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Real Estate tips >Buyers
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The Property Buying-Selling Process in Mexico
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What do I need?
One of the most frequently questions is “What exactly do I need?”. In order to buy a property you will need an official identification complete with photograph. If you are a foreigner in Mexico, then you will need both your passport and the blue and white tourist visa that was expedited on your arrival into the country. Your real estate broker will take care of the rest.
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| MIGRATION (Applicable if you are a foreigner)
Once you have taken the decision to reside in Mexico for a period longer than 6 months, you must apply for legal documents (namely the FM3) to remain in the country. The FM3 is easy to obtain, you yourself can undertake the majority of the application procedure. This document bestows a non-immigrant status upon the bearer and can be solicited from the National Migration Institute (Instituto Nacional de Migración or INM) located in Puerto Vallarta. The FM3 needs to be renewed on an annual basis by filing for an extension. After holding an FM3 for a period of 5 years, you can then apply for an FM2. The FM2 bestows the status of immigrants upon the bearer and can be solicited from the National Migration Institute located in Mexico City. These applications can take some time to be approved and will more than likely require professional assistance. Your real estate agent can recommend a lawyer to help in the trickier aspects of obtaining these documents.
The privileges that come with the FM2 and FM3 are the same; however, there are some inherent differences between the two. With an FM2 you can maintain and drive a car from an another country and bearing foreign license plates for a period of 5 years, after this period of time it is necessary to sell the car outside the country. With an FM3 you can maintain and drive a car from another country and bearing foreign license plates for as long as you conserve your non-immigrant status. When dealing with an FM2, you may not leave the country for more than a total of 18 months within a 5 year period. This rule does not exist with the FM3, as you may enter and leave the country as and when you wish.
You can apply for you FM3 in any Mexican Consulate or wait until your arrival in Mexico. There are bilingual representatives within the INM in Mexico City and lawyers who are willing to offer their services for what is considered a just fee. You will need a copy of your birth and marriage (if applicable) certificates. You will also need to fulfill the minimum earning criteria. You will have to demonstrate earnings of $1,000.00 US for each month that you will remain in Mexico.
You can show receipts of payment or three bank statements showing sufficient funds or a letter from Social Security showing your pension funds. The reason behind showing these documents is to confirm that you can indeed stay in the country without needing to work throughout the whole period of your extended stay. You will need passport photographs and have all of your documentation translated from English to Spanish.
In some cases, a visa holder may be granted the right to work in Mexico, Firstly, you should find an employer who will sponsor you and then apply for your work papers. The decisive factor for the INM to grant you said papers, is that you are not taking the job from a Mexican citizen. With your FM2 or FM3 you can also avoid paying Income Tax (Impuesto Sobre la Renta) when you sell your property in Mexico. Once you have bought the property, your migratory papers must then bear that address. If you can prove that you have been living in your property in Mexico for a period of 6 months then you are eligible for an Income Tax exemption (this can be verified by presenting telephone or electric bills bearing your name and address). It is important to remember to apply for your migratory documents bearing in mind that it can be a lengthy process. It can take up to 8 weeks to receive your full documentation. You must not allow your other documents or visa to expire before receiving your FM3.
You can enter Mexico by car. However, there are certain rules and regulations that you need to adhere to. Once in the border area you must stop at a security checkpoint, which takes around 20 minutes. You will need a certified copy of your car deed as well as a credit card; there is a small fee that must be paid using a credit card. You will receive your blue and white tourist visa and a sticker that must be placed on the windscreen of your car to show that is indeed in the country on a legal basis.
You will also need, amongst other documents, a list of people who are authorized to drive the car while you are in Mexico. Tourist visas are valid for a period of 6 months (consider this when you are asked how long you plan to stay in the country). In doing so you will have enough time to arrive at your destination point and begin the application process for your migratory documents. After the checkpoint comes a search point where you will find the same Green Light/Red Light system used in the airport. If the Red light appears then you will be stopped and you and your car will be examined. Be ready to pay a small customs fee for any electronic equipment that you are bringing into the country.
In terms of computers; laptops are acceptable, but you may not bring used desktop computers into the country. New and boxed computers are allowed after paying the corresponding customs fee. Not to worry as you can purchase the most up-to-date computer hardware and software at very reasonable prices here in Mexico.
What is a Trust?
