Purchase of property in Mexico
Fideocomisco and Public Notary
An important characteristic in Mexico that may be confusing is that a great part of the land is restricted (inside 100km restricted land border zone and 50km coastal zone) and instead of buying land you buy a “fideicomiso” (a trust). This provides for ownership of land and property, but is not called ownership. This is because Mexican land used to be protected from landownership by foreigners. In order to enable foreigners to be property owners in Mexico , the Government introduced the present system of land trusts.
The Public Notary has a very important role in the process. In Mexico , the Public Notary is legally responsible to ensure that all documents and the whole process reach the requirements. Only to become a Public Notary you need to have a Law Degree, 3 year’s of work experience at a Public Notary and be appointed by the State Governor. Before the buyer enters any kind of contractual compromise, the Public Notary makes extensive research to see that the property in question is free of liens and any kind of debts.
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Step-by-step
Before any contracts are signed, the Public Notary will make sure that the property in question is free of liens and what kind of land it is question of (to make sure it is not an Ejido). The Public Notary as well as us will guide you all through the process, so there is no need to learn every step by heart, but the below set up step-by-step plan serves to give you an idea of how the process in question normally looks like.
The day you decide for one specific property the process looks something like this:
- We at MexiHomes give you options of different Public Notaries that we usually contract and you decide which Public Notary suit you the best.
- A “Convenio de Compra/Venta” or Sale Agreement is signed by the buyer and the seller, presenting details as costs, inclusions, exclusions, deadlines and cancellation penalties either party pulling out (about the same as the down-payment). At the point of signing this agreement, the buyer makes a down-payment of agreed amount.
- You will be asked for official documents such as passports, Birth Certificates, Marriage Certificates and visa (which can be a tourist visa).
- The seller is asked for documents such as: original property deed, up-to-date tax receipts, public utilities bills and up-to-date details of land-service fees.
- If the property is inside the restricted land area, a land trust is set up with the help of the Public Notary.
- The next step is to seek permission from the Foreign Secretary’s Office to buy land. This is simply a formality and you will be asked a contract that states that your ownership of a Mexican property rules under Mexican Law.
- Capital Gains Tax is paid by the seller. The Public Notary states the amount.
- Payment of the remaining sum is made at the moment when the deed is transferred to the buyer and is carried out at the Public Notary’s Office.
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The Public Notary’s fees are paid at the same time, as well as other taxes associated with the purchase.
Costs and Taxes
Costs and Taxes to take into consideration are:
- Catastro which is the property tax paid to the government every year. The amount depends on the area concerned and its characteristics.
- Acquisition Tax is paid on the sale value of the property and amounts to about 2% depending on the area.
- VAT or Sales Tax is part of the Acquisition tax.
- Registration Fee: 1.3 % of the value of the transaction in order to be registered in the Public Records.
- Public Notary Fees: about 1.5% of the sale value.
- Bank Trust: If you need to purchase a bank trust because the land in question is within the “restricted territory”, it will cost up to 750 USD with annual charges of between 300-500 USD, which cover the service by parts of the bank of dealing with all the documents necessary.
- Foreign Office Permit: about 150 USD.
- Service Fees: this is relevant if you will be living in a gated community, where there are services such as maintenance, cleaning and gardening etc.
- Title Insurance: See Below.
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Title Insurances
Very common among foreigners is to buy a Title Insurance. This insurance liberates the buyer from all liens that may exist and that not been discovered during the process of purchase. The Title Insurance costs about 5 USD per 1000 USD (for example say the property costs 200,000 USD the Title Insurance amounts to 1000 USD.) In theory, the Public Notary makes sure that the property is free from all liens, but this Title Insurance is an additional factor of security. Ask us more about this Title Insurance!
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