VISITAS
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Topics: Foreign Ownership
Foreigners
citizens may obtain direct
ownership of property in the interior of Mexico. However, under Mexican
law,
foreigners cannot own property outright within the restricted zone.
Instead, a
real estate trust must be set up to hold title for the foreigner. Since
foreigners are not able to enter into contracts in buy real estate,
they must
have a bank act on their behalf, much as a trust is use to hold
property for
minors because they also can not contract. The following is a brief
outline of
the law regarding such trust, known as "fideicomisos", but potential
buyers should always get advice and have all real estate transactions
overview
by a licensed Mexican attorney.
Normally, there are three to four players
involved in any real estate
transaction in the restricted zone:
All four are
helpful in their respective areas in assisting with real estate
transactions. Transactions outside of the restricted zone do not
involve a bank
since it is not necessary to establish a real estate trust in those
areas.
Otherwise the transactions are much the same. Because of the
similarities of
real estate transactions in general, it is easy to assume that the
basic terms
and principles which are familiar in the United States also hold true
in
Mexico. This assumption becomes easier to make when United States real
estate
terminology is adopted for transactions in Mexico. Much of the
paperwork is
similar, if not exactly the same, as that used in the US. Although,
there are
many aspects of Mexican real estate transactions that are identical to
procedures carried out in the United States, there are many aspects
that are
completely different. As a rule, a foreigner should assume nothing.
Mexican real estate transactions are not carried out in the same manner as United States real estate transactions. The buyer must retain professionals to assist in the transaction. Mexico has yet to regulate real estate transactions. Real estate agents and brokers are not legally licensed in Mexico. Consequently, a foreign buyer cannot always depend on the normal safeguards that would be applied to real estate transactions in the United States. The old saying "let the buyer beware" is very appropriate. Anyone can set up a real estate company in Mexico. There are no special requirements or brokerage licenses to obtain. A would-be real estate agent merely has to establish a Mexican corporation, obtain a work visa, and he is in business. There are good reasons why the real estate industry in the United States is highly regulated. Until the real estate industry is regulated in Mexico, there will always be some real estate companies who prefer that buyers know as little as possible about real estate transactions. After all, a buyer cannot ask questions if he does not have any knowledge of the laws. Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico. Some states are beginning to look at some kind of real estate legislation, but it might be some time before this is a reality. The American Embassy and the American consulates in Mexico are good places to start when trying to determine if a real estate company is reputable. Some of the real estate companies have established quite a reputation for themselves at some of the Consulates. A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of sale. Additionally, an attorney can do a title search and point out any problems or alternatives a buyer may have. The buyer should always have his or her own attorney rather than using the attorney of the seller or some attorney used by a real estate company free of charge. As the old saying goes, you get what you pay for, and usually if someone's services are offered free of charge you are probably paying for them in some other way. Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a "cédula profesional." This document is a registered license to practice law in Mexico and includes a photo of the attorney and his signature. To be sure that an attorney is licensed in Mexico, a foreign buyer should ask to see the attorney's license, or have the attorney's license number included in a retainer agreement before employing any services. American attorneys are not licensed to practice law in Mexico and should not give advice on Mexican Law. I should clarify, here, that I am referring to individuals who are licensed to practice law in the United States, and not merely individuals who are citizens of that country. There are currently very few Americans who are licensed to practice law in Mexico. The fact that a person is licensed to practice law in the United States in no way allows him or her to practice law in Mexico: Mexican or United States law. Besides formalizing your real estate transaction, an attorney can be very helpful in saving you money. This is because attorneys are involved in many different transactions and have contacts with banks, notaries, and the Mexican government on a regular basis. Because of this they are aware of the most competitive cost and fees involved in a transaction and can make sure that the buyer is given the best possible prices. An attorney can also inform the buyer regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or other savings when the buyer eventually sells the property. When looking for an attorney it is important to remember that any Mexican attorney can normally handle a real estate transaction. The buyer is not limited to only the local attorneys where the property is located. All real estate transactions involving a trust are governed by federal law. This means that all such transactions are carried out the same way regardless if the property is in Cancun or Los Cabos. THE
RESTRICTED ZONE AND
"FIDEICOMISOS" The law declares
that the Mexican nation has original ownership to all land and
water in Mexico, as well as minerals, salts, ore deposits, natural gas
and oil;
but that such ownership may be assigned to individuals.
The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "restricted zone." The restricted zone encompasses all land located within A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value to any eligible buyer. In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up. Given the changes made for The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be:
The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits "...considering the economic and social benefit, which the realization of such operations imply for the nation." The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future. The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized. There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary. A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.
A home is usually your largest single investment. When you purchase a
home, you purchase homeowner’s or hazard insurance to protect against
loss from
fire, theft or wind damage.
Title insurance protects against hidden title hazards that may threaten
your financial investment in your home. You see, when purchasing a
home, you
are really purchasing the title to the property – the right to occupy
and use
the land and improvements.
Other types of insurance focus on possible future events and charge an
annual premium. Title insurance is purchased with a one-time premium
and
safeguards against loss from hazards and defects that already exist in
the
title.
There are two basic kinds of title insurance: lender or mortgagee
protection, and owner’s coverage. Most lenders require mortgagee title
insurance as security for their investment in real estate.
Owner’s title insurance lasts as long as you, the policyholder – or
your
heirs – has an interest in the insured property. Depending on local
practices
and state law where the property is located, you may pay an additional
premium
for an owner’s policy or you may pay a simultaneous issue charge for
the
separate lenders coverage. Title
search and examination is the first step
Insuring a home’s title begins with a search of public land records
affecting the property. The title agent or attorney working on behalf
of the
title underwriter examines pertinent documents to determine whether the
property is insurable.
Those documents (among others) include deeds, wills, trusts,
outstanding
mortgages and judgments, property liens, highway or utility line
easements,
pending legal actions and notary acknowledgements.
When title problems are disclosed during the search process, they are
corrected whenever possible to avoid future claims. According to
surveys done
by the American Land Title Association (ALTA), title problems
consistently
arise in 36 percent, or one out of three real estate transactions.
The process of performing title searches and curing title problems does
not come cheap. Industry studies find that title insurers spend an
average of
92 cents out of every premium dollar as their cost of doing business. What
if a problem is hidden or missed?
After all this searching and examination, title problems may still be
hidden or missed. A signature can be forged on a deed; an unknown heir
can step
forward to claim ownership of the property; a power of attorney used
during a
property transfer could have been expired or forged; a public record
may be
incorrect.
In each of these cases and many more, when there is the appropriate
title insurance coverage, a policy will offer financial protection
(subject to
the terms and conditions of the policy). The title insurer defends the
title
and either “perfects” the title or pays valid claims.
In 2005, title insurers paid approximately $916.4 million in claims, up
from $699.1 million the year before.
With title insurance, you have financial protection against covered
title hazards. Your home is your most important investment – protect it
with an
owner’s title insurance policy.
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