INTRODUCTION

     Purchasing real estate in Mexico has changes dramatically oven the past years for foreign, non-Mexican nationals. Beginning in 1994, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area know as the “restricted zone”. Prospective buyers outside of Mexico’s borders seeking to buy tourist (housing developments, condominiums and time share projects), rustic, industrial or urban property can now enjoy greater legal freedom and ownership rights as mandated and protected under Mexico’s new foreign investment law. In Mexico, as in the US, the transfers of real estate property rights are administered by federal state and local laws. Foreign nationals wishing to acquire property are subject to permission and registration with Mexico’s Ministry of Foreign Affairs. This Federal level agency is responsible for awarding the lawfully required permits and authorizations to purchase land in the Mexican Republic, as well as to acquire real estate properties or rights thereto.

     However, buying south of the borders is not like buying property in the US purchasers must always remember that they are not in the United States. The Mexican legal system is not the same as its American equivalent. That is not to say that real estate transactions in Mexico are totally different or more complicated than in the US, but common sense should always be exercised. The worst s purchaser can do is to remain ignorant of the law and procedures involves in the conveyance of real estate in the foreign country. Mexico is not the “wild west” as some may perceive where anything goes and the prevailing Mexican attitude is “trust me”. It is inherently important for non-Mexican buyers to understand that Mexico has formality of law with authorized regulation of real estate development procedures at all levels and this formality is coupled with statutory government framework for the legal conveyance of real property.

     Foreign purchasers should be aware of the same basic issues that any prudent buyer would utilize acquiring real estate. Additionally, they should not depend on the seller for information or advice about the property because the have no way of knowing whether it is correct. They should obtain the status of the title to the property requiring an in-depth-title search. They should be knowledgeable of the type of contracts to be utilized for a purchase-sale agreement and preparation of the deed by the notary public in Mexico. They should be aware of earnest money deposit and escrow considerations, and ultimately, a buyer should have an understanding of the actual conveyance method in Mexico and how legal title or beneficiary interest is vested and recorded for foreign purchasers.

     The first thing a buyer must consider in whether the seller property has legal title to the property, and if so, whether the property can be legally transferred. Although this seems to be a local and foregone precaution, there have been may documents transactions is which foreigners thought they has acquired real estate only to find out later that seller was unable to transfer legal title. Very simply, the seller didn’t own the property or he had not completed the required development procedures for a conveyance of the real estate. A good example would be agrarian land (“ejido”) nor property regularized, or the conveyance of a condominium unit that does not have a recorded condominium regime or even the sale of a lot or house in a residential subdivision that does not have the required and published state / municipal development approvals. In any of these cases, the result is that purchase has paid money for the acquisition of the property buy can not receive legally recorded title or beneficiary interest in a Mexican bank trust. An adequate title search of the property should be performed that addresses these various issues. A buyer should always ask the seller for a copy of the writing vesting title to the real estate. The buyer should request a copy of the lien certificate on the property that should indicate the owner of record, surface area and classification of property type, the legal description and whether there are any liens or encumbrances files of record against the property. The buyer can also request a certificate of no tax liability from the local taxing authority. The notary in Sonora, , by law, transcribes the current legal background of the property starting the recording information on la Public Registry of Property. Today, there are US title companies, as well as Mexican companies, that facilitate the title examination process on a more in-depth basis and issue either a Commitment for title Insurance on Mexico Land or a title report from the Mexican company. A foreign purchaser always has the option of hiring Mexican counsel to provide a legal opinion on the status of title as well.

     Most real estate transactions in Mexico will have least two contracts: an offer and acceptance and /or a promissory agreement. The first two are preliminary agreements containing the basic transactional information. They are not the instruments by which title to the property is transferred to the buyer. The second contractual document is the purchase-sales agreement, the agreement to be protocolized by the notary who will transfer title to the buyer. It may have several different forms: a real estate trust agreement, a reserve title agreement or an assignment of real estate trust rights. The Civil Code defines an agreement as an accord between two or more persons to create, transfer, modify or extinguish obligations. Specifically, the- Civil Code defines contracts as agreement that produce or transfer obligations and rights. In general, real estate contracts in Mexico must be drafted before a notary public and, to be binding on third parties, they must be filed with Public Registry of Property. Once there is a written acceptance to the offer; it is recommended that the buyer’s attorney draw up the sales contract or promissory agreement. Since this agreement is the single most important document the buyer will execute the seller, and the agreement’s contents will determine the terms and conditions of the transaction, the buyer should insist that his attorney review it very carefully. There are many aspects of Mexican real estate deals that are very similar to transactions closed in the United States. It is easy to presume that the basic terms and principals with which a purchaser is familiar in the US also hold true in Mexico. However, a foreign buyer’s is much better off to assume nothing.

