Information about buying real estate in Mexico including Puerto Vallarta real estate, Nuevo Vallarta real estate, Bucerias real estate and the Banderas Bay. Mexican real estate law, foreign investment law, information for foreign buyers about the requirements, taxes, property maintenance and rental potential. Contact us and let our English / Spanish speaking Puerto Vallarta realtors solve your doubts. The topics you will find in this page are:
Are you looking for Mexico real estate buying information? Can foreigners purchase real estate? Mexican real estate law states that Americans and Canadians or any other non-Mexicans are able to legally purchase coastal and border properties owned through a trust deed established with a Mexican bank. The owner has full control of the trust in that they can move the trust from one bank to another and are therefore not at the whim of any banks directives. Foreigners may directly own rural or urban land in the interior of Mexico with certain limitations on specific agricultural tracts.
The Trust Deed is established through a Mexican bank assuring foreign buyers of all rights and privileges of ownership and marketable title. Foreign Investment Law allows these deeds to be established for a term of 50 years and can effectively be renewed ad-infinitum for a nominal processing fee. This process protects the rights of foreigners and ensures that the transaction is legal and unencumbered. The trust deed is not to be confused with a lease, which has diminishing value. Property held by way of trust deed are valued no differently than similar property held by way of deed - They escalate in value in exactly the same manner and are taxed in exactly the same manner as property in the United Sates. The rights of property ownership in Mexico are, in fact, more secure for the owner as compared to owning property in Canada or the United States.
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By David W. Connell
A very large part of real estate in Mexico is classified as ejido land. Ejido land is not private property and cannot be bought and sold as if it were. However, since the constitutional reforms of 1992, ejido land can be converted into private property and sold to third parties, including foreigners. This article will briefly describe what an ejido is and how ejido land is classified, as well as the ways ejido land can be converted into private property.
What is an ejido?
In general terms, an ejido is a collective group of people that live and work on a determined piece of property as a community. While the concept of the ejido in Mexico is prehispanic, most of the fundamental ideas and concepts that created what an ejido is today stem from the theories of democratic communism. Understanding this is very important when dealing with ejidos. Most people reading this article have grown up in a society based on democratic capitalism, in which the individual and not the community determines what he or she is going to do. In a communist society, the community determines what it is going to do, including agreeing upon how the land is to be used.
Taking this into consideration, it is easy to imagine the confusions that could exist when discussing ownership of ejido land. Most foreigners associate the word “ownership” with words such as “fee simple”, “private property”, “Adam Smith”, while the ejidatarios idea would be more on the lines of “community rights”, “right to use and enjoy”, “governmental concession”. Until ejido land is converted into private property, foreigners cannot acquire “ownership” of ejido land in accordance with their understanding of the word “ownership”.
Please remember the following.
1. Ejido land cannot be sold to non-ejido members until it is converted into private property. There are exceptions where non-ejido members can acquire “posessionary” rights to ejido land; however, the rules governing posessionary rights are not very secure, especially for foreigners.
2. Foreigners cannot legally become ejidatarios.
3. What an ejidatario understands as ownership is often different than your understanding of ownership.
How can ejido land be converted into private property?
There are two principal ways ejido land can be converted into private property.
1. The first way is filing a suit based on prescriptive rights (adverse possession), which is only productive when the person wanting to acquire title to ejido land can prove that he has possessed the land in good faith for five years or in bad faith for 10 years. The legal institutions of “prescriptive rights” or “adverse possession” are the methods of acquiring complete ownership rights to property, against the owner and other third parties, through possession of the property for an uninterrupted period of time. This time will be interrupted if the possession of the property is left or if the legal owner or a third party makes legal claims to the land. This method cannot be used if a contract exists between the owner and the person in possession of the property. Under the new Agrarian Law, “prescriptive rights” can be used to acquire ownership to property. The “good-faith”, five-year possession rule, in general terms, means that you have to possess the property for five years, be recognized locally as the owner, pay your property taxes and not know who the true owner is. The “bad-faith” 10 year possession rule, in general terms, means that you have to possess the property for 10 years and you may or may not know who the owner is. Many professionals argue that this rule does not apply to foreigners. This article does not focus on this method; however it should not be dismissed as a viable option.
2. The other way is having the ejido agree to “certify” the rights of each person who owns or possesses land in the ejido and then converting the certificates to private property titles. To accomplish this, the ejido must agree to complete the following two procedures.
a. PROCEDE (Program of Certification of Ejido Rights) is a government procedure in which the government, upon the approval of the ejido, certifies the agrarian rights to land within the ejido. This is not an obligatory procedure and will only begin when the majority of the ejido agrees to enter into the procedure and the ejido does not have any legal conflicts that prohibit it from entering into the program, such as conflicting ejido boundaries, internal conflicts, pending litigation and determination of the actual number of ejido members.
