Purchasing a property in Mexico
What is a Fideicomiso?
In the ‘restricted zone’ of Mexico (100 kilometers from the border and 50 kilometers from the coast) a foreigner may purchase real estate only by means of a Fideicomiso, commonly called a Trust. The Fideicomiso is a 50-year, renewable bank trust granting a foreign Buyer the right to use, enjoy, improve, rent, sell or otherwise enjoy the property. The foreign Buyer is called the Beneficiary of the Trust. As the beneficiary, you retain all ownership rights and responsibilities to the property and have the right to sell, lease, improve, mortgage or will the property to your heirs. Essentially, the beneficiary of the property enjoys all the rights he would if ownership were fee-simple. The parties involved with a Fideicomiso are: The Trustee, (The Fiduciario, Bank or Trustee), the Purchaser (The Fideicomisario or Beneficiary) and the Seller (the Fideicomiente).
Can I renew my Fideicomiso when it expires?
Currently a Fideicomiso is issued in 50-yr increments which can automatically be extended by an additional 50 years at the end of that term. Under current Mexican law, at the end of the combined 100-yr term, you will need to apply for a new foreign affairs permit to extend the term.
Will my Fideicomiso title be in English?
The Fideicomiso is drafted and executed in Spanish; however your final closing package will include a certified translation of this document in English for your closing files.
How do I begin to create a Trust?
The closing Notario will write up the new trust and will work with the closing coordinator to establish it.
Why do we need a water bill?
The water bill is used to determine if the selling property was the primary residence of the Seller or not, which then dictates whether or not the Seller will have to pay capital gains taxes.
What happens if the Beneficiary under a trust dies?
Since the incorporation of the trust, or the appointment of Beneficiaries under a trust, the primary beneficiary can appoint beneficiaries in case of death. In this case they will just have to prove to the Trustee Bank that the Estate proceeding in the country of origin has started and that in the will of that person no one else was appointed as a new beneficiary.
What is a Notary?
A Notary in Mexico, called a Notario Publico, is a licensed attorney, certified by the State or Federal government to act as an official and unbiased representative of the government of Mexico. A Notary in Mexico has far greater responsibility than a Notary in the United States. The Notary performs a variety of tasks including the authentication of legal documents, the calculation of capital gains tax and is responsible for ratifying ALL real estate transactions in Mexico. Any real estate transaction not ratified before a Notary and duly recorded in the Public Registry is considered invalid and not enforceable.
What does the Notary do in a Real Estate transaction?
In a real estate transaction, the Notary is equally responsible to both Buyer and Seller, however, they are ultimately responsible to the Mexican government. Their job is to insure the legality of the transfer of title, to calculate and retain Seller’s capital gain tax on behalf of the Mexican government, collect the Purchaser’s 2% Acquisition Tax and pay it to the Department of Foreign Affairs, coordinate appraisals, certificates of no liens, certificates of no debt and request all corresponding permits. After Closing, the Notary must record the transaction at the Public Registry and at the Cadastral Office (Tax Office). For this service the Notary charges a fee based on the value of the property.
Who is the trustee bank?
The Trustee bank is the Mexican Bank authorized to act as Trustee (Fiduciario). The Trustee Bank must be a Mexican registered financial institution with an established trust department. It is worth mentioning that the properties held in trust are not assets of the bank and size of the bank is not necessarily a sign of better trustee service.
When deciding on the trustee bank the Notary will usually look for a Bank with a local empowered Trustee Officer in order to facilitate the closing in a more efficient manner. As a Buyer, you have the right to select any qualified Bank as your Trustee Bank. Puerto Los Cabos currently uses the services of the following Trustee Banks which operate in Baja California Sur: BBVA, Bancomer, Banco Interacciones, ScotiaBank Inverlat, S.A., HSBC and Santander Serfin.
Does it matter which trustee bank I use?
The role of the trustee bank is to act as the trustee of the property held in trust. The trustee bank officer’s signature will be required at closing, in any form of litigation, and at the time of sale of the property, etc. When choosing a trustee bank, the Notary will always look for the location of the trustee bank’s empowered officer – it is important to have the trustee officer located in or near Los Cabos; and the current trustee of the property – in the case of an assignment of rights of the existing bank trust, the Notary will use the same trustee bank which currently holds the property in trust. This occurs most often in private resale of property.
