FIND A REPUTABLE AGENT OR BROKER

In most of Mexico, there is no MLS, no real estate licensing requirements for agents, no governmental oversight.  The result is that almost literally, “everyone sells real estate”.  Just take a seat in any restaurant or bar and mention that you want to buy property and you’ll surely have a crowd around you momentarily.  Besides locals there are also a good number of “expats” who sell real estate and can’t even return to their home countries for fear of arrest.  Would you risk a good part of your life’s savings with someone like that?
Here are some good indicators of who you would want to work with.

MAKE AN OFFER

In the past here, when two individuals come together to buy and sell property an agreement was written by the Buyers. Upon signing, the Buyer gives the Seller a deposit to hold as earnest money to seal the deal.
In the case of my company and others that are professional after you make an offer upon a standardized “Offer/Contract” is prepared. The offer will be presented to the Seller and they will either, decline, accept or counter the offer. Negotiating on purchase price, closing date, inclusions and other details is common. However, do not be disappointed if the Seller holds out for full price. As of this writing, this is a Sellers’ market, even in the aftermath of Hurricane Dean and the U.S. economic crisis!  This is because land in Costa Maya is still the least expensive oceanfront property on the Mexican Caribbean. 
If your offer is accepted and everything is signed, it is time to arrange for the transfer of earnest money deposit and meet with your attorney.
If the offer is accepted, normally 10% of the purchase price goes into an escrow account…not with the Seller.  You can see the pitfall of depositing your money with a Seller…especially if the title of the property is in question.

THE BUYING PROCESS (Fideicomiso or Corporation)

In Article 27 of the Mexican Constitution it clearly states, “Foreigners cannot own property within (100) Kilometers of the Border and (50) Kilometers of the coastline”. This is called the Restricted Zone. However, in the 1970’s the Mexican Foreign Investment Law created two options that help foreigners who want to purchase property in “The Restricted Zone”.

1. A Mexican Corporation (FOMC)
2. A Bank trust (Fideicomiso)


A Corporation
If you wish to purchase property through a Mexican corporation, it may be 100% owned by foreigners. A provision in the by-laws of your corporation must state that the share holders must accept and will be subject to Mexican laws.   The property must be registered with the Foreign Affairs Registry.  The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate. An attorney or Notario can help to set up your corporation. It is important to know what your goals are in respect to the property, business and type of investment prior to setting up the corporation. Creating the corporation requires a minimum of 2-individuals (stockholders), of any nationalities that are at least 18-years of age. One of the stockholders will be required to be the managing partner. The managing partner will be required to acquire and maintain an FM-3 visa. The visa must be renewed every year. Additionally, the corporation is required to make monthly reports to Hacienda (the Mexican Department of the Treasury) reporting income and expenditures. The reporting needs to be done by a certified accountant.

Advantages of the Foreign Owned Mexican Corporation
 
 No limit to the number of properties it may own.
 Allows for one or more of the stockholders to legally live and work in Mexico year round.
Disadvantages of the Foreign Owned Mexican Corporation

 The Corporation requires more hands on attention than the fideicomiso.
 Does not have the ability to avoid capital gains taxes when it sells property.
 Requires a managing partner with a FM-3 visa.
 Monthly reporting of financial activity through a certified accountant.

A Bank Trust (Fideicomiso)

Both foreigners and nationals may establish a Fideicomiso (An Irrevocable Bank trust). This trust is created with a Mexican bank. The bank accepts the fiduciary responsibilities of a Trustee. The Fideicomiso allows you to purchase anywhere in Mexico including the restricted zone.
The Notario requests that a bank of your choice act as a trustee on your behalf. The bank then will receive a permit to acquire the chosen property in trust. The trust is irrevocable and is established for a maximum of 50 years then it may be renewed for another 50 years. You are the beneficiary of the trust and have all the benefits of direct ownership. This includes the option to sell, remodel, lease, mortgage, or transfer the rights to a pre-appointed heir or another third party. The trust may also include language to bypass the probate court with joint ownership to transfer with the rights of survivorship. You do have the absolute right to transfer the title to another party at anytime.

It usually costs approximately $ 800 to $1,200 USD to set up a trust. There is also an annual maintenance fee of $500 to $600 USD. You will pay the yearly fees directly to your bank.
The fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property with you (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property. Advantages of the fideicomiso:
 The fideicomiso gives you the rights and the vehicle to hold the property in perpetuity.
 The fideicomiso is a 50-year trust agreement that is renewable every 50-years by you or your heirs.
 You can transfer your rights in the fideicomiso to a foreign buyer.
 You may rent, sell, remodel or dismantle the improvements on the property.  Your heirs can inherit the rights to the fideicomiso, effectively by-passing probate, should you depart without a proper will.
 There are tax advantages pertaining to capital gains taxes when you sell.
 The fideicomiso is easy to maintain by paying the annual fee to the bank.
If the title papers, property dimensions and corresponding documentation are not perfect, the bank will not issue the fideicomiso. We will discuss title irregularities in a future segment.
The main disadvantage of the fideicomiso is that it is restricted to hold a property of, NO MORE THAN 2000 square meters. (There are exceptions and you can request a permit (permiso) for acquiring a fideicomiso that allows for a property larger than 2000 square meters. It is a complicated process requiring an investment plan, time line, inspections, architectural renderings, business plan, governmental red tape, etc.

