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Legalities

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Buying Property South of the Border as a Foreigner

Buying property in Mexico is NOT like buying property in the USA or Canada
Does the seller have legal title?
How do I confirm that a seller has legal title?
Contracts and Agreements
Major difference between US and Mexican transactions
Closing the deal and the role of Notario Publicos
What about buying property in the 'prohibited zone'?


Trust Purchasing or "Fideicomiso"
What constitutes a residential or non-residential property?
What if there is a dispute on the nature of property use?
How do I really own my property?


When Does Real Estate Close in Mexico?
An example
What has happened and what has not?
Issues to be aware of
How do I protect my real estate investment?


Understanding Ejido Land
Ejido Law
How do I know if ejido land has been properly privatized?
The following should be considered in the ejido regularization process:
Why does the regularization process involve so many steps and take so long?
Does the regularization process really work and how can I be sure I have title to an ejido property?


Residency Requirements for Tax Exemption Purposes


Title Insurance in Mexico?
Why title insurance?
What about the Notario Publico?
What additional benefits does a title policy provide?


A Title Insurance Policy


Third Party Escrow
An example
Escrow in Mexico?
A favorable alternative


Purchasing on Lease Land
Please see Separate Article on Lease Land on our HomePage

Buying Property South of the Border

Purchasing real estate in Mexico has changed dramatically over the past ten (10) 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 known as the 'prohibited 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 U.S. , the transfer 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 Department 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.
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Buying property in Mexico is not like buying property in the US

However, buying south of the border is not like buying property in the U.S. and 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 (operaciones) in Mexico are totally different or more complicated than in the US, but common sense should always be exercised. The worst a purchaser can do is to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country. Mexico is not the "wild west" as some may perceive where anything goes and the prevailing Mexican attitude is "trust me, no problema." 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 a 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 they 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 (compraventa) and preparation of the deed (escritura publica) by the notary public (notario publico) 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 (fideicomiso) is vested and recorded for foreign purchasers.
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Does the seller have legal title?

The first 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. Although this seems to be a logical and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the 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 the conveyance of the real estate. A good example would be agrarian land ("ejido") not properly regularized, or the conveyance of a condominium unit that does not have a recorded condominium regime (regimen de condominio) or even the sale of a lot or house in a residential subdivision (fraccionamiento) that does not have the required and published state/municipal development approvals. In any of these cases, the result is that the purchaser has paid money for the acquisition of the property but can not receive legally recorded title or beneficiary interest in a Mexican bank trust.
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How do I confirm that a seller has legal title?

· An adequate title search of the property should be performed.
· A buyer should always ask the seller for a copy of the escritura vesting title to the real estate.
· The buyer should request a copy of the lien certificate (certificado de libertad de gravamen) 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 filed of record against the property.
· The buyer can also request a certificate of no tax liability (certificado de no aduedo) from the local taxing authority.
· The notario publico is responsible for the title search in Mexican transactions. However, the notary typically only examines the current deed and a current lien certificate resulting in the possibility of a short or incomplete title history of the 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.


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Contracts and Agreements

Most real estate transactions in Mexico will have at least two (2) contracts: (i) an offer and acceptance (oferta) and/or a promissory agreement (contrato de promesa): and, (ii) a purchase- sales agreement (contrato de compraventa). 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 agreement to be protocolized by the notario which will transfer title to the buyer. It may have several different forms: a real estate trust agreement (contrato de fideicomiso), a reserve title agreement (contrato de compraventa con reserva de dominio) or an assignment of real estate trust rights (contrato de cesion de derechos fideicomisarios). The Civil Code defines an agreement (convenio) as an accord (acuerdo) between two or more persons to create, transfer, modify or extinguish obligations. Specifically, the Civil Code defines contracts as an agreement that produce or transfer obligations and rights. In general, real estate contracts in Mexico must be protocolized before a notary public and, to be binding on third parties, they must be filed with the 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 with the seller, and the agreement's contents will determine the terms and conditions of the transaction, the buyer should insist that his attorney assume this responsibility.
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Major difference between US and Mexican transactions

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 is much better off to assume nothing. Two such terms are escrow (plica) and earnest money deposit. In the United States, an escrow or title company, or a person legally empowered to act as an escrow agent, will serve in the capacity of handling escrow functions and earnest monies. 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 the agreed upon conditions of an escrow agreement are met before any funds are released. This is not the norm in Mexico. Historically, foreign purchasers have given earnest 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 earnest money deposits. The caveat here is expressly made in bold letters. If a foreign buyer is willing to give earnest money to the seller or the real estate agent in the transaction, be prepared not to get it back!

