To purchase real estate in Mexico the services of a Notario is required. If a Notario is not involved in the closing, the transaction is not legal. The Notario performs such duties as validating that the seller has rights to sell the property, making sure that the transfer is legal, and signing the documents to finalize the transaction.
If the property is located near the borders or on the coast, a restricted zone, a trust (fideicomiso) must be formed resulting in a Contrato de fideicomiso.
If the property is located in the interior, a non-restricted zone, a purchase/sale fee simple deed (contrato de compraventa) will be executed.
Promissory Contract (Promesa de compraventa)- outlines all the terms of the sale including possession dates.
Escrow- An offer to the seller is expected to include an earnest money deposit of five to ten percent. Because the deposit is not legally required to be placed in an escrow account, one is not always used.
Complete thorough research on a property you’re interested in:
Ascertain the status and transferability of the property. For a property to be transferable there must be:
Possession of a title in the owner’s name
Transferability-a right to sell the property
No liens or encumbrances
Ejido land/Co-propiedad-An owner of ejido land, land within the restricted zone, has proper title; however, he is prohibited from transferring the property to a non-ejidatario. Likewise, the same applies for land that is a joint ownership of private property within a family, a co-propiedad. In both cases, if proper channels are not taken, you may be surprised when the rightful owner comes to reclaim his property and evicts you without any compensation for your loss.
Regimen de Condominio-Federal law requires condominium developments to have a recorded regimen de condominio. A condominium unit can not be legally transferred without this required regimen.
Fraccionamientos- Subdivisions, fraccionamientos, must be approved by both the local and state authorities in order for the land and/or the house to be legally transferred.
The Fideicomiso- In order for a foreigner to own property within 50 kilometers (31miles) of the coast or 100 kilometers (62 miles) of the national border, the land must be fully privatized, which entails a lengthy application process. Additionally, to legally own land within the restricted zones, a bank trust (fideicomiso) must be formed.
Acquire title insurance-Title insurance protects the buyer from financial losses resulting from title defects and prior liens, excluding physical defects.
Make a physical inspection of the property- there are no disclosure requirements in Mexico, so it’s best to take a look at the property and determine that it’s structurally sound.
Acquire a statement of no liens- A buyer should obtain from the seller a statement of no liens, unpaid taxes, or other encumbrances on the property better know as a certificado de libertad de gravamen.
Acquire an appraisal- establishes value for tax purposes. This is ordered by the Notario.
It is also required that all foreign buyers who purchase real estate in Mexico must be registered with the Secretary of Foreign Relations.
Payment
For payment, a buyer may complete the transaction with a bank check or seek out a mortgage.
Closing
A Notario must also be involved int the closing of the transaction for a sale to be Legal. After the closing, the Notario records the deed in the Public Registry (Registro Público de la Propiedad). However, a buyer should confirm that it is in fact recorded because a deed is not defensible until it is recorded.
Absent Buyers or Sellers/Power of Attorney and the Apostille Process- It is not necessary for a buyer or seller to be present at the closing. A power of attorney may be granted to a third party who will act on their behalf. After the power of attorney is signed before a notary public it must then be “apostilled” by the Secretary of State.
Tax Issues on Mexican Real Estate
Because of the complexity of tax issues, it is recommended that you seek the advice of a tax professional in both your home country and Mexico.
Income Tax: Payment of income tax is made to the Hacienda. Any foreigner who is a legal resident of Mexico must be registered with the Hacienda.
Impuesto Sobre la Renta: The capital gains tax is a tax on the gain of the sale and is due when property is sold.
Impuesto Sobre Valor Agregado (IVA): This is the value-added tax and applies to fees charged by service providers and includes the Notario, appraiser, realtors, and other professionals.
Predial: This is the yearly real estate tax that is based on the declared value, the catastro. This tax is due at the local tax office on the first of every year. Beware that you will not receive a statement notifying you of this tax.