Is my property an asset of the trustee bank?
No. Property held in trust or Fideicomiso by a trustee bank is not an asset of the bank. In the rare case that the bank goes into financial difficulty, the property is transferred to another trustee bank. These laws are federally imposed.
What happens if the trustee bank files bankruptcy?
Nothing! Properties under a trust to acquire property in the restricted zone are not part of the Bank Assets. A new trustee bank will take care of the existing trust.
How should I title my property?
A purchaser may title the property in any way property could be titled in the United States – in their individual name(s) (either via joint tenancy or tenants-in-common), an individual or family trust, an LLC or other US corporation or partnership, etc. This is a matter better determined by the Purchaser’s United States legal or accounting advisors, as tax and legal consequences in Mexico are the same for a foreigner in Mexico regardless of how the property is titled.
Can I title my property in a Mexican Corporation?
Property can be titled in a Mexican Corporation and held fee-simple (without a Fideicomiso), however it is illegal for a foreigner to own property in this manner for residential purposes. We suggest that you discuss this option with your United States and Mexican legal counsel and financial advisors prior to making this determination.
Why is an In-house Closing Officer so important?
Puerto Los Cabos employs a Closing Co-ordinator to oversee the integrity of the transaction. Much like a title and escrow agent in the United States, the Closing Co-ordinator’s role is to coordinate all aspects of the sale process, working with Purchaser and Seller and their respective legal counsel or representatives performing the following services:
- Prepare the escrow agreement and instructions to be signed by Buyer and Seller Act as liaison between Buyer, Seller and Mexican Notary
- Collect all documentation required in Mexico from both Buyer and Seller Oversee and coordinate completion of all due diligence requirements Coordinate and confirm all deposits to escrow.
- Obtain all title commitments and title insurance on behalf of Buyer
- Create and provide all final closing statements, prorates and escrow instructions.
- Provide you with a final closing binder, complete with your Trust, final statements, receipts, copies of all executed agreements and all documentation related to the closing process.
When do I get the title to my new property?
On the day that the title is signed by all parties; Purchaser, Seller, Notary and Trustee Officer. Only then is the Title officially and irrevocably transferred. It is important to note that the Notary must record the newly transferred deed for public record. This process takes approximately three months after the Closing. Once fully recorded in the local tax office and public registry, the Notary will prepare the final statements, submit a copy of the fully registered deed to the title insurance company and forward the final closing package to the Snell Real Estate Closing Officer, who in turn will forward to the Buyer.
When do I get possession of my new property?
Unless otherwise negotiated by the parties, the possession of the property is transferred simultaneously with the transfer of title and release of funds from escrow to the Seller.
What does my final closing package include?
Your final closing package will be submitted to you in a binder and will include:
- Your deed of title (Fideicomiso)
- An English translation of the deed of title (Fideicomiso)
- Copies of all Purchase Agreements executed
- Copies of Escrow documents executed
- Final Closing Statements and receipts (facturas)
- Copies of the CC&R’s of the Development
- Information on how and when to pay your annual bank trust fees and property taxes and any other information or due diligence materials you have requested.
When do I give money to a Seller?
Funds held in your escrow account remain there until the trust, (Fideicomiso) is fully executed and the transfer of ownership is complete. Once the trust is fully executed, all funds required to pay the Seller are released in accordance with the disbursement Instructions executed by Buyer and Seller prior to closing.
What type of escrow is opened when a Buyer finds a property?
A limited escrow is opened after a purchase contract is signed to receive deposits for the Notario, Trustee and Lender.
Why is third-party escrow so important in Mexico?
Currently the concept of “escrow” is not formally recognized in Mexico. Many area Brokers use basic checking accounts which they call escrow accounts. This is not a safe way to operate since the Broker can control the release of funds at anytime. This is the main reason that Puerto Los Cabos recommends a third-party escrow for Mexican transactions. In a true escrow account, only the Purchaser and Seller can direct the release of funds, and the conditions of release are agreed to in signed disbursement instructions executed by both Buyer and Seller.
How long does the Closing Process take in Mexico?