Only until very recently have a couple of Mexican escrow companies come into existence utilizing US bank accounts for earnest money deposits. The same can be said for a few brokerage companies. 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!"
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Closing the deal and the role of Notario Publicos

Ultimately, foreign buyers get to the point where they are ready to have the transaction consummated and take title to the property. In Mexico , all real estate transactions and the legal conveyance of any type of property involve the participation of the notario publico. Although their title translates to 'public notary', the notario publico's responsibilities greatly exceed the formalization of signatures. Appointed by the Governor of the State and the Executive Branch of the federal government for a particular state district, notarios are attorneys that must pass two extensive 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 notario brings buyer and seller together for the formalization of the property transfer and they authorize the appropriate signatures upon execution of the escritura. And lastly, after the property transfer has been formalized, the notario will record the escritura with the public registry of property where the property is located. Prior to the closing, the notario's additional duties include: (i) to examine the documents of the selling party to ensure their accuracy and legitimacy; (ii) to verify title; and (iii) 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 notario is also responsible for the collection of all applicable property taxes and government transfer taxes. As a representative of the State, however, the notario does not insure title to the real estate nor do they have any legal responsibility for title defects. In short, a purchaser can not seek restitution against a notario in the event the purchaser suffers a monetary loss due to a title defect unless fraud, misrepresentation or gross negligence could be proven in a Mexican court of law.
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What about buying property in the 'prohibited zone'?

Title to all real estate in the 'prohibited zone' being acquired by foreign purchasers can only be legally vested and recorded one of two ways: (i) in a Mexican bank trust (fideicomiso) for all residentially declared property; or (ii) in a Mexican corporation for all non-residential real estate. There is no in-between choice or 'gray area' concerning foreign acquisition in the restricted zone (100 km. along all borders, 50 km. 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 Secretary of Foreign Affairs and must waive their rights to 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. It should be noted that Mexican banks, acting as trustee for a foreign buyer in a fideicomiso, 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 consult US or Mexican counsel 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 a seller or agent that this beautiful piece of land on the border or this lovely house on the beach does not need to be in a corporation or in a trust, or it does not need to be closed by a notario, walk away immediately.., and very quickly!!

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Trust purchasing "fideicomiso"

Most purchasers contemplating buying a house in Mexico are aware that Mexico has a "restricted zone" (50 kilometers along Mexico's entire coastline, 100 kilometers along all of Mexico's natural borders) per Article 27 of the Mexican Constitution. What many purchasers are not aware of is the Foreign Investment Law of Mexico ('FIL') originally established in 1971, amended to the 'New FIL' in December, 1993, and ultimately amended again in October, 1998. This FIL is known as the "Reglamento de la Ley Inversion Extranjera y del Registro Nacional de Inversiones Extranjeras." Relative to properties within this prohibited area, the amended Foreign Investment Law's intent is to clearly and narrowly define what is residential property, what properties must be in a 'fideicomiso' (Mexican bank trust), and what properties are considered non-residential and therefore can be purchased by foreigners in a Mexican corporation.
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What constitutes a residential or non-residential property?

For the purpose of the terms set forth in Article 5, Title Two of the Law, real estate used for "residential purposes" shall mean any real estate destined "exclusively for residential use of the owner or third parties." The following activities, without limitation, shall be deemed real estate held for non-residential purposes: (I) those destined for time-share use; (II) those destined for any industrial, commercial or tourism activity that may simultaneously contain a residential component; (III) real estate acquired by credit institutions, financial intermediaries, and auxiliary credit organizations to recover debts owed to them and in the ordinary course of business; (IV) real estate used by entities in the course of their business consistent with sale, development, construction, sub-division and other activities included in the development of real estate projects, until these are sold to third parties; and (V) generally, real estate destined for use in commercial, industrial, agricultural, cattle, fishing, forestry, or service-related activities.
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What if there is a dispute on the nature of property use?

