How to Buy a Mexican Vacation Home and not get Burned

The dollar goes a lot further in Mexico so if you’ve always wanted a vacation home with an ocean view, it’s time to consider looking south of the border. According to the Mexican Constitution a foreigner cannot directly own land within 100 kilometers of the border (62.5 miles) or within 50 kilometers of the coast. This prohibited zone includes all of Baja California. However beginning in 1994, foreigners can buy land in these prime vacation areas through a Mexican bank trust called a Fideicomiso

Instructions

Difficulty: Moderate

1. Understand the parameters of the trust. The ownership of the property, fee simple, is put in the name of the bank that the buyer chooses as her trustee. The bank becomes the legal owner of the property administering it for the exclusive use of the buyer who has full ownership rights including building, razing, renovating, renting or leasing out the premises, all subject to the laws of Mexico. The trust is not considered to be an asset of the bank. It lasts for 50 years and can be renewed without limit. During this time frame, the trust’s registered beneficiary can transfer his rights to any third party.
2. Most brokers require a deposit before conveying an offer. Upon acceptance, the next step is the signing of a promissory contract by both parties usually accompanied by another deposit that can then total as 50% of the purchase price. Insist that the deposits be held in a bank pending finalization of the trust and financing. Escrow as we know it does not exist in Mexico.
3. Be sure to get title insurance. This is where many pitfalls can occur. There are two kinds available on these properties, US style on the land itself or just on the trust. The insurance will pay for losses up to the value of the policy, if the title proves to be different than as described in the policy. The insurance will cover any problems in both the public record and non record defects such forgeries. It will not only protect the purchaser but his heirs. American style title insurance is available only to foreigners and will give American buyers the right to seek redress against a US company. The title search should always be finished before the deal is finalized.
4. To initiate a Fideicomiso bank trust the prospective owner must apply to the Mexican Secretary of Foreign Relations. Include a description of the property, its intended use and personal data on the beneficiary. When the trust is approved, the bank hires a notary public to draw up the trust and record it in the state where the property is located. The notary is also responsible for collecting any taxes that are due. Closing costs depend on the value of the property. Be sure to get these expenses fully disclosed by your real estate agent before putting any money down for the initial offer.
5. Know that when the transaction is finalized the notary delivers a certification from the public property board after the title search that there are no liens on the property along with an appraisal for tax purposes, and a record of assessments, utility bills or other taxes that might be due. The balance of the purchase price is paid on delivery of the deed to the trust

Tips & Warnings

• Remember that Mexico is a foreign country with different laws and paperwork. Your transaction could easily take longer than expected
• In Mexico, real estate agents are not licensed and do not carry liability insurance, so it’s essential to use a reputable agent.
• If you are buying in a new community, make sure that a bond has been posted for completion of the pending improvements like sewers and roads.