Education is your best defense against poor business practices and lack of disclosure. It is highly recommended that you seek the advice of licensed professionals when considering the many aspects of a foreign real estate or business investment.
Buyer Beware: Be advised that there are no laws which regulate the sale or management of real estate in Mexico and abuses do exist. It is always prudent to ask for local references and obtain competitive bids for all services when possible.
Mexico real estate laws and business practices differ substantially from those in the United States. Foreigners who purchase property in Mexico may find that property disputes with Mexico citizens may not be treated evenhandedly by the Mexico justice system. A foreigner has little, if no recourse at all without a properly drawn Mexico legal contract.
Caution: Liquidity can be a problem in Mexico. Significant price reductions may be required if you are forced to sell your Mexico real estate investment in a short period of time. Be aware that income from Mexico vacation rentals is highly speculative due to seasonal fluctuations and world travel conditions.
Defense: Plan for a long term holding period of at least 5 years and do not become dependent on vacation rental income.
Head Up: By fact and nature, buyers and sellers have opposing objectives. There can be substantial risk involved when dealing direct with an owner or an owner's agent. Carefully consider the motivation involved. What do you believe happens to full disclosure?
The Mexican Constitution prohibits direct ownership by foreigners of real estate within 100 kilometers (about 62 miles) of any border, and within 50 kilometers (about 31 miles) of any coastline. In order to permit foreign investment in these areas, the Mexican government has created a trust mechanism (contrato de fideicomiso) in which a bank has title to the property, but a trust beneficiary enjoys the benefits of ownership. The Bank Trust Agreement (contrato de fideicomiso) allows for renewable long term leases that may be sold or enjoyed by your heirs.
A foreigner may be the sole and exclusive stockholder of a Mexican corporation which may hold fee simple title to non-residential property in the prohibited zone. There is a broad definition for "non-residential" property.
Buyer Beware: Mexico real estate prices that seem too good to be true are usually too good to be true! Many of these "bargains" are located on what is commonly referred to as "Ejido" or communal tracts of land. It is highly recommended that you consult with a Mexico attorney regarding Ejido land rights. Any agreement between the "Ejido" and a foreigner may be revoked or cancelled without cause, notice or recourse!!
Caution: Mexican law recognizes squatters' rights, and homeowners can spend thousands of dollars in legal fees and years of frustration in trying to remove squatters who occupy or rent their property. Always inspect the property and be certain that your property is not occupied by a Mexican citizen in any manner whatsoever. Anyone who occupies the property on behalf of the owner should be totally removed/gone from the property prior to closing. Warning: A Mexico citizen may simply refuse to pay rent and continue to occupy your rental property for a long, long time - maybe years.
American property owners in Mexico should exercise caution when hiring employees to serve in their homes or on vessels moored in Mexico. Several American property owners have faced lengthy lawsuits for failure to comply with Mexican labor laws regarding severance pay and social security benefits.
Caution: Exercise extreme caution when considering time-share investments and be aware of very aggressive tactics used by some time-share sales representatives. Buyers should be fully informed and take sufficient time to consider their decisions before signing time-share contracts, ideally after consulting an independent attorney. Mexican law allows time-share purchasers five days to cancel the contract for unconditional and full reimbursement. U.S. citizens should never sign a contract that includes clauses penalizing the buyer who cancels within five days.
A formal complaint against any merchant should be filed with PROFECO, Mexico's federal consumer protection agency. PROFECO has the power to mediate disputes, investigate consumer complaints, order hearings, levy fines and sanctions for not appearing at hearings, and do price-check inspections of merchants. All complaints by Americans are handled by PROFECO's English-speaking office in Mexico City at 011-52-55-5211-1723. You might also complain about the lack of an English translation for the PROFECO web site.
1. All Mexico real estate and business transactions are processed by a local Notario Publico. A Mexico Notario Publico is a licensed attorney and among a select/privileged few that are licensed by the Mexico government to process and record property and business transactions, collect taxes and arbitrate disputes, among other permitted services. Buyer Beware: A Notario Publico performs his services without liability and does NOT represent either party (but will generally act in favor of Mexico land owners). If a dispute arises, everyone goes to their personal attorney for Mexico court resolution - a court which does not favor foreigners. Get it right the first time around!!
***Notario Publico fees are "flexible"!! Buyer Beware and always seek competitive bids from two or more Notarios when possible.
2. A foreigner's rights and recourse in Mexico are near nonexistent without an attorney written/approved purchase contract in Espanol/Spanish. Investors should hire competent Mexican legal counsel when contemplating any real estate investment.
*** Warning: An english translation of a Mexico legal document, however official it may appear to be, is not acceptable in a Mexico court of law.
3. It always helps to request some evidence that you are dealing with the land/property owner. A buyer should always ask the seller for a copy of the escritura - a Mexico land title - for possible evidence of ownership. While easy enough to forge, an inspection of the original escritura - before being copied for your own records - and inspection of owner identification (from acceptable government source) is always recommended.
4. Mexico real estate and business transactions may include documents as follows:
A. An offer and acceptance (oferta) and/or a promissory agreement (contrato de promesa). These are generally simple documents that outline the sales price and general purchase terms while providing a basis for the purchase/sales agreement.
B. A purchase/sales agreement (contrato de compraventa) should be drawn by a Mexico attorney acting on your behalf but is oftentimes drawn up by the local Notario. Buyer Beware: A Notario performs his duty without liability and does NOT represent either party (but will generally act in favor Mexico land owners). In case of a dispute, everyone goes to an attorney for Mexico court resolution - a court which does not favor foreigners. Get it right the first time around!!
C. A buyer should request a copy of the property lien certificate (certificado de libertad de gravamen). The lien certificate should indicate the owner of record, size, property classification, the legal description and whether there are any liens or encumbrances filed of record against the property. Prior to closing, there should always be a certificate of no tax liability (certificado de no aduedo) from the local taxing authority.
D. Your title may be in the form of:
* A real estate trust agreement (contrato de fideicomiso) for coastal property within the Restricted/Prohibited Zone - 100 kilometers (about 62 miles) of any border, and within 50 kilometers (about 31 miles) of any coastline.
* A reserve title agreement (contrato de compraventa con reserva de dominio).
* An assignment of real estate trust rights (contrato de cesion de derechos fideicomisarios).
5. All purchase funds should be placed in a neutral, third party escrow with specific instructions for disbursement of funds. **This can be tough when it is most always explained that you must give the owner a significant and non-refundable Cash deposit (5 - 50%)!! It is your money and your choice!! You may pay a local bank to act as trustee for the deposit funds and ultimate transfer of title or you may make arrangements with international title companies to handle the escrow.
6. A Notario Publico is responsible for the title search, title transfer, collection of taxes and recordation of the new title in Mexico transactions. The Notario Publico will generally examine the current deed and a current lien certificate resulting in the possibility of a short or incomplete title history of the property. Always obtain Mexico Title Insurance from a reputable international title insurance company. The Notario is not liable for defects in title and the Notario is certainly not liable for lack of disclosure from the seller.
7. It is always advisable for a buyer to retain professional real estate broker services for analysis of the many factors which can affect the value and security of your real estate investment.
8. It is strongly recommended that you consult a qualified attorney before investing in uncompleted developments of any kind. There is little or no recourse when a developer fails to complete a proposed project and it is not uncommon for projects to lack proper completion bonds, permits and licenses. Visit the Development Info section for more information about investing in new development projects.