When in doubt whether real estate is deemed destined for residential purposes, the Ministry of Foreign relations shall resolve the matter in ten business days from the date the party consults the Ministry on the subject. If at the end of ten business days, the Ministry fails to respond, the use in question shall be deemed for non-residential purposes. Further, Article 6 of Title Two specifies that when in doubt on whether real property is located within or outside the restricted zone, the Ministry of Foreign Relations, on consultation with the National Institute of Statistics, Geography and Data Processing, shall decide as appropriate. And lastly, Article 7 of Title Two provides the notification procedure which interested parties must give to the Ministry of Foreign Relations. That is, (I) the location and description of the real estate; (II) a clear and accurate description of the uses to which the real estate in question is destined; and (III) an ordinary copy, in annex, of the public instrument, known as an "escritura", that records the formalization of the acquisition.
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How do I really own my property?

When one condenses and 'boils down' all of the language and definitions of law, coupled with the resulting legal effect that must be understood, what does a foreign purchaser really glean from this information? Simply, that Mexico's Constitution and Foreign Investment Law are very specific regarding foreign acquisition of real estate, and particularly in the restricted zone. Most importantly, we as foreign buyers of Mexican properties must realize that title to real estate in the prohibited zone can only be vested one of two ways for our benefit: either in a 50 year renewable Mexican bank trust (fideicomiso ); or, in a Mexican corporation that can solely and exclusively be owned by one or more foreign stockholders with no Mexican ownership participation. Make no mistake buying public. There is no gray area concerning Mexico's constitutional or foreign investment law. The title to houses on the beach, villas, condominiums, townhouses or single family lots within Mexico's restricted zone can only be in conveyed into a fideicomiso with foreigners having renewable beneficiary interest. The assertion by some that title to residential real estate can be vested in a Mexican corporation for foreign ownership purposes simply is not correct. However, all other real estate, non-residential in nature, can be conveyed to foreigners in fee simple provided the title is in a Mexican corporation whereby foreigners can have exclusive ownership. And one final, salient point. Whether title is vested in a fideicomiso or a Mexican corporation, in either case, all of these properties can be insured by a U.S. contract of indemnity more commonly known as a title policy. Stewart Title Guaranty de Mexico can provide Owner's and Lender's policies for guaranteeing ownership rights in Mexican real estate, for more information about title insurance policies, contact international@stewart.com
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When does real estate close in mexico?

The obvious would seem apparent. Real estate deals in Mexico close when the deed of conveyance is executed by the buyer and seller, money changes hands between the parties and the deed is then recorded in the public records. Simple and logical, only it isn't that simple in Mexico. For more than the past decade, an attitude and transactional manner has pervaded Mexico's residential beach market. It is an alarming methodology, non-standard by foreign expectations and one that puts foreign buyers at risk when purchasing residences in the "restricted zone" of Mexico. Amazingly, the comment given to foreigners desiring to buy in Mexico is, "That's the way we do business here."
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An example

The following scenario is typical regardless of the geographic locale and doesn't seem to vary much between Los Cabos, Puerto Vallarta, Puerto Peñasco or the Cancun corridor. A foreign buyer identifies a house, condo, villa or lot on the beach they want to buy. Usually they employ the services of a local real estate agent in that market who informs them that in order to proceed to a contract, an initial deposit is required. The deposit may range from $1,000 to $5,000 and the check is written to the agent or to the seller. Generally, the deposit is not tied to an escrow agreement with a third party acting as the escrow agent, and commonly it goes directly into the bank account of the agent. The buyer is told that the deposit is required just to get the process started and more times than not, the deposit will become non-refundable. Keep in mind, buying public, once you write the check and hand it over in Mexico, how are you going to get it back without an escrow agreement.

Now we proceed to the letter of intent or the contract stage. The customary process in Mexico ultimately leads to an arrangement between the parties known as a "promise to trust agreement", though there may be other proposals or simple contracts prior to this final document. Upon execution of the promise to trust between the parties, the buyer is invariably required to pay the seller 100 percent of the agreed purchase price. Since the seller has agreed to convey the property and authorize the Mexican bank acting as trustee for the fideicomiso (bank trust) to transfer the beneficiary interest to the new purchaser, he is therefore entitled to all of his money! Real estate agents in Mexico will tell foreign purchasers the 'closing' of the transaction occurs when the promise to trust agreement is signed. Caveat emptor, nothing has closed! Understand what has transpired and what has not in order to have a legal and protocolized beneficiary interest established on the real property under Mexican foreign investment law.
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What has happened and what has not?