A bank (the Fiduciary) enters into a Trust with the person or persons who acquire a property (Trustees). This property does not form part of the assets of the bank and are inalienable. The beneficiaries have all the rights of possession for the property and can sell it, rent it, mortgage it or inherit it, in a legal sense. A Trust is not a rental agreement. The Mexican government established that a Trust is a means of protecting foreigners interested in acquiring a property in Mexico. The reason behind using a Trust to facilitate the transmission of a property from one person to another is to ensure that, by means of an automatic revision, it is done in a law abiding fashion. The bank asks for the verification of the possession, insurance and the lien release of the property.
In years past, a large amount of foreigners acquired properties in an illegal fashion and in this period there was no way of protecting them as no verification checks were available. With the advent of new laws and the appearance of professional real estate agents, property transactions are now more secure. Please do not buy a property without the help of a professionally qualified real estate agent, and who are recognized by the AMPI (Mexican Association of Real Estate Professionals). Some people are lured by “cheap beach front properties”, but remember that this type of properties that appear too good to be true, are really just that: too good to be true.
A Trust can be granted and extended for periods of 50 years. If you acquire a property whose deeds are currently held in a Trust, the latter can be extended for another period of 50 years or the existing Trust can be transferred to the new buyers. Trusts are renewable at any time by asking the bank for the suitable application form. It has never been the intention of the government to appropriate these properties once the duration of the Trust has been terminated. It is a common misunderstanding, and one which causes many buyers to think twice. In fact, once the period of 50 years has expired, the owner of the property has a further 10 years to renew the Trust.
In the event that the parties involved (buyer and seller) are of Mexican nationality, it is therefore not necessary to apply for a Trust, instead the transferal of the property is effectuated by means of a Public Deed, in which the closing process is much less convoluted and takes less than 30 days. All requirements and steps to the process are mainly the same.
Fiduciary Fees
There is a fee of approximately $3600 pesos to enter into a Trust agreement and an annual fee for the period of its duration. You should check with your real estate agent the current fees applicable for Trusts, which vary from bank to bank. This fee covers the documentation process, as well as the report submitted on your behalf to the government. In order to enter into a Trust agreement, you will need the letter of acceptance of your bid for the property, an official, photographic identification and 10% of the price bid for the property. DO NOT hand over money to anyone but the bank’s fiduciary service agent.
You should sign a contract with the bank the moment that you deposit the aforementioned 10%. Your real estate agent will help you with the opening of your fiduciary service account.
Taxes
In general, taxes paid on properties in Mexico are relatively low. Property Tax, known as “Impuesto Predial” is 0.1% of the total value of the property. This tax is levied annually, using the current value as determined at the moment of its purchase. If you acquire a property with a value of $1,000,000 pesos, then you will pay only $1000 pesos in Property Tax. The reason behind these taxes being so low is that they will never be a source of revenue for the government.
The Closing Process
The Closing Process can take between 30 and 45 days. In this period, your real setae agent is working with the bank to open your fiduciary service account, with an attorney to prepare the deed and documentation necessary for the closing process and to verify the lien release of the property title. Closing costs are paid to the buyer and are usually between 6% and 8% of the property price.
This is divided into 2% VAT paid to the government and 4% for other closing costs, such as the title search, attorney’s fees, obtainment of information and legal documents. Ask your real estate agent for his trustworthy estimation of the closing costs for the purchase of the property. The seller is responsible for paying Income Tax and any other debt that the property has at the moment of sale. The buyer doesn’t necessarily need to be there at the closure. However, he or she can grant Power of Attorney to a trustworthy person who will undertake the process of closure in their stead.
The Notary
The Notary is an official named by the Mexican government who is a vital part in the closing process. The Notary is a type of public attorney and their services are necessary in the changing of hands of the property. The Notary is also the attorney that vouches for the legality of the process and is an official representative of the government. A Notary has the fiduciary responsibility for both parties and ratifies the contract from a legal perspective.
A Notary must first practice as an attorney and then follow a special educational process in real estate and agrarian law, in order to obtain their Notary status. Sometimes the “status allocation” of a Notary may not have been granted by the government and as such this type of “Notary” may not follow the law. Your Real Estate Agent will be able to refer you to a recognized and trustworthy Notary.
ACQUISITION OF A PROPERTY THROUGH A COMPANY
This a frequently asked question. In 1994, a reform in the Foreign Investment Law opened the way for the possibility of a Mexican company being 100% owned by a foreign investor. You too, through a company or corporation, can own deeds, without the need for a trust, within the Restricted Zone. This is advantageous for foreigners who own a business. However, this is not the solution for everyone. Commercial properties are charged higher telephone, water and electricity rates. The Mexican government has adopted strong measures against the purchase of property through corporations, unless it is clear that it will be used solely for commercial purposes. Using a trust to obtain property deeds is a more secure form and generates less potential problems with the Mexican government.
