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Real Estate 101 – Lake Chapala, Mexico
For non-nationals including American and Canadian ex-patriots, purchasing and owning real estate in Lake Chapala, Mexico has never been safer or a more viable proposition than it is today – but with any real estate transaction anywhere, due diligence is important. Find out more below.
A Guide to Purchase a Property in Mexico
Specific guidelines exist for foreigners to purchase real estate in Mexico. There is a process – which at times may seem redundant – and there are no short-cuts. All completed through a deed established by a Notario Publico or through a trust established with a Mexican Bank
How Do Foreigners own Property in Mexico?
Article 27 of the Mexican Constitution states that foreigners cannot own property outright within 100 kilometers (62 miles) of the international borders and 50 kilometers (31 miles) of the coast. This law was put in place for fear of foreign invasions that might threaten the country’s sovereignty. Non-Mexicans may directly own rural or urban land in the interior of Mexico subject to certain limitations on specific agricultural tracts. Lake Chapala is located well outside of the 50 kilometers restriction zone from the coastline, as well as outside of the 100 kilometers restriction zone from the internationl border. Thus foreign buyers may purchase property with the same legal procedures and legal protections as Mexican citizens. However, several extra steps apply for foreigners that Mexican nationals must not take.
What is the trust, and how does it work?
At Lake Chapala, you do not need a Fideicomsio, or Trust. Howeever, some buyers may choose to use one anyways. When a trust is needed, it is essentially same as a trust in most other places in the world – the trust is the vehicle that holds the property, the beneficiary is the person that controls the rights to the trust and the trustee is the entity that manages and oversees the trust. In this case, only Mexican banks can act as trustees (and they vary in terms of service and efficiency). So, you the buyer (or whomever you elect) become the beneficiary and the property itself becomes the subject of the trust.
Thus, the bank trustee holds the legal title to the property, with beneficiary of the trust – you, the buyer – enjoying all rights and privileges of ownership, including exclusive use and enjoyment.
The beneficiary enjoys the right to occupy or rent the property, and may transfer the property to any legally qualified person he may designate. Beneficiaries are also allowed to modify their property in accordance with local zoning regulations.
These trusts have an initial term of 50 years. They are renewable at any time or at the end of the 50-year period for a filing fee (approx. $1,000 US) for additional 50-year periods, in perpetuity.
Are there differences in other aspects of property ownership in Mexico?
Financing is relatively new in Mexico and not designed for non-nationals. If financing is something one wants or needs, get pre-approved ahead of time, just as you would in the U.S. or Canada. US or non-Mexican banks will not lend on the security of Mexican real estate as they are not chartered to do so. Some Mexican banks are now loaning to foreigners. For more updated specific information on current financing options in Mexico, check the “Financing” section under “Our Services” or contact your Biencom Real Estate agent for more info.
Closing costs to the buyer tend to be higher in Mexico than they are in most places in the U.S. or Canada, averaging 3 to 4 percent of the purchase price (If property is less than $100K, this percentage increases to a 6-8% range, due to some fixed costs, such as trust fees). Once a Purchase Agreement has been negotiated, closing usually takes between 30 to 60 days depending on contingencies and financing requirements.
Depositor Accounts are used almost universally in all transactions in Lake Chapala, which are usually the real estate companies themselves. There are also several reputable private escrow companies specializing in this function. Their fees can vary based on the nature of the transaction. This cost is typically paid for by the buyer; however, it can be split between the buyer and the seller.
The Notary of record is the Official Agent that collects all taxes and exclusively records all deeds to be registered in the Public Registry of Property office.
What are the requirements of the property deed (escritura)?
A copy of the real estate title or deed indicating the exact surface area, metes and boundaries, a free of lien certificate, receipts for federal, local or municipal Taxes (these documents are provided for by the Seller).
Your complete name, nationality, occupation, address and phone number. Copy of your passport, immigration form (if appropriate), phone or other bill serviced by mail to your address.
The name, nationality, address and phone number of the substitute beneficiary(ies) in case of death of the owner (Optional).
The agreed purchase price.
What is the process?