· You, the buyer, have given the seller all of the money contemplated in the transaction and yet you do not have a trust permit required by Mexican law to be issued by the Ministry of Foreign Affairs in order to establish your beneficiary interest.
· You do not have the escritura publica (public deed) prepared by the public notary in Mexico. The notary must be authorized by the trust bank to proceed with the transfer of the beneficiary interest via the public deed and which he must draft to effect the transfer.
· There is no property appraisal prepared, yet that is a requirement under Mexican federal statutes for tax purposes in order for the fideicomiso to be established.
· There is no lien certificate from the public registry that would indicate any liens or encumbrances on the property and is a required element of any real property conveyance.
· The buyer, really doesn't even know if the seller has good title to the real estate in question. Why? Because you have never been presented with a copy of the deed that vests the title to the seller. The public notary, at this point, has yet to begin his required title search of the property. You have received verbal assurances from the seller and the agent that there are "no problems" with the title.


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Issues to be aware of:

The sale of real property between Mexican nationals is a fairly simple and expeditious transaction via a compra-venta. They are not concerned nor do they have to be with Mexico's foreign investment laws. This is not the case, however, when they sell to foreign purchasers in the restricted zone. Their attitude is, "Why should I wait for my money just because you have to get a bank trust. That's your problem, just pay me." Secondly, this attitude has been pervasive because some, not all, real estate agents push it and expect it. If the seller receives all of his money, the agent gets paid his commission. Why should the agent be concerned with whether the buyer gets his fideicomiso established once he has received the fee due from the seller? Besides, many agents will tell purchasers nothing can or will go wrong, and that is a fallacy. What if the seller dies before the conveyance? What if there are title defects or undisclosed lawsuits, maritime matters or lien issues? What if an agent, who receives the money via a deposit, doesn't give the seller all that he expects? Then who will execute the deed? What if there are unexpected problems with obtaining a trust permit or notario problems? Or what if the seller has sold the property twice, unknown to you or the agent? The simple truth is you have given the seller your money with little or no chance to get it back other than a lawsuit in Mexico.
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How do I protect my real estate investment?

In every real estate deal, buyers have choices. There are many properties for sale in Mexico. Buyers need to be smart and educated about the deal, deposits, title and conveyance matters. Many real estate developers sell their property with a percentage down at the time of the promise to trust agreement, with the balance paid when the public deed can be executed to establish the trust. Many developers, and more and more real estate agents, are utilizing third party escrows in the U.S. to protect foreign buyers. Full disclosure of potential issues is becoming more prevalent. Any property in Mexico can be researched and a title investigation can be done in order to issue an Owner's Policy of Title Insurance. Purchasers can be insured when they release their money to the seller upon execution of the escritura publica and the issuance of the notario's preventive notice to the public registry of property. At the end of the day, foreign buyers have a right to a transaction process that ultimately protects their investment and minimizes their risk. Those who participate in the sale of real estate in Mexico must strive to protect that which "feeds and prospers them." When they don't, purchasers should walk away and buy elsewhere.
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Understanding ejido land

For years foreign purchasers have been persuaded to "purchase" ejido parcels or beach front lots without fully understanding that they can't legally own ejido property nor can the ejidatarios (those individuals that have the beneficiary interest in the land) legally sell it. Hence, all potential buyers of Mexican real estate should know the difference between private property and land denominated as "ejido"?

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Ejido Law

Article 27 of Mexico's Constitution allows the federal government of the United Mexican States to create agrarian lands for the benefit of their citizens. With its constitutional inception in 1917, Mexico began the process to provide 'campesinos' (farmers) a beneficiary interest to land owned by the government. Entitled under "La Ley Agraria" (the Agrarian Law), these government parcels, known as "ejidos", are recorded with the Registro Agrario Nacional (National Agrarian Registry) in Mexico City. The ejidatarios can live, farm, homestead and construct dwellings on the property but they do not own it. Under Agrarian Law, the ejidatarios can not sell, lease, subdivide, joint venture, contribute, mortgage or encumber the property. In essence, they have the use and benefit of the land, but they do not have title to it.