     One such term is escrow. In the United States, and escrow or Title Company, or a person legally empowered to act as an escrow agent, will serve in the capacity of handling escrow functions. In either case, the company or individual whom carries out the escrow procedure is licensed and empowered by law to do so. They are legally responsible to see that agreed upon conditions of an escrow agreement are met before any funds are released. This was not the norm in Mexico. Historically, foreign purchasers have given money as contractual consideration to the seller. And in many cases the real estate agent or “broker” involved in the transaction has served as an escrow agent. Real estate brokers are not licensed in Mexico and typically do not set-up separate accounts for money deposits. The caveat here is expressly made in bold letters. If a foreign buyer is willing to give money to the seller or the real estate agent in the transaction, be prepared to maybe no to get in back!!. Also, you can use a (more or less the equivalent of our escrow), by which the trust department of the bank has the legal capacity of handling escrow functions. A foreign buyer should always exercise caution and use common sense when it comes to their money and whom they’re giving it to. As is often said, “Don’t leave your brains at the border!”

     Ultimately, foreign buyers get to the point where they are ready to have the transaction consummated and take title to the property if it’s outside of the restricted zone. In the restricted zone the bank acting as trustee holds title to the property. In Mexico, all real estate transactions and the legal conveyance of any type of property involve the participation of the notary public. Although their title translates to “public notary”, the notary public’s responsibilities greatly exceed the formalization of signatures. Appointed bye the Governor of the State for a particular state district, notaries are attorneys that must pass two formal examinations in order to receive their lifetime appointments. In a typical transaction, they will prepare the deed of conveyance subject to the “protocolized” purchase-sale agreement. The notary brings buyer and seller together for the formalization of the property transfer and they authorize the appropriate signatures upon execution of the writing. And lastly, after the property transfer has been formalized, the notary will record the writing with the Public Registry of Property where the property is located. Prior to the closing, the notary’s additional duties include: to examine the documents of the selling party to ensure their accuracy and legitimacy; to verify title; and to search the public records to determine the status of the seller’s title to the property and the existence of liens against the property. The notary is also responsible fir the estimation of all applicable government transfer taxes. However, the notary does not insure title to the real estate nor does he have any legal responsibility for the defects.

     And finally, title to all real estate in the “restricted zone” being acquires by foreign purchasers can only be legally vested and recorded one of two ways; in a Mexico bank trust of all residentially declared property; in a Mexico corporation for all non-residential real estate. There is no in-between choice or “gray area” concerning foreign acquisition in the restricted zone (1oo kilometers along all borders, 50 kilometers along all coastlines, all of Baja California of Mexico. Foreign nationals can be the sole and exclusive stockholders of a Mexican corporation that holds fee simple title to non residential property in the prohibited zone. In any type of real estate acquisition in Mexico, non-Mexican purchasers must always register their ownership interest with the Ministry of Foreign Affairs and must waive their rights t foreign government intervention in the event of a property dispute. This is known as the Calvo Clause, which is constitutionally mandated, and is contained in all bank trust agreements. Is should be noted that Mexican banks, acting as trustee for a foreign buyer in a trust, make no warranty or guarantee of the title to the property in the trust nor do they provide any restitution in the event of a title defect. Foreign buyers should always be advised to Consul US or Mexican counsel regarding real estate transactions. They also can contact US title companies to assist them regarding real estate transactions. They also can contact US title companies to assist them in answering questions about conveyance issues, title searches and title policies for a prospective property as well as escrow account considerations. And one last caveat buying public; if you are told by seller or agent that this beautiful piece of land on the border or this lovely house on the beach does not need t be in a corporation or in a trust, or it does nor need to be closed by a notary, wall away immediately…, and very quickly!!!

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