THE NOTARIO/ATTORNEY

A Notario is an attorney that specializes in real property law and is specifically licensed by the state to legally transfer real estate from one party to another. The number of Notario licenses is limited by the state. An attorney whom wishes to become a Notario must first attend classes and then pass a board. It is a demanding process and many do not make the cut.
The Notario is ultimately responsible to ensure that a clean, merchantable title is passed from the Seller to the Buyer, that the property taxes, transfer fees/taxes and any capital gains taxes are paid at or prior to closing. They are also responsible to properly record the transaction in their personal books and with the office of the Catastro (office of property titles). Should a Notario fail to discharge their responsibilities in an honest, fair and complete manner, they could lose their Notario license.
Choosing a Notario is usually not difficult and your real estate agent will be able to suggest a good Notario that is versed in transferring titles to foreign Buyers. You may also choose to work with an attorney who is not actually a Notario but is connected to a Notario.
If you are setting up a corporation, it is a good idea to find an attorney that understands the mechanisms of the proper corporation to best execute your business plan and objectives. Having your corporation worded properly the first time will save money, time and frustration.

Notario fees will vary from one firm to another. Many fees are based upon the amount of the operation.  Taxes and transfer fees are based upon this appraised value.
Frequently, the appraised value of the property is much less than the actual purchase price. If you wish to record your deal at the actual purchase price, that is fine. But be prepared to pay higher closing costs and perhaps the additional capital gains tax that the Seller will incur due to the Buyers desire to close the deal at the actual purchase price instead of the appraised value. 

THE CLOSING PROCESS

After you have found your property, negotiated and signed a contract, paid your earnest money deposit and contracted with an attorney to handle your closing. Then you have decided to either utilize the fideicomiso, corporation or both. Your attorney will need copies of your passport, visa, the contract, and perhaps a POA from you to sign on your behalf.
Your attorney will prepare all the necessary documentation for closing. This documentation includes checking to see that there are no debts or liens against the property; that the taxes are paid, the meets and bounds description are correct, title is clear and in the name of the Seller listed in your contract, order the permiso for your fideicomiso or create your Foreign Owned Mexican Corporation.
Standard closing time from signing the contract to actual transfer of title is a process of 4-6 weeks. If there are problems with the title or survey it may take longer.
There are no title closing services available in Mexico, so the broker should act as a closing agent and disburses funds. If the Seller wishes to receive their proceeds in a USA or foreign bank or other currency, we set up the bank wires and execute them upon signing.

Understanding The Closing Process The Closing Costs”
It is going to take between 45-60 days to complete the closing process. Commonly, the buyer pays for the closing costs as well as transfer or acquisition tax. In many closings, it is not necessary for the buyer to be present for the closing. The closing costs are paid on the value of the property purchased. Most Notarios require that you pay for ½ of the estimated closing cost when they start your paperwork and the final payment at closing. An Estimate may be (and should be) requested from any Notario and varies marginally in the cost of the closing from one Notario to another. Closing costs are generally as follows:

• Fees for the tax certificate
• Transfer tax (I.S.A.I.) of 2% plus a fixed amount according to a scale based on the appraised value of the property which goes to the Mexican government.
• A registration fee of .05% of assessed value of the property.
• Average of 2% for legal notary fees.
• Title search fees
• Property Appraisal and miscellaneous office expenses.
• Total closing costs varies from State to State because each State sets the amount of taxes. Commercial property for new construction may be as high as 8 % because the I.V.A. Tax (a 15% sales Tax) may be included in your closing cost.

Note: The recent closing for a lot that sold for $254,000 US dollars the closing cost and the trust fee were $9,697 US dollars or 3.8 per cent. Another recent closing of a lot and home that sold for $440,000 US dollars and the closing cost and the trust fee were $14,080 US dollars or 3.2 per cent.
*Please note that these costs change from time to time and I cannot guarantee these amounts since I don’t set them.  They are for general estimating purposes only.  Your attorney and Notario can give you a detailed statement prior to closing.

UNDERSTANDING FINANCING

Financing in this part of the Mexican Caribbean has never been available (even before the financial crisis) so all transactions are in cash.  There ARE however, properties that offer owner financing.  We have more of these listings than any other real estate company in the U.S. and there are standard contracts that protect the interests of both Buyers and Sellers in the transaction.