PURCHASING PROPERTY IN MEXICO

The Mexican Bank Trust "Fideicomiso"

The Political Constitution of Mexico provides foreigners with the ability to acquire ownership of real estate property within one hundred kilometers (60miles) from its borders with the United States and Guatemala and fifty kilometers (30 miles) from the seacoast under certain restrictions. A Presidential Resolution issued in April 30th, 1970, freed the policy regarding the restricted zones. Its objective is to encourage tourist and industrial development in these areas by giving foreigners the legal right to use and derive the benefit from these lands without the need of direct ownership.

The Federal Government had to find a way to regulate this and make it work by establishing specific guidelines for the protection of foreign investment in Mexico. Through the mediation of the Ministry of Foreign Affairs, and after hearing the recommendations of the intersecretarial Advisory Commission in charge of studying the economic and social feasibility of specific projects regulated by the April 30th resolution, the Federal Government can authorize private credit institutions to hold title, in trust, to real estate for the benefit of foreigners.

This is when the "Fideicomiso" (Bank Trust), as it is called In Mexico, made its appearance. This is a legal document issued by a Mexican Notary Public under the guidelines of the Mexican Government so you, as a foreigner in Mexico, may have your investment and your property fully protected.

HOW THIS PROCESS WORKS

First of all, in order for you to receive the kind of protection aforementioned, the assignment of ownership rights to the property must take place and your interest registered as soon as possible after the successful conclusion of the negotiations to purchase your "dream property" at Gardenias. Think the same way as if you were purchasing real estate back home; you'll never consider leaving your title "on hold" there.

You as a foreigner, acquiring a condominium here at Gardenias, as well as any kind of real estate property in any other place in Mexico, are purchasing Personal and not real property. You are probably wondering what is the difference and how does this affect your acquisition through a Mexican Bank Trust (Fideicomiso)?

The difference is minimal. Instead of saying "transfer of title", the words "transfer of trust rights", or "assignment of beneficial rights", will be used. In practical terms, the beneficiary (that means you or whomever you decide to name as such) has the following rights:

1. Possesses full control of the property.
2. May instruct the trustee to: lease, mortgage or sell the property to any person with legal capacity to acquire the same, with no restrictions as to the price whatsoever.
3. Holds full rights for the use and enjoyment of the property and may do anything with the property as permitted under Mexican Law and the Rules and Regulations of Condominium Regime.
4. Enjoys the same rights of dominion as any Mexican Citizen who has direct title to the property.

Beneficial rights of the property will be transferred to you through a Mexican Bank acting as the trustee for the administration of such interest. Currently and in accordance to the law, "Fideicomisos" are valid for a period of fifty years. Multiple renewals of same period are permitted under the law. Therefore, by requesting extensions every fifty years, your family or business may control your property for generations.

HOW DOES THE PROCESS TO LEGALIZE THE "FIDEICOMISO WORK?

First, a permit to acquire the beneficial rights must be obtained from the Ministry of Foreign Affairs in Mexico City. The terms of such permit will be part of your deed that will be registered also in the National Investment Registry. Once the permit application is presented the Ministry of Foreign Affairs has a specific term to present the corresponding authorization, speed on this process depends on the entity handling your interest; here, at Gardenias, you'll receive the best personalized service, therefore, you permit will be received in the fastest term possible.

Once the permit is approved and received, the process to complete your official deed begins. Certificates, appraisals and other official documents need to be obtained. Once all this paperwork is ready, documents are delivered to the Mexican Notary Public who will issue the deed for the assignment of trust rights, same which will be reviewed, accepted and signed by the bank trustee before him. This deed will name the beneficiaries and substitute beneficiaries of the trust in accordance with your instructions and must be dully recorded in the Public Registry Office of the Municipality of Los Cabos. The final page of the deed will include the Public Registry stamp with the book and page numbers and the date on which it was recorded. Once this is done, the transaction can be considered complete, now you are fully protected and the trust deed original document can be delivered to you and the trustee as well (each one keeps an original).

CLOSING COSTS:

Cost of transfer includes transfer taxes, government permits and/or certificates, bank fees, notary fees, professional fees, appraisals, title search and insurance (these last two if requested). Closing costs in Mexico range from 4% to 6%, depending on the total cost of the property, the higher the price is the lower the percentage of the total closing cost expenses. However certain expenses such as permits and certificates are fixed regardless of the price.

Here's a brief description of each concept:

Foreign Affairs Permits: As of August 2011, the total cost for this permit, including the registration of your deed in the National Foreign Investment Registry, was approximately $1,350.00 (16,000.00 pesos depending on the current exchange rate).
Certificates: Certificates of no liens, no encumbrances and no tax liens and process for obtaining your individual tax I.D. number (for property tax payment purposes), are all charged on a set fee basis established by the Municipal Government, usually about a total of $50.00 U.S.D.
Appraisal: An official appraiser (Perito Valuador), authorized by the municipality authorities and who is usually an architect, will do an official appraisal on your condominium. This is required prior to completing any transfer of title and will imply professional fees for the appraiser as well as approval fees for the authorities involved.
Notary Fees: The duties that this professional will perform are: drafting of the deed, calculation of buyers acquisition tax and seller's capital gains tax (if any) and to attest and "give faith" to the validity of signatures. The responsibilities and potential liability for the actions of the Mexican Notary Public are considerably higher than those of Notaries in the U.S. and Canada, and the Mexican Notary's fees will be substantially higher than those charged in such countries.
Closing legal/professional Fees: Unless the buyer has a lot of time to spend on this activity and is fluent enough in Spanish to handle a real estate transaction, you may want to hire a person/company who deals in an every day basis with this activity and whose purpose is to supervise and coordinate permits, tax payments and other countless details necessary to obtain full legal right to the property. Fees for this service will depend on each company's policies. We are happy to recommend the services of Romina Ruiz to our purchasers. Contact information is below.
Besides offering you complete assistance in all the required steps for your purchase transaction as well as the obtaining of the title to your property, we also have an in-house trust administration expert that can help you through the whole process. She will handle all your paperwork, obtain all your permits and certificates, negotiate with the fiduciary institution and the notary's office, and keep you posted on the process until your original trust title is delivered. In order to achieve all the aforementioned steps, our expert will require doing some payments for you; therefore, in order to initiate the trust process, a deposit will be requested to open your closing cost account. Once the process is completed, a closing cost statement will be presented to you including a complete description and breakdown of such expenses.

Bank Fees

Administration Fee: Annual fee for the administration of your trust. The first payment shall be done upon signature of your public deed. Further payments shall be covered every year upon the anniversary of your trust and must be paid on time in order to avoid penalties. Traditionally, some trustee banks do not send annual statements, we recommend you to request your statement from your bank at least ninety days prior to your due date. Bank administration fees typically run from $500.00 to $600.00 USD plus tax, per year; however, here at Gardenias we have negotiated a $444.00 USD annual fee for our homeowners.

Project Review & Acceptance Fee: Trustee bank will charge also a one-time fee for reviewing your deed project and for their acceptance signature on such public deed. This fee shall be paid upon signature of the deed and can be as much as $444.00 USD.