Administration of your property
Many property owners leave their property vacant at some time during the year. If you have a condominium, you must pay your monthly maintenance charges. Home owners should consider hiring a property administrator who will be in charge of looking after payments if you are not present. The Bienes Raices Group has a list of Property Administration companies who deal with these issues, please ask your Real Estate Agent for further information.
Insurance
There exist various types of insurance in Mexico. You can contract life, medical, car and property insurance. The premiums are relatively low. Your Real Estate Agent will be able to refer you to a recognized insurance company.
Financing
Historically, real estate transactions in Mexico have been carried out in cash. Recently, the Mexican Market has opened financing options or mortgage credits. There is an array of different financing options available to you. We offer a variety of institutions which provide financing in Mexico. The aforementioned can also help you in undertaking a financial analysis of your second home. Just as does your Real Estate group, they will offer help in finding the right type of financing for your home, so please feel free to ask any questions you deem necessary. Ask your Real Estate agent to set up a meeting with a mortgage representative so as to help you with any questions or doubts you might have.
Obtaining Financing
In order to begin the financing process, you must answer a few simple questions:
Full Name:
Address:
Telephone Number:
Fax:
Business Name:
Position or Occupation:
Age of Business:
Business Address:
Business Telephone Number:
Annual Income:
Mortgage Loan:
Balance
Monthly Payment:
Credits / Total Monthly Income:
Savings/Checking Account:
Balance:
Shares / Bonds:
The Closing Process (as applicable for domestic and foreign residents)
The Agreement Congratulations! Your offer has been accepted and ours has been looked over by our legal department. There are two columns: one in English and one in Spanish. In order for a contract to be legal in Mexico, it must be written in Spanish. However, we provide you with an English translation of said contract. We understand that buying a property in a foreign country is a difficult undertaking, and as such we aim to offer you the easiest and most hassle-free service possible. One the offer has been signed by both parts (the buyer and the seller), as well as witnessed, then you have a 100% legal contract.
Contingency Account (Escrow Service)
The accepted offer is accompanied by a deposit to the value of 10% of the sale price (formal deposit). These funds are kept in an escrow account in your bank. The deposit is used to cover the closing costs, obtain the necessary legal documentation, appraisal, inspection and searching of deeds. The remaining money remains in escrow until the date when the deed changes hands.
Deed
In order to obtain the deeds, your Real Estate Agency, the Notary and the Banking Executive coordinate in order to complete the following stages:
To ensure that the property is free from any outstanding debts. This is guaranteed by obtaining the Lien Release Certificate from the Mexican Treasury. Additional enquiries will be made to confirm that there are no irregularities with Federal taxes or other services.To obtain permission from the Foreign Affairs Department to constitution of the deed in Trust.To obtain a property appraisal.To undertake an inspection of the property.To prepare all the necessary documentation for both the buyer and the seller. When all these pre-requisites have been fulfilled, then the outstanding balance should be transferred to the escrow account. You should write a letter of liberation, mentioning that the money is to be remitted to the Notary to undertake the signing of the deed. The letter will establish the means by which the money and the closing costs will be distributed. Your Real Estate Agent will help in the writing of this letter and its sending via fax for approval. Once the Notary has distributed the money, you will be the proud owner of a new property in Mexico.
Income Tax
The seller is obliged to pay the Income Tax on the property when the deal has been successfully brokered. Income Tax is 35% of the difference between the price the property was bought at and the selling price, with the corresponding adjustments to take into account the rate of inflation. Another option is that the seller pays 25% tax, without deductions, on the total value of the transaction. In 2004, there were many changes to the Income Tax Laws, and the new law states that: Individuals who establish their domicile in Mexico. Even if they have another domicile in a foreign country, are considered residents in Mexico only when their vital interests are in Mexican territory. As such, these shall be the following cases for aforementioned vital interests: 1. When more than 50% of their total income for one calendar year is generated within Mexico, or 2. When they undertake, in Mexico, their main professional activity.
If you have a domicile (property in your name) in another country, you should demonstrate that you have you remain domicile here in Mexico where the majority of your vital interests lie, or that the majority of your total income (more than 50%) is generated in Mexico throughout the course of one calendar year. Furthermore, you should have in your possession a migratory document which shows the domicile of your property as your home and where the electricity, water and telephone bills are in your name.
(Feb. 29, 2004) These reforms continue to be analyzed and this is merely an interpretation of the Law.
We hope this information will be of use to you and will help you in your decision to acquire a property in Mexico.
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