Del Mar Vista Estates

Frequently Asked Questions

How Foreigners Can Buy Real Estate in Mexico

Debunking Some Myths
Americans are sometime afraid to buy property in Mexico. Often their fears are based on stories they've heard at third hand, or confusions between past history and present practice. Here are some of the myths we hear most often, followed by an explanation of the facts of each situation.

MYTHS

1. Americans can't own real estate in Mexico. Not true. In most of Mexico, Americans, or any other foreigners, can own land outright with what's called fee simple title, the same kind we have in the United States.

Only in the restricted zone - 50 km (31.05 miles) from the ocean and 100 km (62.1 miles) from the borders - is it true that foreigners can't hold fee simple title. San Carlos is in the area, so these limitations apply.

Perhaps one reason for this restriction is that the Mexicans were somewhat concerned about having lost so much territory to the U.S. in the 19th century - about 1/3 of the country: Texas in 1845, and in 1848 through the treaty of Guadalupe Hidalgo the territory that became California, Nevada, Utah, most of Arizona, and parts of New Mexico, Colorado, and Wyoming. The treaty was signed shortly after American forces had captured Mexico City. The U.S. paid $15,000,000 for all of this land. And in 1854 through the Gadsden Purchase the U.S. acquired the rest of what is now Arizona and New Mexico. It's not surprising that Mexico was a little nervous about allowing foreigners, especially Americans, to acquire any more land.

But old wounds heal, and now the U.S. and Mexico are working hand in hand. NAFTA has promoted good busness relationships, but even before NAFTA, Mexico wanted to make it possible for foreigners to invest in their country, so in 1971 they developed the bank trust (fideicomiso) as a way for Americans to buy residential property in the restricted area. I'll explain the bank trust more fully a little later.

2. Americans can't own real estate unless they have a Mexican partner. Not true. It used to be that for a partnership or corporations, foreigners had to have Mexican partners who owned at least 51% interest. This is no longer the case. Under the new Foreign Investment Law of 1993, a Mexican corporation - like ours - can be owned 100% by foreigners, and the corporation can buy and own any property with fee simple title, as long as its use is non-residential.

3. A bank trust is a lease agreement. Not true. Under a bank trust the beneficiary (buyer) has all the rights of ownership: the right to use, borrow money on, make improvements on, and transfer. A lease grants only the right to use. If the tenant makes improvements, such as building a house, on the property, that house belongs to the landlord. Nor can the tenant sell the property or borrow money on it.

In San Carlos there have been in the past many long-term agreements for land. Before 1971 the Bank Trust was not available, and leasing was the only option for Americans. Apparently some of them were confused about the difference between a long-term lease and ownership; thus they built homes and made improvements on the land they were leasing. After the Bank Trust was initiated, some leases expired and the landlords declined to renew, which was their legal right. The tenants then lost the houses they had built. This frightened other Americans, who thought that their compatriots had had their ownership rights taken away, when in fact they had never possessed such rights. In many cases however, the tenants of the former leases were able to regularize their situations by purchasing the property under a bank trust.

4. The Mexican government can take away foreigners' property at any time. Not true. The bank trust is established by the government and gives foreigners the same rights as Mexican citizens. The only difference is that they never receive the actual fee simple title. It is held in trust for them by the bank. When first etablished, the term of a Bank Trust was for 30 years only. In 1989 it was made renewable for another 30, and in 1993 the term was extented to 50 years, renewable for another 50.

It may help in understanding the Bank Trust to compare it with the Deed of Trust, a type of financing instrument used in the U.S. People who buy homes for cash receive their titles right away. But the majority don't buy for cash. Under a deed of trust the buyer of a house has only "equitable title", or an equity interest, with the right to use but only a restricted right to sell, until the loan is paid off, after which the owner receives the actual fee simple title. Until then it is held by a trustee, usually a bank or title company.

In Mexico the Bank Trust is also held by a trustee, but the buyer never receives the actual title. Realistically many homeowners in the U.S. never receive title to their properties either because they sell or refinance their homes long before the 30-year term of their loan is complete.

The Process of buying Real Estate

The process of buying real estate in Mexico is similar to that in the U.S. The following chart will help to make that clear.

U.S.	Mexico
Purchase Contract Details of offer, including financing options Accompanied by earnest money	Promise of Bank Trust Details of offer Accompanies by down payment
Contract & earnest money held by Escrow A neutral 3rd party	Down payment made to seller
Escrow instructions	Documents handled by Notario a specially trained & licensed attorney appointed by the governor a neutral party represents the state
Deed of Trust (for financing) Or Fee Simple Title	Bank Trust (for all foreigners) or Fee Simple Title (for Mexicans)

A notario is a lawyer with a position similar to that of judges in the U.S. It is not the same as a notary public, although the names sound alike. In the U.S. anyone can post a bond, pay a fee, and become a notary public. But a Notario in Mexico has several years of apprenticeship after his legal training and must pass a very difficult examination. I hear it's as bad as the bar and the CPA exams rolled into one. Notarios are appointed by the governors of each state, and there are very few of them (only 2 in Puerto Penasco). Their functions are a combination of real estate lawyer, tax assessor and IRS auditor. It is they who close real estate transactions, like escrow officers in the U.S., but with expanded powers.

Procedures are changing. Two U.S. companies I know of are now offering title insurance in Mexico: Stewart Title and Lawyers Title. This will provide added security for foreigners. It's also attractive to American loan companies who are lending to Americans for buying Mexican properties. Although costly at the moment, title insurance and financing rates will probably soon be lowered by competition. The pattern of it history supports this assumption.

Currently the states of Arizona and Sonora are working together to develop reciprocal licensing requirements for real estate agents - classroom training, experience, and background checks. As the two countries become more similar in their real estate practices and procedures, buying real estate in Mexico will become even easier for American citizens.