Chicago Lawyers for Buying Real Estate in Mexico

Buying Real Estate in Mexico

Are you interested in buying real estate in Mexico? The following are general guidelines you should take into consideration. In Mexico ownership of land can be held in one of three modalities:

Public property

Assets that belong to the Nation. The ownership right over beaches, mines, national parks, river shores, etc. cannot be transferred to any individual or corporation. However, in some instances the State can grant assignments or "concessions" for a given length of time.

Private property ("propiedad privada")

In general terms, in Mexico, ownership over real state subject to the Private property regime is similar to owning any lot in the United States, although there are some differences; for example:

1. All rights over minerals or petroleum that might be found on such property are retained by the State.
2. Aliens (regardless of their immigration status) are allowed to directly own real state in any part of Mexico, with the exception of a "restricted zone" comprised of the land within 31 miles (50 kilometers) from the coast line and within 62 miles (100 kilometers) from the international borders. Nevertheless, as explained below, a foreigner may acquire indirect rights over land located within the restricted zone and this rights, for all practical and economical purposes, are equivalent to being the owner of such land.
3. In the deed of property (escritura) of any foreigner, it will always appear a clause waiving all other jurisdiction in favor of the Mexican Judicial authorities. This is known as the "Cláusula Calvo" or "Calvo" Clause . The Calvo Clause should also bee included in Fideicomiso contracts, which are discussed below.

In all real estate operations, along with the seller and buyer there are two additional parties: the buyer’s lawyer who drafts the "private" purchase agreement and a Notary Public, who drafts the "public" purchase agreement that constitutes the deed of property which in Mexico is commonly referred to as the "escritura". Even if you are assisted by a realtor you should always ask for a lawyer’s advice when you are ready to buy. In Mexico, realtors do not require a license or special training and a realtor may not have sufficient knowledge or experience to prevent you from making a mistake.

Usually once the buyer and the seller have reached an agreement, the buyer’s lawyer drafts the contract which includes in its clauses a small down payment (the down payment is not by any means mandatory). Although there is no legal impediment for it, paying through an escrow is an operation strange to legal practice in Mexico. Since obtaining a deed is sometimes very expensive when payments of the purchase price are made in installments, it is not unusual to not ask for the intervention of the Notary Public until the full price has been covered. In these cases, the intervention of a lawyer drafting the private contract is even more important. Since Mexico is a Federal State, the lawyer should be familiar with or at least careful in reviewing the applicable Civil Code to the state in which the property is located (in Mexico, a lawyer can practice law in any state as long as he/she has a federal or state issued license; being part of a state bar is not mandatory).

Once parties have signed the private contract, they ask for the intervention of a Notary Public (actually, the Notary Public is normally chosen by the buyer). A Notary Public in Mexico is very different to its counterpart in the United States and other common laws countries: The Mexican Notary Public is a highly trained (and paid) lawyer, usually appointed by the governor of each state or who reached his/her position through a selection process that involves competitive examinations, and who is invested by the State with the power to witness and certify documents that require absolute authenticity and among other things, in relation to real estate operations, not only is the Notary responsible for the issuance of the deed of property, but also the Notary Public performs much of the roles that in the United States are performed by Title Companies, such as:

• He / She verifies in the Public Registry of Property (Registro Público de la Propiedad) that the lot is really registered in favor of the seller, and obtains a certificate from such Registry in regards to any liens or encroachments that may affect the lot.
• He / She verifies that all payments in regards to property taxes and public services are current.
• He / She issues the deed of property (escritura).
• He/she retains the taxes generated by the purchase-sale operation and delivers them to the state.
• He / She registers the new deed of property in the Public Registry of Property and reports it to the "catastro" (cadastral registry) which is a parallel registry used by local authorities to assess the value of properties and identify its owners solely for property tax purposes.

Usually the price for the purchase of the property or its balance if there was a down payment is paid after or at the same time the deed of property (escritura) is signed.

As explained above, foreigners are not allowed to directly own real state located near to the coast line or the international borders, however, they can indirectly own land within the "restricted zone" through a "fideicomiso".

A "fideicomiso" is a trust contract in which a Mexican bank, acting as a trustee (Fiduciario), buys the property and formally holds its title as the owner of record but, at the same time, such bank has a fiduciary obligation to follow all instructions given by the alien, who is the trust beneficiary (fideicomisario). For all practical purposes, the alien, as the trust beneficiary, has all the same rights as any owner. For example, he can instruct the bank to lease the land and collect the rent, or he can even instruct the bank to sell the land and collect and deliver the price money to him or her. It is common for the Bank to issue a power of attorney in favor of the trust beneficiary so he/she can directly perform all legal acts related to the property. The rights over the fideicomiso (derechos fiduciarios) can be sold, assigned, leaned, or inherited.

