We all dream of someday owning property on the beach to take a vacation or to retire alter long years of labor. Previously one could only acquire property by paying cash but currently there exists the possibility of making a purchase by means of bank credit or direct financing from developers. Nevertheless, it’s important that you define what you want to buy (house, villa, land or an apartment); what your budget is; if your need financing; who will be the appraiser; and finally, a number of relevant aspects that must be looked at with experts in this field. In the case of foreigners, it’s necessary to be versed in Mexican laws in order to protect the investment, the purchase must be made through a Trust (Fidecomiso).
What is a Fidecomiso?
The objective of the trust is to preserve the rights of the trustee (buyer) to acquire guaranteed property or administrative rights. In the case of foreigners the trust is required because restrictions exist relating to directly acquiring property, resulting in them not being able to be direct owners of the property. In addition, legal security is guaranteed in relation to the possession of the property. This contract must be drawn up before a notary licensed in the area by the Secretary of the Exterior (Secretaría de Relaciones Exteriores). A trust is initiated by making a minimum payment to be able to establish the trust and a percentage of the value of the property. The bank also charges an annual fee (the amount depending on the estimated value of he property) to cover the costs of its services. A trust has a term of 50 years and can be renewed.
Important aspects of the sale purchase of real estate
Currently, Mexican law levies a tax of 33% on the difference between the registered purchase price (less authorized deductions and inflation). Nevertheless the option exists for the seller to pay a 25% tax without taking deductions on the total value of the transaction.
Beginning in 2004 the new tax states that the only way of foreign seller can be exempt from capital gains tax is by demonstrating that they are residents in Mexico and, in the case of having another residence abroad, demonstrating that their principal economic activity is in Mexico. Proof must be provided that at least 50% of their annual income originates in Mexico and when their principal professional activity in this country began.
Guide to buy a property:
The first step is to obtain the services of a business that specializes in real state which charge a commission of 6 or 8 percent of the value of the property and the selection of trusted public notary.
Look at the AMPI sign that guarantees an in a depth legal review making the transaction relatively easy when the length of time in closing is fundamental.
Be sure that the seller takes care of the closing costs including expenses, taxes and fees.
Analyze all financing possibilities. Currently there is direct short and medium term financing for national and foreign buyers, enabling U.S. buyers to have mortgage credit to acquire or construct vacation homes in Mexico. This type of financing is available through institutions like Collateral Mortgage, LTD that grants 20 year credit for up to 50% of the value of the property beginning at USD $400,000.00 to resident U.S. citizens who wish to construct, remodel or acquire vacation property in Mexico. Another way that foreign buyers can buy property in our country is by obtaining financing using property or stocks in their own country as collateral. The minimum down payment is 30%, annual interest rates begin at 8.75%, the minimum amount of credit is USD $100,000.00 and the maximum is USD $800,000.00.
The Public Notary acts as the agent responsible for the property. Generally, he doesn’t provide title insurance but there are Mexican and foreign companies that offer this service. In Vallarta, Stewart Title is the most recognized title insurance company. Having title insurance guarantees (property owner, trust or mortgage lender) the validity and priority of his property rights. Furthermore, it’s an indemnification between the insured is a thorough analysis of public and private documents, plans and anything related to the property title. When a loss or adverse claim occurs, the title insurance policy issued is obligated to:
I. Indemnify the insured for the loss, when said loss or diminution is not a result of a title problem that has not been expressly excluded by the policy.
II. Pay the legal costs and defend the insured against whatever claim that questions the validity and rights of the insured to the property.
III. To be responsible, eliminate or solve the defect or lien that affects the title in question.
We wish to express our appreciation to Silvia L. Elias-Pullen, Alejandro Flores Von Borstel and Bernardo Aceves for their collaboration.
Homes & Living Vallarta’s Luxury Magazine
The source of this information has been Homes & Living Vallarta’s Luxury Magazine, and its publication in our means has been possible thanks to the authorization granted by the Lic. Jhovaneé Monge de Rottigny Publishing Director. To contact Homes & Living Vallarta’s Luxury magazine please email to: email@example.com
Harriet Cochran Murray
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.