Upon receiving the information and documents described above, the Notario will proceed to apply to the Foreign Affairs Ministry (SecretarĂa de Relaciones Exteriores) for the permit authorizing the execution of the deed. Once the permit is issued by the Foreign Affairs Ministry, then the Mexican Notary Public.will be able to execute and formalize the deed. Notary Public Offices in Mexico have a greater legal status and competence than those in the United States. The Notary Public is an Attorney at Law who is authorized by the State Government to, among other faculties, grant final formality to the title transfer process in the protocol book. The resulting document taken from this protocol book (the deed) is registered at the corresponding Public Property Registry, and it will provide evidence of title. In the event that you cannot be present at the execution of the deed before the Notary Public, a power of attorney of may execute the deed on your behalf. Powers of Attorney for representatives must be granted in compliance with Mexican formalities including its formalization before a Mexican Notary Public.
What specific rights and obligations does the beneficiary assume upon the celebration of the deed?
As the owner, you will have the use and possession of the property; that is, you may live on the real estate, undertake any alterations and improvements subject to any applicable limitations and/or requirements stipulated by the local laws and regulations, such as zoning and construction regulations among others. You also have the capacity to of mortgaging the real estate, leasing it, selling, transferring your beneficial interests to another person or corporation, or performing any of the acts that by law derive from the ownership. Any assignment of rights must be formalized through a Mexican Public Notary, prior to the payment of the federal and local taxes and fees that arise from the transfer of rights. You will also have the obligation to pay the duties on the real estate, i.e.: real estate and water service taxes, power supply fees, the condominium maintenance fees if applicable.
What happens if the beneficiary of the trust dies during the legal period of the trust?
The Beneficiary will be required to appoint substitute beneficiary(ies) at the moment of formation of the Trust (Closing) or in a latter event. The substitute or secondary beneficiary will receive all the rights and obligations that arise from the Trust if the beneficiary dies during the life of the Trust. With this designation of substitute beneficiaries, your heirs will not need to follow any probate proceeding before the Mexican courts, which could take time and Attorney’s Fees. They would only have to give notice to the bank of the deceased and show the death certificate and their identifications, and then the Bank will accept and register them as the new owners (beneficiaries) of the Trust Property. Some fees and taxes will apply.
Can I sell or transfer my interest in a trust?
A Trust interest may be sold or transferred much like any other interest in real property. Upon the sale of an interest in real estate held under a Trust, the Secretary of Foreign Relations is required by law to issue a new Trust permit to the buyer. If property held under a Trust is sold to a Mexican National, the Trust can be terminated and the Mexican National may then own the property in fee simple.
What about the availability of insurance on the transaction (title insurance), as well as the property itself?
Title Insurance is available. Other types of insurance, including property, liability, damage and earthquake, are all readily available, at low costs. Please ask your Biencom Real Estate agent for further information regarding this matter.
What about taxes? What can I expect to pay in Mexico?
For the buyer, the subject of real estate taxes generally comes as good news: especially in the Lake Chapala region where real estate taxes tend to be very low. Known as the “Predial”, the annual property tax is calculated as a percentage of the assessed value determined at the time of sale, paid bi-monthly or yearly (in advance). Property taxes have been historically low in Mexico, because they have never been considered to be a significant source of governmental revenue (plus, if you pay for the whole year in advance, before February 15th, you get a 10% discount).
What other expenses should I consider on the purchase of property in Mexico?
If you are not planning on living full-time in Mexico, property maintenance will need to be considered for the time you are away. For condominium owners common area maintenance and security is handled by the Condominium Owners Association, paid for through monthly fees. Homeowners may want to consider a property management company to manage the payment of utilities, inspect the property, check on renters should the property be rented, and respond to any issues surrounding the property.
How can I be assured of dealing with a qualified Real Estate Professional in Mexico?
One of the major differences in buying properties south of the border stems from the fact that Real Estate agents in Mexico are not subject to any national certification or educational requirements. As such, the best advice you can act on is to always deal with an established Real Estate Agency, whose references you have checked personally with several former clients.
In addition, the agency should be a member in good standing with the Mexican Association of Real Estate Professionals (AMPI). The AMPI Chapter in Ribera de Chapala is new, however it was built on the backbone of the IMB A.C., which itself was built on the Grupo Inmobiliario del Lago. This organization of realtors has been in existence for about 30 years. They are associated with the Chapala Association of Realtors MLS, among other things, and have a very stringent admission process. Biencom Real Estate is one of the original founding members of the local AMPI Chapter and has always maintained an active role in the local real estate association over the years.
