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BUYER’S GUIDE
The Closing Process in Mexico has gone through many changes over the past twenty years. Today, at Engel & Volkers Snell Real Estate, the use of a bonded, insured Third Party Escrow helps insure the safety of your investment.
While Catherine Buchanan makes the commitment to remain in communication with you through the Closing process, each Engel & Volkers Snell Real Estate transaction is coordinated by an in-house closing officer who works with your Closing Attorney and with the Notary to insure the integrity of closings from start to finish. Catherine understands the regulations regarding ownership by foreign investors and puts this knowledge to work for you – making sure your investment is protected and secure.
Below you will find some helpful information regarding purchasing in Mexico.
Frequently Asked Questions (FAQ) about purchasing in Mexico
Q. Can non-Mexicans own real estate in Mexico?
A. Foreign ownership of real estate in Mexico is via a Mexican land trust called a fideicomiso. The trust has a term of 50 years and can be renewed in 50 year increments to allow you to will the land from generation to generation.
Q. What is the history of the Mexican property trust/fideicomiso?
A. Due to a national history dotted by border invasions, the Mexican Constitution prohibits non-Mexicans from purchasing or owning real estate within 100 Kilometers of the U.S. international border, and within 50 kilometers of the Mexican coast. To allow for foreign investment in these regions, an innovative method for holding title was created in the early 1970s. This method allows non-Mexicans ownership through a Mexican property trust called a Fideicomiso. Much like an estate trust in the United States, this provides the Purchaser all of the rights of ownership, including the right to build, rent and sell.
In order to gain the rights of ownership, the Department of Foreign Relations issues a permit to the Mexican bank of the Purchaser’s choice, allowing the bank to act as Purchaser of the property and “Trustee” for the trust, with the Purchaser named as the “Beneficiary” of the trust. The trust is not an asset of the bank; the banks simply act as the Trustee to hold the trust. If the property purchased is already held in a trust, the Purchaser has the option to either transfer rights for the existing trust, or create a new trust with either the existing bank or a new bank of your choosing.
What is the function of the trustee bank?
A. Much like an estate trust in the United States, the Mexican bank, or Trustee, takes instruction only from the Beneficiary of the trust (the property Purchaser). The Beneficiary has the right to use, occupy, lease and build on or otherwise improve the property. The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified Purchaser, or bequeath the property to an heir, by naming “Substitute Beneficiaries” within the Trust Deed. The initial term of the trust is 50 years however the trust can be renewed for additional periods of 50 years, providing for long-term control of the asset.
How long does it take to establish a trust or fideicomiso?
A. On average, a transfer of trust rights can take 60-90 days however the transfer period does vary between transactions. The first two weeks of this period are generally a “Due Diligence” period where conditions of your offer are satisfied. Conditions of an offer may include, but are not limited to a home inspection, physical inventory, review of Homeowner Association budgets, bylaws and design guideline, a survey and/or Title Commitment and Title Insurance from a Title Insurance company.
Once conditions of the offer have been met to your complete satisfaction, a non-refundable earnest money deposit is paid into Escrow, a Closing Cost deposit is made to the Closing Attorney, instructions are provided as to how you would like to hold title and the transfer process begins.
Prior to closing, you will have the opportunity to review and approve a Settlement Statement of Purchase and Closing Expenses along with Disbursement Instructions to be sent to Escrow once closing has occurred before a Notario Publico (Public Notary.)
A. Notario Publico (Notary) in Mexico is much different than a Notary Public in the United States. In Mexico, Notaries are attorneys appointed by the government. They are the only parties authorized to act on behalf of the state and federal government to draw up deeds, calculate, collect and pay taxes caused by the sale of real estate and record the deed after closing with the Public Registry and the County Tax Offices.
Q. When do I pay for my property?
A. Your accepted Offer to Purchase will define payment dates and amounts for payments. Most typically, there will be a small, refundable deposit to open escrow, an earnest money deposit and a final payment to complete the purchase price just prior to closing. All funds are held in Escrow until closing. The deposit to open escrow is refundable until the Due Diligence period is complete and all conditions of the offer have been satisfied. At this point, a non-refundable Earnest Monday deposit is added to Escrow and the transfer of rights process begins. At this point, a deposit on Closing Costs will also be requested. Prior to closing, the Notary will advise the Purchaser to complete funding of Escrow and also ask for the final closing cost deposit can be made so funds can be disbursed from Escrow in accordance with Disbursement Instructions, once all parties have signed before the Notary.
Q. How much are Closing Costs to Establish a Real Estate Trust, or Fideicomiso?
A. Closing Costs will vary with the sale price of your property. Some closing fees are fixed fees and some are levied as a percentage of the sale price. This means that closing fees as a percentage of the sale price of your property will increase as your property price decreases. The largest portion of the Closing Cost budget in Los Cabos is the County’s 2% tax on real estate sales. Also included are appraisal, Notary, Closing Attorney, Bank and certificate of no tax debt and no liens fees. Catherine Buchanan will work with you prior to your purchase to help assess associated costs of ownership, including Closing and Operating Costs, to ensure that these are calculated into your budget prior to purchase.
Q. Title Insurance in Mexico
A. Title Insurance is available for properties in Mexico purchased by U.S. and Mexican citizens. Purchasing is a personal decision. If you would like more information about Title Search, Title Commitment or Title Insurance, Catherine Buchanan is happy to provide that for you.
Q. Now I own my property in Mexico, how do I take care of it?
A. There are many reliable and responsible property management companies in Los Cabos who can manage your property for you both while you are using it and when you are away. Property Management service providers offer a full range of services for everything from bill pay and monthly accounting to a full range of concierge services and rental coordination should you choose to rent your home on a short-term basis when you are away from Los Cabos. Most property management companies have relationships with maintenance people to offer maintenance services as needed, and with contractors should you decide to remodel or upgrade your home. When upgrading and remodeling, be certain to ask for “facturas,” or legal tax receipts so your capital improvement costs can be added to your cost basis. If you choose to rent, it is important to note that Mexican law requires income taxes be paid on the income.
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