Of course, the Bank charges an annual fee to act as the trustee of the property.

The Fideicomiso Contract (a real estate trust contract) is granted before a Notary Public, with the intervention of the seller of the land, the bank, acting both as the buyer and at the same time as the trustee, and the alien as the trust beneficiary. The Notary Public should follow the same procedures described above for all real estate purchases, assuring that the property is registered to seller, that there are no liens or encroachments, etc. The Notary Public is usually responsible to ask for a permit needed for the creation of the Fideicomiso.

If an alien is interested in buying property within the "restricted zone", he/she should ask for the intervention of a lawyer to assist him in drafting a private contract and in hiring a bank and a Notary Public, in order to prepare and sign escrituras containing both the transfer of property and the trust agreement between the alien and the bank that would act as trustee.

"Social Property"

A large part of Mexican real state (mostly rural or non-urban properties) is classified either as "ejido" or communal property ("propiedad comunal") land. These institutions were inherited from prehispanic times and take into account the way in which Indian communities were organized. They were also influenced by democratic communism ideas that were in vogue after the Mexican Revolution. An ejido is a collective group of people that live and work on a determined territory as a community or town. The land that comprises the "ejido" is owned by the community as a whole and although the Community Assembly may grant to its members the right to use and enjoy a specific piece lot or parcel within the territory of the ejido, this right is not the same as "owning" that lot. At most, it can be viewed as a mere "possessory" right.

Ejidos are organized as towns in which the elected representative of the Community is the Commissariat (comisariado) with a Commissary (Comisario ejidal) or several Commissaries, but the supreme organ of the ejido is the General Assembly of ejidatarios (or, in the case of Propiedad Comunal communities, the General Assembly of comuneros).

Ejidos and Propiedad Comunal communities are virtually the same thing. The main difference is that comuneros are towns that have ancient colonial or prehispanic titles for their land, that land was stolen by haciendas during the XIX Century and such land was restituted to the towns after the Mexican Revolution. Ejido land, on the other hand, was expropriated by the post-revolutionary governments to be delivered to the ejidatarios as part of the agrarian reform the Country went through after the Mexican Revolution.

Therefore, communal property land, technically, cannot be sold or purchased. A piece of land in an ejido cannot be subject to "ownership" in accordance to what an American Citizen would understand for such word. To be a holder of rights over a communal property lot, one would have to be admitted and recognized as a member of the ejido community and understand that he or she is subject to the determinations of the Community Assembly.

As stated above, the Community Assembly may grant to its members the right to use and enjoy a specific piece lot or parcel within the territory of the ejido as a "possessory" right. In most cases, the title for these possessory rights is just a letter issued by the Commisariat. In other cases, there is a Title issued by Mexico´s Agrarian Authorities which is registered before the National Agrarian Registry which is the counterpart in agrarian law to the Public Registry of Properties in private property real state. Unfortunately, Titles that comply with this are rather the exception and not the rule.

Legally, an alien cannot become an "ejidatario" or comunero. Due to the nature of an "ejido", a corporation cannot be considered a part of the community and therefore cannot be an ejidatario. For theReal state in Mexico same reason, the rights over a lot or parcel cannot be held through a fideicomiso.

Until 1992 social property could not be converted to private property. In that year, the federal government started the "PROCEDE" program (PROCEDE stands for "Procedimiento de Certificación de Derechos Ejidales" or Program for the Certification of Ejido Rights) as part of a voluntary procedure to convert ejido parcels into "dominio pleno" (full ownership) property. As stated this program is voluntary and the Community Assembly should authorize it. The PROCEDE program is a federal program that sends surveyors and agrarian law experts to the community in order to issue "parcel certificates" to the ejidatarios or comuneros; those certificates which are used to identify individual parcels assigned to specific persons. Once all member of the community have their own certificates and only if that is the will of the majority of the community determined in an Assembly, ejidatarios will have the right to change their lots to "propiedad privada".

Any person and particularly any foreigner, who may be interested in purchasing these kinds of lots, prior to paying any money or executing any contract, should ask a lawyer or a Notary Public to verify that the process to transform the previously communal property parcel into the private property regime has been concluded.