units. Vacant lots are rated at 26 per 1,000 with an increase of 2.6 per annum for each

year there is no construction declared on the lot. Maximum amount is 52 per 1,000.

Valuations for property tax purposes are generally made every two to three years or at the time

of sale of a property. Property taxes must be brought current prior to transfer of the title.

ACQUISITION TAX: The acquisition tax, or transfer tax, is generally paid by the buyer. It is

currently 2% of the declared value of the property in most parts of the country.

CAPITAL GAINS TAXES: A foreigner who sells property in Mexico is liable under special

rules, much like the United States, for the payment of the I.S.I.R. (Impuesto Sobre la Renta)

which is the Mexican equivalent of the Capital Gains tax. Liability is either 20% of the declared

value of the transaction or 33% of the net value, taking into consideration the length of time

held, the improvements made, commissions paid and other allowable expenses. The formula

is complicated and the tax should be figured both ways and confirmed by the Notary Public

who will be having the documents recorded and making the tax payments. This is a seller tax

and title cannot transfer to the buyer under this tax has been paid.

SETTLEMENT FEES: Attorneys and Notaries Public often oversee parts of the previously

described required steps to a transfer. The buyer, however, usually has to do certain of his

own legwork and can certainly do so if he has a good command of the Spanish language.

Unless the buyer has a lot of time to spend on the activity, it may make sense to hire a

company whose sole purpose is to supervise and coordinate the permits, tax payments and

other myriad of details so necessary to obtain full legal right to the property being purchased.

Fees for these services will vary with the value of the property and the complexity of the

situation. It is important to always request a written estimate of all the expenses prior to

beginning the transfer!

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Articles.Dream.2004/Copyright, 2004, Consultores Phoenix, S.C. Reproduction prohibited without permission

ABOUT THE AUTHOR:

Linda Neil is the founder of the settlement company . It is the first company in

Mexico dedicated to counseling buyers and sellers and to supervising the closings and

registrations of real estate for non-Mexicans. The company provides title investigations, due

diligence and legal services for buyers and sellers, as required, for properties and

corporations holding real estate located anywhere in Mexico.

For further information and references, please contact

The Settlement Company: in Mexico: 01-800-627-5130

International: 1-877-214-4950 or 011-52-612-123-5056

FAX: (011-52) 612-123-5056

E-mail info@settlement-co.com, website: http://www.settlement-co.com