Once the ejido has agreed to enter into PROCEDE, the government, at no expense to the ejido, will study the documents of the ejido and begin surveying the entire ejido. The surveying procedure often takes a long time because each individual lot, parcel, and common use land needs to be surveyed. These surveys are based on radiolocation points and GPS, and the maps are registered with the corresponding governmental agencies. Once the ejido is measured, an ejido meeting (Asamblea) is called to assign each parcel and lot to the person the ejido recognizes as the owner. If there are areas in the ejido in conflict or that have not yet been assigned to a specific person, the ejido can agree to leave such area to be assigned at a later date. Once the land of the ejido has been assigned, the government will issue the certificates or titles that correspond to the land in question. Certificates and titles are not synonyms and different rules apply to each. One thing that must be understood is that, in accordance with laws governing ejidos, there are three basic types of ejido land. These three types of land are classified as follows.
1.) “Solares” (lots) are converted to private property through PROCEDE and do not require “Domino Pleno” to be converted into private property titles.
2.) “Parcelas” (parcels) are given “certificados parcelarios” (parcel certificates) through PROCEDE and are governed by agrarian or ejido law until converted to private property titles through “Domino Pleno”.
3.) “Uso Comun” (common use land) cannot be converted directly into private property titles, but can be converted into either “Solares” or “Parcelas”.
As soon as the government has issued the majority of the ejido titles or certificates, the second procedure, Domino Pleno, can begin. In this way, each individual ejidatario can convert his parcel certificate into a private property title.
b. Domino Pleno is much less involved than PROCEDE. Once the ejido legally can enter into Domino Pleno, an ejido meeting is called and the members have to agree that each individual ejido member can, from the date of the agreement, convert his parcel certificate into private property. This does not mean that from this moment on all the land in the ejido is private property. All it means is that each individual ejido member, whenever he or she feels it is convenient, can convert his parcel certificate into a private property title.
Once the parcel certificate is converted to a private property title and duly registered, the ejido member can sell to persons outside of the ejido, including foreigners, observing certain third party legal rights. Please understand that, even though Domino Pleno is much less involved than PROCEDE, there are many formalities that must be observed. Otherwise the transfer of the corresponding property title could be declared null and void.
The fact that cast tracts of ejido land now can be converted into private property, coupled with the fact that recent reforms in Mexican legislation now allow foreigners to secure title to land more easily, adds up to huge investment possibilities for people looking for security through real estate investment with the probability of large returns.
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As part of the Mexico real estate buying information McFadden provides, we will disscuss property taxes in this paragraph. Property taxes on real estate are very low in Puerto Vallarta. This includes Nuevo Vallarta real estate, Bucerias real estate and the Banderas Bay. Values are determined at the time of every sale as one of the requisite documents needed for a legal closing is the assessment tax appraisal which is completed by a competent and licensed appraiser specializing in these valuations. Property taxes have historically been low for real estate because they have never been considered to be significant source of governmental income.
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The closing process generally takes between 30-45 days, with paperwork and escrow processes coordinated through our office, a liaison lawyer and a designated Public Notary. The notary system in Mexico follows that of the Napoleonic Code in most European countries where the Notary must successfully complete his law degree, take an additional two years of specialized training, serve as an apprentice in a Notary's office and then receive an appointment to one of a limited number of Notary offices in any given geographic area. Notaries are required to certify all documents prior to being accepted by the land registry and are also responsible for collecting the various taxes that must be paid as part of the costs of transferring title. The notary effectively acts on both the buyers' and the sellers' behalf to ensure that there is a legal closure of all required documentation. Closing costs are traditionally paid by the buyer, with the seller paying any capital gains taxes and real estate fees. The buyer and seller need not be present at closing, but may be represented by their representative via a power of attorney.
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Foreign Investment Law now allows Mexican corporations -- even those with 100% foreign ownership -- to own real estate in the 'restricted' area (i.e. 50 kilometers from the high water mark and 100 kilometers from the boarders) as long as it is commercial property. Commercial properties carry higher water and electricity rates, plus require additional governmental reporting. There is generally no advantage and often some disadvantages in owning a residential property in a corporation.
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For condominium owners, maintenance and security is handled by the Condominium Owners Association, paid for via monthly fees. Homeowners who will be away from their property for any length of time may want to consider a property management company. We also provide these services. Please ask your sales agent.
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Mexico real estate buying information can change dramatically over the years. For example, Mexican real estate law has changed regarding financing. Purchase of real estate used to be virtually all-cash transactions, with limited cases of owner financing available. Over the past year the scenario has changed a lot though and financing in Mexico is now available. Your Puerto Vallarta property financing can be approved anywhere from 30 to 60 days but every case is unique and it may vary. Many individuals arrange financing in Mexico but they can look for it in their countries as well. American and Canadian banks now lend money for a real estate purchase in Mexico; there are a lot of investment companies who will also lend money for this purpose. One of our many services is to guide our clients during the whole process of getting mortgages in Mexico or their financing approved. Click here to contact us and ask about financing options available for the purchase of your dream property in Puerto Vallarta or Nuevo Vallarta real estate, Bucerias real estate and the Banderas Bay.
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Puerto Vallarta is a very big rental market for both homes and condos. McFadden Real Estate offers services to manage and promote property for rental. Please see the rental and property management section of this web site or ask your sales agent for more information.
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Buying a property overseas is a significant investment and fluctuating exchange rates can make a huge difference to the final price you pay. Every year the experts at HiFX help thousands of people achieve their dreams of owning a property overseas by saving them money and protecting them from currency risk.
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