Buying and selling real estate in Mexico is quite different from the process used in the U.S., Canada and many other countries. One of the first things you will need to do is learn the language of real estate in Mexico.
To get you started, I’ve put together a number of key real estate terms that you should familiarize yourself with before buying a home:
Ejido: Farming land owned by a legal entity, or group called the Ejido. Collective land that can now be privatized. Foreigners cannot acquire rights to Ejido property. Through a proper process, the Ejido can sell to a Mexican individual. The Mexican can then sell to a foreigner.
Escritura Publica: The document issued by the notary to transfer ownership of property. The escritura is a public deed. If there is bank trust for foreign ownership, it is described in the escritura. In the escritura, the bank defines its authority and sets out its fees. The time to negotiate the terms of this agreement is at the beginning of the purchase process.
Fideicomiso: The Mexican bank trust that holds residential property for foreigners. Foreigners are granted the rights of ownership, such as possession, the right to construct and to tear down, and renting and selling through the fideicomiso.
Mexican Corporations: They can hold title within the restricted zone for non-residential real estate. This type of corporation cannot establish residency requirements, so it is not exempt from capital gains tax. Building and selling condominiums or building commercial buildings are examples of uses permitted. Foreign condo buyers will require a trust in the restricted zone for their residential ownership.
Notario Publico: An attorney with a specialized education who is appointed by the Mexican State to transfer real estate. There are a limited number of public notaries appointed per state. The responsibility of the notary is to search the title in a Mexican transaction. Their fees are separate from the government charges for establishment of a bank trust. The notary is responsible for collecting money that is due the government, such as taxes and capital gains. The notary is not responsible for handling the money of the buyer to the seller.
Apostille: The document that authenticates signatures to a document that are not signed in the presence of the notary. The apostille is notarized by the Secretary of State where the person signing resides. This is how a document from the U.S. can become a legal document in Mexico.
Certificado de Libertade Gravamen: The notary checks with the public offices to determine if there are liens filed against a property. This lien certificate should show the owner of record, the surface area and classification of property type, the legal description and whether there are lines or encumbrances filed of record against the property.
AMPI (Asociacion Mexicana de Profesionales Inmobiliarios): Association of Professional Real Estate Persons. AMPI is the Mexican equivalent of the National Association of Realtors and the Canadian Real Estate Association. Not all real estate agents in Mexico are members of AMPI. AMPI has its own requirements and dues required for membership.
Contrato de Promesa: A promissory agreement. It is not a contrato de com-praventa.
Evalua: Evaluation of taxable value established in pesos. The evalua is not a market evaluation.
Capital Gains: The amount of tax, if applicable, owed by the seller upon the sale or transfer of property. Currently, establishment of proper residency requirements acceptable to the notary avoids capital gains. A Temporary Resident Visa or a Permanent Resident Visa helps establish the residency requirement
Licensing: There is no licensing requirement to sell real estate in Mexico. Individuals or groups, such as AMPI, create their own requirements for membership, in an effort to raise professionalism of the sale of real estate.
Finiquito: The final bill or settlement. Without a finiquito, payments and penalties can continue. Without a finiquito from Social Security, liability for payments to construction workers can continue, long after completion of the home.
Restricted Zone: In 1994, the federal government of México liberalized ownership of property within the constitutionally protected area knows as the restricted zone. This area includes 10 kilometers along all-natural borders, 50 kilometers along coastlines and all of Baja California. The Bay of Banderas is a restricted zone. Ownership of property is within a bank trust for non-Mexicans.
Federal Maritime Zone: The area of land owned by the government adjacent to the tide line. Any usage or structure such as terrace or pools, bedrooms, located within the federal land will have to have a concession title to approve use of federal land.
Condominium Act: In 1995, The New Civil Code of the State of Jalisco established the legal aspects of the condominium. In this act, the role of the administrator, the executive committee of owners and the required homeowners’ meetings were established. The setting and administration of maintenance fees, and resolution of conflicts between owners, is also addressed in this act. This law is very important for condominium owners to read and understand.
Contrato de Compraventa: Purchase sales agreement. Real estate contracts recorded before a notary public become binding to the parties of the agreement.
Certificado de no Aduedo: The certificate of no tax liability issued by the local taxing authority or Office of Catastro. Predial is the name for property tax.
Escrow of Monies: There are limited ways that money can be escrowed legally in Mexico. Several of the banks have legal departments empowered to escrow purchase money for a sales transaction. Some U.S.-based title companies have Mexican offices and authorization to hold escrowed funds. The escrowed funds can be kept by these institutions in U.S. dollars.
And remember, Mexico belongs to the North American continent and is not part of South America. The law has evolved from Spanish and French law. The laws are very different from English Common Law, which is very influential in the laws of the United States.
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 of Mexican real estate conduct his/her own due diligence and review.