Buying Real Estate

Buying Real Estate in Mexico is confusing to the uninitiated.  Do not be surprised to find yourself with a lot of questions.  Do not be surprised to find different opinions about the right way to do it.  By most standards real Estate in La Peñita is a bargain.

The most important things to know are:

Do not pay for your property until you are certain you will get clear tile.
Pay your taxes according to the law of the land.
Know the market before you jump in.
Never buy ejido land.

Getting Clear Title

It may seem like a simple statement that you should not pay for something before you are certain it actually will be yours but many people do it.  The result is often a lot of hassle that could have been avoided.  Stories of deals gone bad are common.

You will need a lawyer to act for you.  Many people use the local Notario.  Most people refer to him as Marco or Notario Number 34.  Because Marco’s business is fairly new in town many people use a Notario in Tepic.  This is not because of any shortcomings of Marco but rather because the seller has an existing  relationship.  Some people use an  abogado but I do not recommend that (see lawyers below).  It is common practice to use the same lawyer as the seller but I recommend that you use a lawyer other than the one your seller is using.  If you read on the reasons will be obvious.

Any money you pay should be held in escrow until the deal is signed.  That includes your agent’s fees.  I am told that Marco will do that but the service is also available from title insurance companies.  You should not ask your agent to hold funds.  In a recent year long effort by friends of mine to find their dream home we found that at least half of the properties they looked at could not be bought for one of a number of reasons.  Among the reasons was that the seller was not the owner.  Use common sense.  Ask yourself  “What would happen if I cannot get clear title?”.

Do not start work on the property before the deal closes.

Lawyers

There are two kinds of lawyers and a number of others who may appear to be lawyers.  There is the Notario and the Abogado.  Both will act on your behalf but the only one who can actually complete a real estate deal is the Notario.   The Abogado will have to use a Notario to complete the transaction.  The Abogado may be less expensive but the extra level of communication is not worth the lesser cost.

The Notario actually has a credential that can be removed from him if he performs a criminal act.

Title insurance:

For Canadian who have not bought property in the U.S. this will not be a familiar concept.  In Canada we use land registries to ensure that we actually own our property.  If you can register it you can be sure it is yours.  In the U.S. they use title insurance companies (TIC) to give some comfort to the buyer.  If it turns out that in the future someone successfully contests your title to the land the TIC will refund your original purchase price.

I do not recommend title insurance.  When I was buying my property I considered it and thought it was a pretty good idea until I read the document.  There were so many exclusions of liability in the document I read that I decided against it.  One of the exclusions was if the lawyer made a mistake.  I considered that the most likely risk.  This works in the U.S. because lawyers have liability insurance but in Mexico I was not confident that I would be able to recover from the most likely cause of any problems and it was clear that the TIC would not cover me.

Buy Direct or through a Real Estate Agent

There are a lot of properties for sale in our area.  Some are listed by Real Estate Agents while others are for sale by owner ( trato directo).

A real estate agent will take a commission of about 4%.  Although I disagree with some of the advice they give the good ones work hard and they definitely earn their money.  I bought my property direct from the owner and I spent many hours getting the deal put together.  Were it not for the fact that the owner had a son with very good English skills I believe the deal would not have been completed.

Pay your taxes according to the law of the land.

The issue of evaluation of your property at time of closing is a controversial one so it is dealt with on a separate page entitled, evaluation of property, to allow for other opinions to be expressed.  The basic issue is that the seller will want to reduce the amount of capital gains he pays by getting you to accept an evaluation of the property which is different from what you actually paid.  And you will be encouraged to do it to reduce your acquisition tax.  It’s common practice but it is both illegal and false economy.  DON’T do it.

Fideicomiso

The fideicomiso is a trust agreement between you and a Mexican bank.  We usually say the bank owns the property but it is more correct to say that the bank trust owns the property.  You are the beneficiary of the trust.  Under the trust agreement you have all the benefits of ownership including the right to rent or use the property and make a profit from it’s sale.

The reason for the trust is that Mexican law prohibits foreigners from directly owning property  within 100 km. of the ocean shore.

The trust agreement will cost you about US$500 plus an annual fee of US$500 paid in advance.

The main problem with the system is the extra overhead and cost of getting a power of attorney from the bank in order to perform some transactions on the property.  For example when I wanted to apply for a concession on the federal zone  in front of my house getting the necessary power of attorney from my bank took  several months.  Fortunately construction permits do not require a power of attorney from your bank (at least not in our area).

The agreement is for 50 years.  At the end of it you can sell or renew.

There are two other ways to own property.   Of course if you have a Mexican spouse that would be a third way.

Presta nombre ( borrowed name)

This is the old way to get around the law forbidding direct ownership by foreigners. Foreigners contracted with a Mexican citizen to be the owner of the property and sign over all his rights to the property.  The main problem was that the presta nombre actually was the owner of the property.  The system was fraught with all kinds of problems like what happens if your preste nombre dies and his family inherits your property.  A dishonest preste nombre could sell the property.  Granted he would be in violation of his contract but that did not prevent it from happening.

The fideicomiso is a good solution to the old problems.

Ownership by a Mexican company

I have no experience with this but foreigners can establish Mexican companies and those companies can own property.

Mustn’t forget the disclaimer

I am not a lawyer or a realtor.  I am not qualified to give legal advice.  The above is offered as a set of experiences and personal opinions which the reader may use as he sees fit.  Consult a lawyer for legal advice.   The writer accepts no liability.