In 1992, recognizing the inherent value ejidos presented due to their geographic, border or coastal location, coupled with the development potential they created, the Mexican government enacted a Constitutional Amendment in order to "regularize" agrarian lands. Under the auspices of the Office of Agrarian Reform, the Mexican government could now provide a process of legal entitlement converting the ejidal regimen to one of "regimen de domino pleno o privado" (regimen of full dominion or private land). In other words, ejidatarios had the right to take the land that they didn't own and convert it to private property thereby allowing them to benefit monetarily from the ensuing regularization process. However, there have been numerous cases and examples of Americans, Canadians and other non- Mexicans buying ejido land that has not been properly regularized. A purchaser, may have paid money for a lot on the beach with the promise that they would receive a bank trust only to find out years later that the land had not been properly privatized. The end result is that the purchaser can not have a legally recorded and recognized beneficiary interest to the property in a Mexican bank trust, i.e., title vested in a fideicomiso, nor can you have a valid lease as a legal alternative to use the property.
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How do I know if ejido land has been properly privatized?

Mexico is not the 'wild west' that some foreign purchasers believe it to be. With formality of law, as in other real estate matters, regularization of an ejido is a legal process requiring time, procedure and lots of patience. The ultimate goal is to get private title to each parcel that can then be conveyed to a trust or Mexican corporation for the benefit of non-Mexican purchasers. However, there are a number of steps along the way that you, the buying public, should be aware of in order for ejido land to be privatized.


The following should be considered in the ejido regularization process:
FIRST: Does the ejidatario have the following in order to begin the regularization process; (a)certificate of agrarian rights; (b) certificate of common parcel rights, and (c) an AgrarianTribunal order or resolution?

SECOND: Can the ejidatario provide certification with documents or testimonies that he is in quiet and public possession of the property, that as owner, he has title to it and that there are no pending legal actions against the property?

THIRD: Can the ejidatario provide a plat or other acceptable plans that define the parcel with a metes and bounds description and the total area of the land?

FOURTH: Has the ejidatario petitioned the general assembly of the ejido to request approval to convert the ejido parcel to one of full dominion?

FIFTH: Did the general assembly of the ejido agree, resolve and record in the minutes of the meeting that the ejidatario is allowed to convert the parcel to full dominion?

SIXTH: Has the general assembly met the following requirements:
a) Was the assembly held in a common place inside the ejido?
b) Was an announcement made 30 days prior to the meeting?
c) Was the announcement a public notice that was placed in the most visible location within the ejido?
d) Did the public notice indicate the business at hand, the date and location of the meeting?
e) Did the comisariado ejidal (board of directors) of the ejido provide the public notice up to the day of the assembly meeting?
f) Did a Notario Publico and a representative of the Office of Agrarian Reform assist to validate the session?
g) On the day of the meeting was the required attendance meet to validate the session, if not was a second meeting held?
h) If a second assembly meeting was held was it within 30 days of the previously scheduled meeting but not before 8 days had passed?
i) If a second assembly meeting was held was half plus one of all of the ejidatarios in attendance?
j) Did the assembly receive 2/3 approval from those ejidatarios in attendance for any agreement?
k) Did the comisariado ejidal notify the Office of Agrarain Reform and the Notario Publico of the decisions that the assembly reached?

SEVENTH: Did the ejidatario request in writing that the National Agrarian Registry extinguish the ejido regimen for the property and at the same time request a new Private Title of Property for the land be issued? Were there certified copies from the competent authority of the assembly that recognizes the ejidatarios approval for regimen of full dominion attached to such request?

EIGHTH: Once the ejidatario has the private title, did he/she request in writing that the title be recorded in the Public Registry of Property for the municipality in which the property is located?

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Why does the regularization process involve so many steps and take so long?

The ejido itself is normally a large tract of land that is utilized by all of the ejidatarios for their sustenance. Managed and operated in a similar fashion to that of a farm cooperative, the ejido has no land subdivision or individual parcels. Subdividing the ejido into "parcelas" is what the regularization process accomplishes. Typically, the privatization of ejido land can take six (6) to twelve (12) months to complete, but it may take longer. Though this time period would appear lengthy, one must keep in mind that there are many individuals involved that must come to a unified and collective decision to privatize the ejido. Negotiations within the ejido on whether to privatize or not could take several months. Then, even when an ejidatario or a group of ejidatarios want to sell, lease or joint venture their particular private parcels to a third party outside the ejido, they must offer a first right of refusal to all of the other ejidatarios. This process, known as "derecho al tanto", usually means that the ejidatarios must give notice to the comisariado of the ejido (president) of their intent to sell, lease or joint venture. The president should provide a public disclosure of the intent and if, after thirty (30) days, there are no purchasers or objections, the ejidatarios may proceed.

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Does the regularization process really work and how can I be sure I have title to an ejido property?

