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Thursday, October 1, 2009

Mexico Living - Buying real estate in Mexico (October 2009)

Buying Real Estate in Mexico -- from A to Sí
By Christa Thomas

Purchasing real estate in Mexico is a lot like buying it in the US or Canada – you find a property you like, enlist the help of some professionals, do your due diligence, arrange financing, sign some paperwork, and enjoy your new property.

Mexico has become a popular place to retire to or to own a vacation home. And, yes, foreigners can own property in Mexico, even on the coasts. Hundreds of thousands of foreigners have successfully purchased real estate in Mexico. Mexican real estate can offer good value for your money, especially with favorable exchange rates. And the cost of living is substantially lower here. Three years ago, I bought a vacant lot in beautiful beachfront San Carlos and began building, and one year later I moved into my dream house.

I fell in love with Mexico after enjoying several vacations here. The warm weather, friendly people, food, language, vibrant culture, the interesting and fun things to do all drew me here. But the question was: where should I live within this huge enticing country? Many locations were appealing to me, with Playa del Carmen topping the list. But after one visit, I quickly decided on San Carlos, Sonora. It’s beautiful here. And, if you like outdoor activities, you’ll never be bored. There are endless opportunities for snorkeling, scuba diving, hiking, biking, sailing, fishing, golfing -- there’s even a pick-up game of softball twice a week. I also like that it’s an easy drive to many interesting vacation destinations. Arizona is only a four hour drive north of here, and Mazatlan is eight hours south.

There are many factors you should consider when choosing a town, such as location, local infrastructure (roads, airport, water supply and electricity), and local amenities (medical services, mailing services, construction and rental services, churches, etc). There are several books available that discuss the pros and cons of numerous Mexican towns. When I was looking, I read “Live Better South of the Border in Mexico” by Mike Nelson and “Choose Mexico” by John Howells and Don Merwin. Both books are excellent resources, and I highly recommend them. At this point you will also have to decide whether to build on a vacant lot or to buy a finished house (the pros and cons of building from scratch are beyond the scope of this article).

A realtor can not only help you find a building lot or a house, but can also answer questions about amenities and help you get settled in your new community. When selecting a realtor, make sure that the agent is licensed and is a member of AMPI (the Mexican Association of Real Estate Professionals). All realtors in Sonora must complete a course of studies prior to applying for a real estate license, and must be registered with the state of Sonora.

Once you’ve found a property you like, you will enter into an agreement to buy, which will specify costs, closing date, etc. You will also pay a deposit, which is usually 5-10% of the purchase price.

You and your realtor will now begin working with a notary public. All real estate transactions in Mexico require the involvement of a notary. The deed to the property must be prepared by a notary. The realtor and notary will begin preparing the necessary documents and performing the due diligence, such as:
  • Ensuring that the developer's permits are in order, if you are buying from a developer.
  • Obtaining and reviewing the Land / Property Deed from the seller to make sure that the property has a 'clean' history.
  • Arranging for an official appraisal of the Land (Avaluo).
  • Ensuring that there are no liens on the land (e.g. an unpaid mortgage). Under Mexican Law, liens are passed on with title of the land -- buyer beware! Title insurance is not required when making a real estate purchase in Mexico, but if it interests you, it is now available. Title insurance protects you should the property you buy subsequently turn out to have liens on it. Ask your realtor about what title insurance is available in your area.
  • Checking that all land taxes and utilities (electric, gas, water and phone, HOA fees) have been paid.
  • Checking that structures have the required building permits.

You will need to provide your realtor and notary public with certain official documents, including photo ID (such as a passport), birth certificate, marriage license (if applicable), and your visa (Tourist Visa, FM3).

Mexican law provides for private ownership of land by foreigners. However, if your property is within the 100 km border zone or 50 km coastal zone, there are ownership restrictions. If your property is within these restricted zones, as mine is, you can own land through a fideicomiso (a trust) which is set up through a bank. Your realtor will work with the bank to establish your trust.

Title to the property will be transferred to the trust. A Mexican bank of your choice will act as trustee and you, as purchaser, will be designated the beneficiary. The bank follows your instructions and acts only for your benefit. As beneficiary, you will have the use and control of the property and will make all decisions concerning the property. You will have all the rights of ownership, including the right to sell, rent, lease, mortgage and develop your property. You can also pass the property on to your heirs. The trust is renewable for an indefinite number of successive 50 year periods.

The trust is formalized by the issuance of a permit from the Mexican Ministry of Foreign Affairs. And your rights as beneficiary will be recorded in the public record. The bank charges an initial fee for establishing the trust and an annual fee based on the value of the property.

Recently, a couple of Mexican Senators have argued that current international economic and political conditions favor removing ownership restrictions, and have introduced legislation to that effect. It remains to be seen whether restrictions on foreigners from directly acquiring property on Mexico’s coasts and the resulting requirement for a fideicomiso will be eliminated.

At this point in the transaction, you should have your financing in order. Financing is now available in Mexico and several big name players from the US have entered the marketplace. These US-based mortgage companies offer US dollar denominated products. Mexican banks have also begun to offer mortgages, but a significant down payment is required and interest rates are higher than in the US or Canada. Your realtor should be able to help you connect with the financial institutions that are offering mortgage financing in your area.

With your due diligence done, and your trust, financing and title insurance in place, you are now ready for the closing. This will take place at the notary public's office, where you will sign the deed and make the final payment. This is also when you will pay the notary public's fees and any other outstanding closing costs. With the documents signed and these payments made, all you now need to do is enjoy your new property and plan the Open House party!