History of Real Estate in Mexico

Between the years 1517 and 1822 Spain held claim to the Mexican land. In 1822 Mexico declared independence from Spain but even so wealthy foreigners, the Church and the upper class Mexicans continued to lay claim to much of the land. Also during the 19th century, Mexico lost about 1/3 of their country to the U.S. Texas in 1845, and IQ 1848 the territory that became California, Nevada, Utah, most of Arizona, and parts of New Mexico, Colorado, and Wyoming were purchased for $15,000,000.

In 1854, through the Gadsden Purchase, the U.S. acquired the rest of what is now Arizona and New Mexico. In 1917, the Mexican Revolution began, and with it came the loss of over one million lives. From this came the Federal Constitution which imposed new laws and restrictions on foreign ownership (resulting in the "restricted zone") and ownership of lands by the Catholic Church.

With this constitution, México began the process of subdividing large property holdings (50 million acres in all) belonging to the Federal Government into smaller parcels. This provided the Mexican farmers with a beneficiary interest in the land. Entitled under the Agrarian Law, these government parcels, known as "ejidos", are recorded in Mexico City.

The ejidatarios (farmers) can live, farm, homestead and construct dwellings on the property but they do not own it. These farmers have the use and benefit of the land, but they do not have title to it and therefore can not sell, lease, subdivide joint venture, contribute, mortgage or encumber the property In 1992, realizing the value of the ejido land and the development potential that would be created by allowing the owners to sell or lease the property to non-Ejido members such as foreigners, the Agrarian Law was passed. In other words, ejido owners had the right to take the land that they didn't own, remove it from Federal Control, place it in the public land registry and convert it to private property thus allowing them monetary benefits.

Today, thousands of acres are being removed on a daily basis from the Ejidos, added to the public lands and being sold or leased.

The Real Estate Buying Process

The process of buying real estate in Mexico is similar to that in the United States and Canada. A Notario is a lawyer whose position is similar to that of an American or Canadian judge, and NOT that of a notary public. A Notario in Mexico has legal training followed by difficult examinations and several years of apprenticeship. Some compare it to the bar and the CPA exams all in one. There are a small number of them in each State and that States' Governor must appoint them.

Their responsibilities include the practice of real estate law, accessing and auditing taxes. Notarios close real estate transactions similar to escrow officers' duties in the U.S. & Canada, but with expanded powers. Due to the fact that the Notario is a neutral party, buyers are recommended to hire their own lawyers if they need representation.

As an investor in Mexico it is good to know that procedures are constantly changing for the better. At this time, the U.S. based companies Stewart Title and Lawyers Title are offering title insurance in Mexico. This provides added security for foreigners. 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 & Canadian citizens.

Closing Costs

Closing Costs run about 4-6% of the sales price. At the time you purchase any property in Mexico, you are required to pay a 2% Acquisition Tax; however this 2% is figured in the 4-6% closing costs fees.

Investing in Baja Real Estate

Beginning in 1993, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area known as the "prohibited zone". Prospective buyers outside of Mexico's borders seeking to buy tourist developments such as housing, condominiums and time share projects, rustic, industrial or urban property can now enjoy greater legal freedom and ownership rights.

Under this Mexican Foreign Investment Law a Mexican corporation can be 100% foreign owned with fee simple title if it is non-residential. These foreign investment rules clearly indicate the Mexican government's highly favorable attitude towards outside investors.

With the rapidly improving Mexican economy, close proximity to the world's largest market, low cost skilled labor, ample energy supplies and the Baja area being the fastest growing in all of Mexico, it is most definitely an excellent ongoing, investment environment.

The Fideicomiso or Mexican Trust

In 1972, the government of Mexico initiated a legal process of entitlement to protect foreigners known as the fideicomiso. Simply put the Mexican Government issues a permit to the federally chartered bank of your choice.

This allows the bank to hold title to the real estate as the "Trustee" for you the "Beneficiary". The law authorizes Mexican banking institutions as trustees to takes instructions only from the beneficiary of the trust (the foreign purchaser).

The beneficiary has the right to occupy, develop, improve, mortgage, borrow against and enjoy the property. The beneficiary may also will or sell the rights and instruct the trustee to transfer title to a qualified owner.

When first established, 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 extended to 50 years with a renewable period of 50 years. The renewal must be applied for within this 50-year term.

This renewal process can be continued indefinitely, providing for long term control of the asset Thousands of people from countries around the world own real estate in many parts of Mexico. It has been estimated that 300,000 to 500,000 Americans and Canadians spend over six months each year in Mexico, many of which own real estate.

Peace of Mind Buying Real Estate in Mexico

The first and foremost thing a buyer must consider is whether the seller of the property has legal title to the property, and if so, whether the property can be legally transferred. An adequate title search of the property should be performed.

These title investigations should include a lien search of the property, subdivision approvals and permitted development licenses for the land, in addition to an extended search of the chain of title.

The lien certificate should show the owner of record, surface area and classification of property type, the legal description and whether there are any liens or encumbrances filed of record against the property.

There are several companies, U.S. and Mexican that provide title examinations or title reports. Companies such as Stewart Title Guaranty will issue Commitments for Title Insurance and subsequent Owner's and Lender title policies after an extensive title search of the deed records has been performed and the real estate has been conveyed AND recorded in the public registry of property. Some of these companies can also provide escrow services for earnest money. Buyers should always ask the sales agent/broker if a bank trust could be obtained at the time of closing on the residential acquisition.

The Mexican real estate market is rapidly changing for the better with new projects that sell their properties with title insurance policies just as if they were being developed in the US or Canada. Remax Los Cabos will only list and show properties with legal title. All documentation will be written in English and Spanish and we offer and promote the option of title insurance on all the property we sell. Our goal is to educate our buyers, as we believe that anyone considering the purchase of property in a foreign country needs to be informed. The combination of the above will enable your purchase of Mexican real estate to be a worry-free and profitable experience.