There are many examples of ejidos being properly regularized and the subsequent wonderful developments that have come from these once government lands. Whether in Puerto Peñasco, Los Cabos, Puerto Vallarta, Mazatlán, Guadalajara, Reynosa, Querertaro or many other cities in Mexico, residential, resort and industrial developers on both sides of the border have undertaken the process to successfully privatize ejido property knowing the inherent value of the future project. Buying land that was entitled as an ejido can be a safe and prosperous personal or business venture. The caveat, buying public, is to make sure that the land has been fully privatized or is in the process of regularization. And to be certain, purchase an Owner's Policy of Title Insurance for your property. A title insurance policy, issued on Mexican land, can insure that the land is not ejido. With the title insurance policy in hand, protecting your ownership rights, you'll probably sleep better at night.
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Residency requirements for tax exemption purposes

In the United States, American citizens may exclude the capital gain they realize when they sell their principal residence after occupying it for a period of not less then two years during the five years preceding the sale and meeting other specific IRS requirements. That is to say, there is no federal income tax liability on up to US$250,000 gain (US$500,000 gain for joint filers) on the sale of their primary residence. Mexico has a similar provision in its tax code. Pursuant to the Mexico Tax Revenue Code (Código Fiscal de La Federación), Mexican nationals and foreign owners of a residence in Mexico may be entitled to certain tax exemptions on the capital gain realized if the "home" is a "primary" residence.

The issue of capital gains tax has long been a troubling problem for many foreign purchasers of residential property in Mexico. Many sellers, whether Mexican or foreign, have tried to reduce their tax liability on the sale of a residence by using a lower "declared value" in the transaction rather than using the actual sales price. As a result, an unknowing buyer can inherit additional tax consequences when they ultimately sell the home in question because their "basis" in the property is less than what they actually paid. For several years now, some real estate agents in Mexico have advised their non-Mexican clients not to worry about capital gains taxes because they would qualify for an exemption. They often advised the prospective buyer that he or she would be able to demonstrate to the local public notary (notario publico), who is responsible for the collection and payment of the capital gains tax, that the residence was their primary residence and therefore qualify for the exemption. At the very least, this was misleading and poor advice to receive from a seller or real estate agnet. At its worst, it could be considered tax fraud.

Pursuant to recent amendments of the Mexico Tax Revenue Code, a foreign national who is a "homeowner" may qualify as a "Resident" of Mexico for Mexican tax purposes and may qualify for a capital gains tax exemption on the sale of residential property in Mexico. The following are some points you may consider to determine whether you qualify as a Mexican "Resident":


—·Is your primary residence in Mexico?


—·Is more than 50 percent of your total income generated or earned in Mexico?


—·Is your main business operation or your ?main professional center? for business income purposes located in Mexican Territory?


If you have answered "yes" to these questions, you may be considered a Mexican Resident and may be entitled to some residency benefits such as the capital gains tax exemption. You should always contact a local notario publico to discuss the specific requirements and benefits of Mexican Residency. You should also consult with other Mexican legal counsel and tax advisors to explore these and other possible benefits. American and other foreign buyers of Mexican residential property must be aware of Mexico's capital gains tax liability when they sell. If the original Seller did not declare the total purchase price when selling the property, the Buyer could face increased capital gains tax liability when the Buyer sells the property due to the artificially reduced basis. It is not uncommon for this consequence to be a "deal killer" when the buyer seeks to sell the property and discovers that he or she must write a check just to cover the income tax due at the pending sale. This is a clear case of caveat emptor, let the buyer beware! One simple solution to this problem is to declare the actual purchase price in the sale of all real estate.

*This article is only intended to provide general information. It is not intended to be relied upon as legal, accounting, tax or other professional advice or services. Please consult with legal counsel and a tax advisor to address your concerns.
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Title insurance in mexico?

The real property conveyance process in Mexico, like any other civil code system in South and Central America, and many other countries in the world, is reliant upon individuals to transfer ownership rights. These highly educated and "hand picked" public notaries have the obligation, right and privilege to consummate all real estate transactions within their given territorial jurisdiction. Their acknowledgment and certification procedure provides "judicial certainty" to the authenticity of the process. With this process in place, Mexico can be said to have a good land conveyancing system. However, one must never lose sight of the fact that it is a system reliant on the performance of various people, not just the public notary. Sellers, buyers, agents, surveyors, property recorders and municipal employees all come into the mix. And as we have all learned throughout the annals of time, human beings, though not intending to do so, do make mistakes. Errors are made. We are not infallible.