Puerto Los Cabos has an efficient and effective system to close real estate transactions. In most cases, a real estate transaction in Los Cabos can be closed in 60 working days for a cash transaction or 90 working days for a transaction involving financing. However, due to Mexican Holidays, permit delays, the Trustee Bank, etc., delays can occur. These delays are not considered defaults by Buyer or Seller as they are events beyond their control.
What does the “closing date” mean in my contract?
The Closing Date is the date established in the Promise to Purchas. It is important to understand that the closing date is the “target” closing date, as the actual and final closing date is ultimately determined by the Notary. While every effort is made to close on the established closing date, there are many variables to a Mexican closing, including Government Offices, Bank Trustees, Mexican Holidays, Permit Delays, etc.
Who are the parties involved in the purchase?
The parties in the Mexican real estate transaction are:
- Buyer and his/her realtor &/or legal counsel
- Seller and his/her realtor &/or legal counsel
- Snell Real Estate Closing Officer
- Escrow Agent
- The Notary
- The Trustee Bank
If financing is involved:
- The Lender
- The Loan Officer
- The Appraiser
Do I need to be present in Mexico at closing?
In most cases, no. In the majority of transactions the Notary will prepare a simple bank instruction letter with a specific power of attorney for purchaser and Seller to sign remotely. These letters will advise the trustee bank of the party’s individual intentions in regard to the purchase and sale of the property and direct the trustee to act on their behalf. This letter will be attached to the Fideicomiso at closing in lieu of the parties signatures.
What are closing costs in Mexico?
Closing costs in Mexico are calculated much differently than in the US. The largest portion is the mandatory 2% Acquisition Tax paid by the Buyer for all real estate acquisitions. Other costs include permits, Notary fees, certificates or no debt, appraisal, etc. Depending on the purchase price, Closings Costs can run anywhere from 3.5% to 6% of the purchase price. All closing costs are deductible expenses when you sell your property.
- In Mexico the burden of transferring title is on the Purchaser, not the Seller. The Seller has no responsibility in the sales process with exception to his/her own legal fees and payment of his/her capital gain tax.Therefore, all Closing Costs are the expense of the Purchaser and all receipts issued for these expenses are deductible for Purchaser. These are all credits toward your future capital gain tax if and when you sell the property.
- In the US your closing would likely be overseen by a title company which would as likely charge a minimum shared fee. In Mexico, title is transferred by a Notary who acts on behalf of the state and federal government as a type of “clerk of the courts”. The Notary is actually responsible for the transfer of title and maintaining it on file officially, as well as recording the documents with the public registry, tax offices etc. He is further individually responsible for the payments of all associated taxes and fees. The Notary’s fees are charged based on an established grid provided by the Mexican government, which is based on the purchase price.
Where is my title registered?
Title is recorded in the local Public Registry office. The local tax office (Catastral) is also updated with current owner information once title is transferred.
What is the Public Registry?
The local public registry (Registro Publico) is the Registry of Public Properties. This office maintains the record of ownership of all properties held in the municipality and a contract is not formally validated until such time as it has been registered.
Is my personal information of public record?
Only the Owner’s name(s) are of public record. All personal information requested, such as date of birth, social security numbers and address is maintained in confidence by the Notary and Trustee Bank.
What taxes do I have to pay annually?
The only taxes due annually in Los Cabos are property taxes (Impuestos Prediales). These municipal taxes are published at the end of January and must be paid at the local tax office located in San Jose del Cabo next to the fire station, and in Cabo San Lucas in the municipality offices. If payment is made by the end of February, you may be eligible to benefit from a 10% discount. Snell Real Estate is pleased to help facilitate the payment of these fees.
Are any taxes I pay in Mexico deductible in the US?
In accordance with NAFTA, Seller’s capital gain, a federal tax, can be credited in the United States. The possibility of any other deductible fees or taxes should be discussed with your United States financial advisors.
What is a factura?
A factura is an official, tax-deductible invoice issued by a Mexican company or individual. This is the only receipt that is tax deductible in Mexico. The factura is a customized printed invoice, identifiable by the red factura number in the upper right hand corner and the imprint of the payee’s tax ID number and seal (Cédula) in the bottom left corner. The receipt of the factura requires that the paying party pay the additional 10% IVA over the value of the service or goods.