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Rules for Purchasing Your Dream Home in Mexico
by Linda Neil
This article is the first of two parts to be published in the Baja Insider. It is a comprehensive work by author Linda Neil and will answer many questions for those interesed in buying property in Mexico. Linda Neil has been in the real estate business in Mexico for more than 30 years. Her knowledge and credibility are well respected throughout the real estate industry here in Baja. She is one of the founding members of AMPI, the Mexican real estate association. Linda works as a buyers representative in your quest for the Baja Dream home.
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Mexico
is an exciting place to live for those who are retiring, for those who
are working from home on a computer link with their company, for those
who are looking for a vacation home or an outstanding investment... above
all, for those who dream of a better quality of life!
Home... the word represents security and comfort for the majority. All
too often the word, when used in conjunction with a purchase of property
in Mexico creates stress, worry and, at times has been associated with
financial loss. This needn't be the case. Procedures in searching titles
and transferring property are similar to those of the United States and
Canada. The buyer of a house, condominium or lot in Mexico must ask the
same questions, and should receive answers similar to those received when
buying a property elsewhere.
RULE NUMBER ONE:
SELECT THE COMMUNITY AND THE COMPANY THAT FITS YOU
In
considering the purchase of something so important as a home it is necessary
to have the right people representing the buyer and his interests. This
can be accomplished by first selecting the general area where you think
you'd like to live. A review of the local newspaper or telephone directory
will give a listing of the real estate companies in the area. Through
NAFTA agreements, the Association of Mexican Real Estate Professionals
(AMPI), is now affiliated with the U.S. National Association of Realtors
(NAR), the Canadian Real Estate Association (CREA), and the International
Real Estate Association (FIABCI). These important national real estate
organizations are working to achieve standardization of real estate practices
and procedures throughout the world. The company you select to represent
you in your Mexican property purchase should be a member of AMPI. Not
only is the AMPI member company required to operate under a higher standard
of care, and to adhere to a code of ethics, but also it may have access
to an increasing number of the properties available for sale through computerized
data bases.
Once the area is selected and a list of the AMPI companies operating there has been obtained - interview the owners and operators of the companies. Ask for references, ask for a professional resume. Interview carefully the persons that most impress you. The person you select should be familiar with area, with basic real estate principles... and should impress you with his or her honesty and drive to find what YOU are looking for. Once you have found the person you feel comfortable with, stick with him or her and let him do his job. The sales person who knows you aren't shopping around will generally work harder to find exactly what you are looking for. Remember, it is your money and your commitment. Do not be pressured by someone who is charming but who does not listen carefully enough to understand YOUR special needs.
RULE NUMBER TWO:
EXAMINE THE NEIGHBORHOOD
Once you have selected the right community, an agent with
whom you feel comfortable, AND a possible property, check out the neighborhood.
Is it new? Is it old? What will it look like in ten years? Are highways
or other development projects planned for the future? Where are schools,
churches, shopping facilities? Are there homeowner fees for maintenance
of common areas? If so, how much are they and when are they paid? Are
all the utilities in and paid for? What does the developer have left to
do? What building restrictions are there? Are there covenants and conditions
registered for the usage of the land?
In many parts of Mexico there is no enforcement of a master plan or building
codes. This can affect the changing face of the neighborhood you have
selected.
RULE NUMBER THREE:
BUDGET FOR YOUR PURCHASE, CHECK TITLE AND UNDERSTAND THE MEXICAN BANK
TRUST (FIDEICOMISO)
CLOSING COSTS:
Closing Costs will range from 4% to 30% (yes, 30%!) of the total cost of your property. The higher the price of the property, the lower the percentage of total costs for closing. This is because certain expenses for permits and certificates are fixed, regardless of the value of the property. Costs of transfer include title search, transfer taxes, bank fees, government permits and notary fees. Your seller may assist in some of these; especially those related to title search and insurance. Be sure to get a written estimate so that you will not have unwelcome surprises at the date of transfer of title! While your real estate agent may know the procedure, his or her specialty is to identify the correct property for you and to negotiate advantageous terms for the purchase. The technicalities of the transfer; negotiations for permits, registrations and so forth are generally more objectively and thoroughly handled by a neutral third party who does not have a financial interest in the transaction.