In real estate matters though, mistakes can be costly and create significant losses. For that reason alone, reliance upon a monetary indemnification that guarantees remuneration in the event of loss due to a title defect or error is a must. Suing the seller to recover property or money, whether in the United States or in a foreign jurisdiction, is a tough alternative to the viability of title insurance.
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Why title insurance?

Title insurance on Mexican real estate is more than just a title insurance policy. It is an in-depth examination concerning title documents, and real estate closing process. In order to issue an Owner's Policy of Title Insurance , and assume the inherent monetary liability that comes with the policy issuance, the insuring company must be as certain as possible regarding all of the various elements in the property transfer.

The process of the title insurance company, is to eliminate risk by examining all of the relevant issues today. If given the opportunity, a title insurance company may inform both buyer and seller of the relevant concerns that may be outstanding or in process prior to the consummation of the property conveyance.

This type of investigation coupled with financial indemnification gives the non-Mexican purchaser of real estate comfort and security knowing that a company with over 100 years of expertise has examined all of the title matters and issues a title policy. When compared to the other closing costs associated with real property conveyances in Mexico , i.e., transfer taxes and notary fees, an Owner's Policy of Title Insurance will for the most part be the cheapest.
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What about the notario publico?

It is often said that it is the responsibility of the notario to provide title assurance, and that they have the same requirement of certification as would a title insurance company. That is true. However, it is not often understood that in Mexico a title policy not only protects against liens, encumbrances, and tax issues, but also against fraud, misrepresentation, impersonation, secret marriages, incapacity of parties, undisclosed heirs and other hidden risk as provided by the policy. Even the best of notarios or attorneys may be unable to discover these title problems.*
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What additional benefits does a title policy provide?

Since title policies are fully negotiable contracts of indemnity, a title company can consider and insure a variety of title matters for the benefit of the proposed insured. For example a title insurance policy has the ability to provide affirmative coverage and endorsements that protect purchasers against risks that may be discovered in the title search process. How can any one individual, even a notario publico, give these types of assurances that have real dollars standing behind the assurance and that ultimately will protect a buyer in the event of a loss.

Never forget one thing, no matter who tells you that title insurance isn't necessary, just remember that it is the ONLY monetary indemnification that you will receive protecting your ownership rights.
*Subject to certain limits as provided in the policy.
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A Title Insurance Policy

Since purchasers first began claiming and acquiring ownership of land there has never been a time when he has not needed some form of title assurance. The very nature of land induces a need for title assurance because its characteristics differ from other forms of property. Land titles are symbolic because the title is what a purchaser gets when he purchases real estate rather than actual delivery of the property. For this reason, it is highly important that a purchaser have the best assurance possible that his title is good, unencumbered and free of flaws, or that he have an indemnity against loss due to a title defect.

Historically, a purchaser's lack of knowledge of the complexities of land titles have caused him to discount the importance of land title assurance. Knowing little or nothing about titles, real estate buyers have consistently relied on the advice of others. They have been led to believe that it is not necessary to look back into a title beyond a couple of previous ownerships, that the public records contain information with respect to every possible title hazard and that an attorney's opinion gives positive assurance of a safe title. Conditioned as the public has become through traditions and practices, it is inconceivable that a title could be completely lost irrespective of the customary assurances available. Prior to the inception of title insurance, it became obvious in the late 1800s that the U.S. needed a more secure form of title assurance - a form based upon indemnity dollars instead of word of mouth reliability. And now today, over 100 years later, foreign purchasers of real estate in Mexico face the same dilemma.

The land conyeancing process in Mexico is a good one, however, any title defect that can occur in the US can also occur in Mexico with other potential hazards looming on the horizon uncommon in US property conveyances."Ejido" claims or expansions, labor liens, fideicomiso (Mexican bank trust entitlements), property regularization and permitted use issues can pose significantly detrimental problems to unknowing purchasers of Mexican real estate. Moreover, little if no legal recourse is afforded the purchasing public against the public notary who closes all real estate transactions in Mexico or against Mexico's public registry of property concerning title or lien defects, omissions, gaps in ownership or recording errors. A title insurance policy issued on Mexican property provides a comfort and security benefit to foreign purchasers and is the only safeguard against title pitfalls resulting in eventual Mexican lawsuits and monetary losses. For more information about ordering title insurance policies contact international@stewart.com.

