We get many questions from people who are considering purchasing property in Mexico. Today, we thought it would be useful to step back from our regular blog content and focus on key questions and answers about Mexico real estate.
What is the federal maritime zone?
The Federal Maritime Terrestrial Zone is the twenty-meters-wide strip of mainland that is walkable and contiguous to the beach. The Federal Zone is comprised of the Federal Maritime Terrestrial Zone (ZOFEMAT), Reclaimed Land (terrenos ganados al mar) and land gained from the sea.
Who owns the beaches in Mexico?
Whether you are Mexican or not, you cannot own the beach. In legal terms, there is no such thing as a ‘private beach’ in Mexico. The Mexican constitution decrees all beaches to be publicly-accessible federal property, and as such, people have right of access to them anytime. The access is called ¨windows to the sea.”
How does the restricted zone effect how I buy real estate?
All foreign individuals purchasing a residential property in a restricted zone – the area within 100 km (62 miles) of the Mexican border or 50 km (31 miles) from the coast – must purchase the property using a fideicomiso bank trust.
Must I be a resident of Mexico to buy property in the country?
It is currently legal for foreigners to own property in Mexico with a tourist vista.
Property purchased outside the restricted zones – 50 kilometers or 31 miles from shorelines or 100 kilometers or 62 miles from an international border – can be purchased with a direct deed to the property with the same rights and responsibilities as Mexican citizens. Without a trust, the property ownership will be probated before a judge as to who can inherit the property.
The primary purpose of a fideicomiso is to satisfy the Mexican constitution by bestowing the legal title of the property in the name of the trustee. The trustee’s responsibility is to hold and transfer the title deed under the direction of the beneficiary (buyer). The trust does not need to be probated unless the primary beneficiary (owner of rights) leaves no secondary beneficiary.
How do I change a Mexican trust (fideicomiso)?
Trustees generally do not have the power to change the beneficiary of a trust. The right to add and remove beneficiaries is a power reserved for the grantor of the trust; when the grantor dies, their trust will usually become irrevocable. The trust will not be able to be modified in any way
To change a beneficiary, the primary beneficiary must have an instruction letter that is written by the notary, in Spanish, with a translation sent to the bank to modify the trust by changing to another secondary beneficiary. Ratification must be before a Mexican notary. If you are out of Mexico, the letter needs to be notarized by a notary in your area and then sent to be apostilled in the state attorney general´s office of the state where you reside in the U.S. This document will need to be sent back to the notary.
Does the trust need to be probated or proved in court, like a will?
One of the major benefits of holding title in the Mexican bank trust, or fideicomiso, is that the owner of the property in trust has the right to name heirs and substitute beneficiaries within the body of the trust. This eliminates the need for a probate proceeding in a Mexican court, which can take a year or more and cost a lot of money. There must be a secondary beneficiary named or there will be probate to verify the rightful heir.
What is a transfer tax?
Closing costs for buyers in Mexico include a transfer fee.
Real estate transfer tax is applicable on the transfer of real estate property situated in Mexican territory. This tax is levied at the local level at a rate that may go from 2 percent to 3 percent of the value of the property.
What are typical buyer and seller closing costs?
Closing costs in Mexico consist of various fees and expenses and generally total between 5 and 7 percent of the actual purchase price (higher if there is a mortgage involved). These costs are always the responsibility of the buyer. The transfer tax is included in the closing costs range mentioned here. You can see that it is the single largest expense.
The seller has closing costs that include capital gains, trust cancellation or transfer, sales commissions with IVA (a 16 percent added value tax). Capital gains and real estate commission (with an IVA) are deductible to the seller.
This article is based upon legal opinions, current practices, and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his/her own due diligence and review.