CHECK THE TITLE:
Does your seller have a registered title to the property? Many foreign buyers, in order to avoid the closing costs, or through ignorance, have paid for their property, taken possession of it, and have never obtained a registered title! Ask for a copy of your Seller's title documents and reserve the right to examine them prior to the release of any part of your payment. If they are in Spanish have them translated and, if in doubt consult with a neutral third party about their probable validity. It should be added that if the seller has never acquired title to the property he is selling, it can often be remedied. The buyer should be aware of this condition, however, and be certain that the person who accepts his offer is truly the holder of the title. Additionally, he should make arrangements for the additional costs, if any, involved in this double transfer.
UNDERSTAND THE MEXICAN TRUST - FIDEICOMISO
Payment of the purchase price is not enough. In order to have a valid ownership interest in the property which you are buying it is necessary to have the title recorded. This puts the rest of the world on notice that the property is yours. If you are a foreign person purchasing property in many parts of Mexico, including the entire Baja peninsula, the property will transfer not to your name but to the name of a Mexican bank as trustee for your interests. The Mexican constitution prohibits direct ownership of real property by foreigners in the "prohibited zone", a strip of land thirty miles wide along its seacoasts and sixty miles wide along its borders with the United States and Guatemala/Belize, as well as the entire Baja peninsula. This is the reason for the bank trust, the "fideicomiso", which has been established under the guidelines of the Mexican government so that foreigners may be protected in their property acquisitions.
Whether you are purchasing in a zone requiring a bank trust or in an area where title can be taken directly into your name, it is necessary that this transfer take place and your interest registered as soon as possible after the successful conclusion of the negotiations to purchase your dream property. Until this transfer takes place you are vulnerable: the seller may die, the heirs may be unwilling to recognize your rights in the property, you may become involved in a lengthy and expensive probate proceeding. Meanwhile, your interest may not be recognized by the authorities should you wish to obtain a building permit, by the bank should you wish to borrow money and use the property as collateral or as part of your assets; by the courts should a third party also claim an interest in the land, or, very importantly, should you later decide to sell it.
The prudent buyer of real estate in the United States or Canada would not consider leaving his title "in limbo" in either of those two countries; one should not do so in Mexico either.
The foreigner purchasing real estate in Mexico is buying personal, not real property if the acquisition is on the Baja Peninsula, within thirty miles of any coastline on the mainland, or within sixty miles of any border. The acquisition is personal property.
How does personal vs. real affect the foreigner who
acquires property under a Mexican bank trust? The effect is
negligible. Instead of using the words; "transfer of title" one
should more properly say "transfer of trust rights", or, "assignment
of trust rights". In practical terms the beneficiary has full control
of the property. He may direct the trustee bank to 1.- lease the
property, 2.- mortgage the property, or 3.- sell the property. The
foreign owner enjoys full rights of usage and may do anything to the
property permitted under Mexican law. He enjoys the same rights of
dominion as any Mexican citizen who has direct title to the property.
He may construct a building, tear it down or modify it in compliance
only with the local zoning and planning ordinances or, if applicable,
the homeowner's condominium regime.
A permit to acquire the rights in the property must be obtained from the Secretary of Foreign Relations and the terms of the permit form a part of the deed. Currently, the term for a trust is fifty years. Multiple renewals are permitted under the law. By requesting extensions each fifty years a property may be controlled by a family or business entity for generations.
RULE NUMBER FOUR: INVESTIGATE THE STATUS OF THE CONDOMINIUM REGIME
A word of caution for those who are considering the purchase of a condominium or a lot in a subdivision. Just as in other countries, the unit, or lot must be legally described and an individual property tax number issued. This individual property must be registered in both the Property Tax Office and in the Public Registry of Property. Often, a developer will spend time and energy on promoting the sale of the properties prior to completing the establishment of the Condominium Regime. Until this is completed, legal title to an individual unit or lot cannot be granted since there is nothing to describe! Be sure to investigate the status of the condominium regime prior to completing the offer to purchase!
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