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Third Party Escrow

Money, and the possession or deposit of it into "broker escrow accounts", has historically been the downfall of many competent real estate professionals. Real estate agents and companies have literally gotten 'killed' abusing this concept. Licensed real estate practitioners in the United States , have to complete state-mandated educational requirements and testing competency to obtain a real estate salesman license. At the forefront of any real estate schools education curriculum is the emphatic and stringent requirement that agents cannot and should not "co-mingle" purchasers earnest money deposits in broker accounts. If there has ever been one real estate concept that can have catastrophic consequences to all parties involved, it is not handling a purchaser's deposit in a safe, secure and accountable manner with the implicit understanding that there is a 'fiduciary' obligation to safeguard the buyer's money... always!
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An example

It has long been said and preached that "if a purchaser is willing to give money to the seller or the agent in a real estate acquisition, be prepared not to get it back!" There can be no truer words to live by in Mexico . Unfortunately, it is a sad reality and the reality has reared its ugly head in Mexico. Purchasers in a particular Mexico market " the particular market not being the issue" deposited funds in good faith and entrusted these moneys to the agent's "broker trust account." One would think that the term trust would imply some sort of confidence and security in the deposit vehicle, yet in this case, it was an oxymoron. The stark reality is that the money is gone, and it's a huge amount of money. The agent is gone as well, having fled Mexico and leaving these unprotected "good faith" buyers to ponder what now. Their sole remedy and recourse to date has been to file complaints with Mexico' s consumer protection agency, "PROFECO." The likelihood that any of them will recover any of their money is slim and none, and slim already left Mexico !
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Escrow in Mexico?

The alternative to broker escrows or giving money to the seller is to utilize third party escrow accounts. Some Mexican banks will handle deposits for real estate transactions, charging an escrow fee of approximately $450 to $500. There are however several drawbacks to Mexican bank escrow accounts. First and foremost is that Mexican banks do not utilize formalized escrow agreements that have been negotiated and executed per mutual agreement between the seller and the buyer and additionally signed with acknowledgement by the bank as agent. Mexican banks simply hold the money until notification to release it. They traditionally do not invest the money into interest bearing accounts for the benefit of the depositor as well. It has also been the practice of the banks to use the funds internally. The end result is that the subsequent refund or transfer of the deposited amount is not readily available nor is it handled in a timely and expeditious manner.
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A more favorable alternative

The best and most favorable manner to handle earnest money and escrow deposits involving Mexican real property transactions is with a U.S. title insurance company who has a fiduciary obligation and responsibility as the "escrow agent." Some agents and developers in Mexico do not like to utilize escrow accounts in the United States for one simple reason: they do not control the money! Understanding that there is a total lack of construction financing in Mexico, an overall level of illiquidity in lending of any type, and the subsequent upfront deposits required by many developers to begin construction notwithstanding, there is still no reason why third party escrows should not be used to protect the foreign buying public. Or for any buyer! The prevailing concept of "passing the money" when the seller and buyer enter into a promissory agreement is antiquated, self-serving, and at best a huge risk for purchasers. As in the United States , consideration or the purchase price due -less any earnest money deposit- should be paid when a buyer is able to receive a protocolized deed by the notario publico and the transfer of the real property interest. It should not be when the buyer can get the keys to the condo or "possession" of it.

The ultimate benefit of third party escrow is the basic fact that an escrow agreement exists, fully negotiated and mutually agreed upon between the seller and the buyer. It is a "stand alone" document that instructs the escrow agent precisely in the manner in which the escrowed funds are to be deposited, handled and ultimately disbursed. The escrow agent is bound to the stated terms of the agreement and has a fiduciary obligation to follow the letter of the agreement. It is not subject to interpretation or conjecture, nor is the escrow required to interpret how money will be handled per a purchase contract. Moreover, the escrow deposit can be put in a federally insured depository with the establishment of a money market interest bearing account. The subsequent accrued interest can be designated for the benefit of the seller or the buyer. But at all times, the parties know where the money is. It is verifiable once the account has been opened and it is always referenced directly to a guaranty file as maintained by the escrow agent with full disclosure of all salient facts and account numbers. If a dispute arises between the parties concerning the disposition of the escrowed funds, the escrow agent may "interplead" the funds with a court of competent jurisdiction. But at no time will the money be released to anyone without the written mutual consent of the parties.

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