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Buying Real Estate in Mexico

This memorandum refers to the acquisition of a real estate by foreign individuals or by Mexican companies owned by foreign shareholders.

 The Mexican Constitution prohibits foreigners from owning directly real estate within the so called “Restricted Zone” which includes land located within 100 kilometers from Mexican’s international borders or 50 kilometers from its coast line.

The federal maritime line zone consists of the first 20 meters of beach front property on firm traversable ground. The federal zone is intended to remain public land and to be enjoyed by every person; however, the Mexican Constitution allows the government to grant “concessions” for its use.

The Foreign Investment Law currently in force allows ownership of real estate within the restricted zone through a foreign-owned Mexican corporation, exclusively for non-residential purposes, provided that formal approval is obtained from the Ministry of Foreign Affairs.

That is, a corporation is allowed to own real estate within the restricted zone only for purposes of develop the land, build houses or condos and sell them.

Otherwise, that is, for residential purposes, all foreign individuals and foreign corporations as well as Mexican corporations which include any foreign investment may hold title to property within the restricted zone only indirectly through a bank trust contract. Formal approval from the Ministry of Foreign Affairs is also necessary.

The parties to the trust contract are the seller of the property (“Settlor”), the bank which acts as trustee (“Trustee”), and the buyer (“Beneficiary”) which is the beneficiary of the trust.

The beneficiary retains the use and enjoyment of the property; the Settlor upon receiving full payment of the price has no more rights in the property as any seller.

An attorney draws up the legal documents and conducts a research to verify the legal chain of tittles and that the property has no encumbrances, liens or taxes on the property. For such a purpose a number of certificates from several governmental agencies must be secured.

A Notary Public records the documents at the Public Registry of Property and withholds the taxes for the acquisition of the real estate, currently 2% of the price set forth in the public deed. The Notary’s fee and expenses generally ranges between 1% and 2% of the value of the property so the total amount which the buyer pays to the Notary is approximately 5% of the agreed upon price.

A Promise to Sell Agreement is commonly executed as the basic document for a purchase and sale. Under the promissory agreement the parties thereto set forth their respective conditions, and, upon satisfaction of those conditions, execute a final public agreement, either a sales agreement, a real estate trust, or an assignment of the beneficial rights in a real estate trust. The promissory agreement, which is a private contract between the parties, should never be taken as the final agreement, although by its execution the parties do create a binding obligation.

Title to real property is evidenced by a public deed executed before a Notary Public and recorded at the local Public Registry of Property. An official stamp attached to the last page of a document assures the parties that the instrument has been duly recorded and also provides the necessary filing information. Title documents will include the chain of title, the meets and bounds description of the property (including, in some cases, the name of the owner of or the nature of abutting properties) and the public registry filing information.

For non-residential purposes the incorporation of a Mexican company is necessary. 

A “Sociedad Anónima” (S.A.) is a corporation which capital stock is represented by share certificates which give the corresponding percentage on the capital stock of the company as well as voting rights. Shares may be transferred freely by a simple endorsement and a registry within the registry book of the company. However, the By-Laws of the company may provide that shares may only be transferred with the prior authorization from the Board of Directors.

 

Joaquin Martinez

Bric Real Estate

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