1. Before putting any cash…
Before putting any cash, deposit or signing anything of value away, consult with a reputable mexican lawyer always!
2. Check the origin of the title to land/real estate: Civil or Ejido?
Out of 1.96 million square kilometers (nearly 485 million acres) of Mexico’s total area approximately 1 million hectares (almost 50%) that is 242 million acres, are ejido land. The first thing to do is check whether this real estate title is already in “dominio pleno” (under civil law status) as opposed to ejido land status (“Agrarian Protected Status”). Please see question & answer to #4 hereinbelow in case this land is still under ejido regime or has been recently extracted from an ejido regime; to quickly find out, please check the deed (escritura pública) or other legal documents offered by the buyer that should reference the partida civil where the real estate title came from and research the authenticity and provenance of the legal title (in the case of dominio pleno or civil titles).
3. The quality of the real estate title and its succesive transfers
Once the origin is ascertained by an experienced and reputable mexican lawyer and its land registry entries have been verified, this lawyer must also check the quality of the original or primary real estate transaction (título original) and the quality of the second and successive land transactions (whether sales, probate possession or acquisitive prescription) so as to verify that they were effected and registered without defects. A real estate title is only as good as its weakest link in the chain of past transactions. If the lawyer finds a defect it does not automatically mean that the real estate transaction should be avoided, it simply means that you must obligate the potential seller to cure the defect before a closing occurs. If the seller is able to cure it successfully, then this real estate transaction can usually be completed. But as always, buyer beware! Get legal advise well prior to this stage.
4. Is the land still under the ejido regime?
It is common in pristine areas such as beaches or formerly agricultural land outside of most major cities and towns in Mexico that the real estate liked by someone is either still under ejido land regime. In this case, a certified ejido map or parcela map coming from the mexican government with a stamp from PROCEDE (Program Certifying Agrarian Rights) or from the agrarian registry RAN (Agrarian National Registry) is usually the first legal document that needs to be checked. Its land entry data must be examined so as to review the specific process by which the real estate was extracted from the ejido status to the civil status. A very detailed statutory process by the whole of the ejido assembly, with active participation of the Agrarian Affairs Office of the mexican government and the specific ejido members making the sale of the real estate must be shown to have been successfully done (or in the process of being completed) for the ejido regime status to the specific land to be transitioned to dominio pleno, or that such process has been recently (and correctly) been completed. This is the famous “Dominio pleno“ (Civil jurisdiction) status of the then ejido. In either case, the buyer must be aware that any first dominio pleno transaction related to past ejido real estate requires prior to closing, the cure of any and all defects, including statutory familiar/conjugal/neighbor rights of first refusal, etc., be it in favor of the ejido itself, its members or avecindados (neighbors) prior to closing for the purchase of such land.
5. What does the Notario Público do?
Whether the land originated as an ejido or it comes from a civil law title, a real estate transaction of almost any significant value must be effected before a mexican Notary Public: A Notario Público is always a mexican lawyer acting on a governmental patent issued by the governor of each state (in the case of Mexico) and who is entrusted with the obligation to check:
- The identity of the buyer/seller,
- The characteristics of the real estate such as area, meters and bounds, geo-localization, whether it is only land or if other improvements exist, use of the land, whether any applicable administrative law restrictions on sales of real estate have been complied with (for example fraccionamiento or subdivisions law, condominium law, environmental preservation laws, etc.)
- The calculation of the taxes to the transaction (usually a 2% municipal transfer tax depending on the state), plus any income tax to be withheld as well as any capital gains in the transaction from the selling side and Value Added Tax on the improvements building/improvements to real estate except when the seller is transferring ownership of his or her primary residence or gifting it to a qualified member of his/her family.
- The legal transfer of funds between the seller/buyer (in accordance to newer anti money-laundering mexican laws). If the real estate is worth more than $535,000 mexican pesos (or about $30,500 USD @ $18 MXN per $1 USD), the Notario Público must confirm that the consideration paid for the transfer of the real estate was effected via bank draft or bank wire transfer.
6. Is there title insurance available in Mexico?
The short answer is yes and no. In practice, the great majority of the real estate transactions in Mexico occur without any title insurance policy being issued. Why? There were no title insurance policies available in Mexico before the 1990’s. In general, the mexican market is not very deep for insurance issuers of any type as compared to the USA. Even in Europe, the title insurance market is not very deep either. Most title insurers came from the USA in the first wave after NAFTA came into force in 1994 (Stewart Title, Chicago Title and others) and they already abandoned or sold their subsidiaries in the mexican market after the 2008-2009 Great Recession. There are only a couple of players in Mexico still present and they are very cautious and will rarely issue insurance policies except to extremely esteemed corporate clients whose parent company’s jurisdiction necessitates this type of insurance coverage, and the would usually buy extremely low risk real estate titles anyway.
7. Registration of real estate title
Why is it important? Once you obtained the legal title to your real estate transaction it is best to register it before the appropriate real estate registry to make it possible to oppose against anyone infringing on your possession or legality of title and make sure your expected appreciation in value continues unabated.
It is now common to find financial institutions that can help a potential buyer finance the purchase of real estate, especially in premium destinations like Los Cabos, Riviera Maya, Puerto Vallarta, Manzanillo, Huatulco and other inland destinations like San Miguel de Allende, Ajijic, Guanajuato City, etc.
A foreigner can inherit real estate located in most parts of Mexico (including residential), except that in restricted zones (100 km from the border or 50 km from the coasts), in order to assure orderly acquisition or bequeathing of residential real estate in the restricted zones, a foreigner must establish a residential bank trust with specific succession instructions.
8. Leases of residential real estate
Sometimes, the residence or real estate of your dreams is only available via a lease not being sold (sometimes for a fixed term of 20 or even more years)! Please be aware that many state’s civil codes establish absolute term restrictions, usually of 10 years. In any case, there are potentially many pitfalls in entering into these types of contracts namely if the lessor is really authorized to enter into these types of agreements, whether the state allows the rental agreement to have such a long term, to be agreed to in a specific foreign currency, etc.
I sincerely hope that these questions have been helpful in ascertaining real costs and the opportunities and the ways to mitigate or manage risks associated with investing in real estate in Mexico.
If you should have any questions please do not hesitate to contact us!
The content of this website is not or should not be considered as legal advice, the information displayed is for informative purposes only.