The Purchase Process in Mexico
The Meridian Capital client has the wherewithal to purchase their Mexico resort property for cash, yet should explore financing options to ensure the best strategy which integrates this acquisition into their overall financial goals. Historically, property purchases in Mexico have been in cash, which may lead to an assumption that this is the most efficient or cost-effective way to purchase.
However Mexico real estate financing strategies have evolved in recent years, and we at Meridian Capital have worked diligently with our financial resources to bring to the market programs which have not previously been available. Tailored to a select, qualified buyer, these programs mirror the financing programs available in the U.S., which means much lower carrying costs and flexible loan structures than have been previously available for Mexico property ownership.
Below you will find a brief summary of how U.S. citizens may acquire Mexico real estate, including frequently asked questions. This is not intended to be a comprehensive explanation, but a starting point, focusing on the evolution of processes within Mexico to accommodate foreign ownership in a secure, transparent manner. We welcome your call to clarify this process in more detail, or to refer you to one of our preferred advisors for specific legal or accounting questions. We encourage you to discuss with us your goals, and allow us to explore ways to maximize the financial benefits of your Mexico property purchase.
Mexico Property Ownership
The purchase of real estate in Mexico by American or foreign citizens is a straightforward and direct process, however misconceptions are common. Within the past twenty years, real estate in Mexico has not only become a desirable lifestyle option for resort ownership, but a viable investment strategy. Purchasing property in Mexico is safer and easier than ever before, with U.S. Title Insurance and third-party Escrow the standard. Meridian Capital, working with your real estate professional, can guide you through your transaction, ensuring that the process is done legally, securely and professionally, and strategically fits into your overall financial plan.
One common misconception to clarify at the outset is that American and other foreign citizens can own land in Mexico.
There are established regulations for non-Mexicans owning land or property within Mexico that make the process safer and easier than ever before. These rules have been put in place to both protect the purchaser’s ownership rights as well as to promote the sale of real estate to foreign investors.
Article 27 of the Mexican Constitution restricts direct ownership of land by non-Mexicans within 100 kilometers of the border (about 62 miles) and 50 kilometers (about 31 miles) of the coastline. This is a protectionist measure, put in place after foreign invasions repeatedly threatened the country's sovereignty at the end of the 19th century. Today, foreigners may directly own real property in the interior of Mexico subject to certain limitations on specific agricultural tracts. Modifications of this constitutional restriction have been made, and since 1973 foreigners (non-Mexicans) have been able to purchase coastal and border properties through an established and perpetually renewable Mexican property trust called a Fideicomiso. This is a bank trust, much like an estate trust in the U.S., which gives the purchaser all of the rights of ownership.
The Fideicomiso, or Trust System of Ownership
A fideicomiso is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican Bank and the buyer of the property. Essentially, this type of trust is similar to trusts set up in the United States. The foreign buyer, as beneficiary of the trust, may enjoy all of the rights of ownership of the property located in the restricted zone through this vehicle.
There is a common misconception among foreigners investing in property in Mexico once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not correct. All rights and privileges of ownership, including exclusive use and enjoyment, as well as the ability to sell the property in the future, are held by the trust Beneficiary-the foreigner. A real estate Trust should not be confused with a land lease or anything resembling a lease. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law.
Beneficiaries of the trust (fideicomisarios) may be foreign individuals or legal entities or Mexican corporations with foreign investment.
Parties involved in Real Estate Transactions in Mexico
The main parties involved in the transaction are the real estate company/developer, the buyer's attorney, the trustee bank, and a public notary. Real estate transactions outside of the restricted zone do not involve a bank, as it is not necessary to establish a trust in those areas.
Regulation of both the real estate and mortgage industry in Mexico is not as we are accustomed to in the United States, and therefore it is very important to work with reputable companies as well as an attorney (preferably licensed in the United States and Mexico) to review documents and assist in the transaction. Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico.
The Notario Publico (Public Notary)
Unlike a public notary in the United States, the Notario Publico (Public Notary) is a specialized attorney appointed by the governor of the state and is the only person authorized to record the transfer of property at the Public Registry. The Notario acts on behalf of Mexico’s state and federal government to verify and certify legal documents that require authenticity. The Notario acts as an attorney of record and the unbiased, official representative of the government for all legal documents, not solely those pertaining to real estate transactions.
A Notario has a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view, not merely providing certification of the identity of the documents signatory, as in the U.S. The role of the Notario can be considered as similar to the function of a U.S. Clerk of Courts. Only a limited number of Notario positions are available in each Mexican state, and vacancies are filled through appointment by the state’s governor.
Financing Mexican Property
For Americans and foreigners, obtaining a mortgage for the purchase of property in Mexico was previously almost impossible. Historically, most real estate transactions in Mexico have been cash only purchases, due to the lack of available financing options for American and foreign buyers. However, in recent years, U.S. and Mexican banks have begun offering mortgage products for the purchase of real estate in Mexico, recognizing the security of the purchase system, and the popularity of this investment.
U.S. title and escrow companies began entering Mexico in 2004, and since that time, the real estate purchasing process began to take steps to mirror the process in the U.S., adding to the comfort of American buyers. Following this, several banks and other lenders recognized the additional security this offered in the lending process, and began to develop the Mexico mortgage loan programs as we know them today. In the past twelve months, Meridian Capital has taken this process one step further to work with select, elite financial institutions to meet the financing needs of the private banking client interested in purchasing Mexico real estate, but for whom the traditional—and expensive—financing programs failed to meet their needs.
We believe it is important to think carefully beforehand about whether financing would be beneficial for you, and how best you may finance your property in Mexico. A realtor in Mexico may be able to advise you, or refer you to certain financial institutions (banks and mortgage brokers) offering traditional mortgage services. These typically require significant deposits, and are offered with interest rates that are higher on average then those available on properties in the US, Canada and Europe. More creative and flexible solutions are now available through Meridian Capital, and we invite you to explore these options by contacting us for a consultation.
