Owning property in Mexico is easier and safer than ever, because now there are established and well defined rules regarding non-Mexicans owning land in Mexico.  These rules are in place to protect your ownership rights and to promote the sale of real estate to foreign iestors.  The key is a safe, established and perpetually renewable Mexican Property Trust called a "Fideicomiso".

What is a "Fideicomiso" or Mexican Property Trust?

With the advent of North American Treaty Agreement, the Mexican Government recognized that it was critical toake foreign investment in Mexico safer and easier than ever.  Because the Mexican Constitution prohits foreigners from purchasing or owning real estate within 60 miles of an international border or within 30 miles of the Mexican Coast, a new safe method of holding title was created.  This new instrument, modeled after the one in Monaco, allows ownership through a Mexican Property Trust, called a "Fedeicomiso".  This is a trust agreement, much like an estate trust, giving you all the rights of ownership.

The Department of Foreign Affairs in Mexico City issues a permit to a Mexican Bank of your choice, allowing the bank to act as purchaser for the property.  The bank acts as the "Trustee" for the Trust and you are the "Beneficiary" of the Trust.  This is not an asset of the bank; they simply act as the Trustee to hold the Trust.

Much like Livi Wills or Estate Trusts in the U.S., the Mexican Bank, or Trustee,kes instructions only from the Benefciar of the Trust (You).  The Beneficiaryhas the right to use, occupy and possess the property, including the right to build on it or otherwise improve it.  The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified owner, or bequeath the property to an inheritor.  The initial term of the trust is 50 years, and it can be renewed for an addition 50 years, indefinitely, providing for long-term control oft he asset.

You have all the rights of property owner in the U.S. or Canada, including the right to enjoy the property, sell the property, rent the p roperty, improve the property, etc.  This is not be be confused with a "land lease."  The property you buy is placed in a trust with you named as the Beneficary of the trust - you are not a lessee.  If the proeprty you purchase is already held in a Trust, you have the option of assuming that Trust, or creating your own.

Buying property in Mexico, whether its land, a serviced apartment or a house, can offer good value for money in comparison to prices in the USA and Europe.  Although prices in some areas have risen dramatically in recent years and care should be taken in assessing a property's true value.  Mexico's land costs can be lower, building and maintenance is cheaper, cost of ownership (taxes, utilities) is very low, and although there are "horror stories" associated with buying property here (as in every country in the world), the overwhelming majority of all real estate deals go through legally and smoothly.

The reasons to buy property in Mexico come down to a personal choice, and depend on your individual circumstances.  Perhaps you will be living in Mexico for some years and you see long term rental as "wasted" money, or perhaps you're looking for an overseas property investment that will surrender a rental income, while providing you with a place to stay on holiday when you visit.

Property values in Mexico tend to increase year-on-year, as they do in most places, but in many places (with notable exceptions in popular cities and coastal areas) not as significantly as prices have risen in the US and Europe in the last few years.  And, as with all property, the relative value and appeal of land and property in Mexico comes down to the three key factors:  Location, location, location.

Another important factor to consider in Mexico when buying property is the developed state of local and surrounding infrastructure in the location you're looking at.  Not all areas are well developed, and property prices will be cheaper in those that are not.  However, if for example, a high speed road is built connecting a previously "remote" location to another, better developed places, you may see a property investment in that area increase substantially.  Mexico is a vast country - at nearly 2 million square kilometers - and not all of it is easily accessible.  Road infrastructure is improving every year, with most major places now adequately connected, and work continues to connect the more remote areas, but this will take time.

If you're considering the purchase of property in Mexico, you will need to undertake extensive research, choose your location and property very carefully, and ensure that you hire the right professionals and that the letter of the law is followed.  Thousands and thousands of foreigners have successfully purchased land and property in Mexico.  With the right approach and plenty of homework, there is no reason why you should not become one of them if you want.

OWNERSHIP OF LAND

The Mexican Constitution regulates the ownership of land and declares that ... within a zone of 100 kilometers from the border or 50 kilometers from the coast, a foreigner cannot acquire the direct ownership of the land.  These areas are known as Restricted or Prohibited Zones.  However, the lates Mexican Foreign Investment Law, which was ratified on December 28, 1993, allows a foreigner or foreign corporation to obtain the rights of ownership through a fiduciary trust known as a Fideicomiso, the equivalent of a US beneficiary Trust.

Alternatively the purchase of a non-residential property can be achieved through a Mexican corporation which, under certain conditions, can be 100% foreign-owned.  An agreement is signed that says the corporation is subject to Mexican law and the owners will not invoke the laws of their parent country.  Also, the real estate must be registered with the Foreign Affairs Ministry and be used for non-residential activities.  In other words under the above conditions foreigners can directly acquire properties for tourist, commercial and industrial use.

FIDEICOMISO OR BANK TRUST

Any foreigner or Mexican National can constitute a Fideicomiso (the equivalent to an American beneficial trust) through a Mexican bank in order to purchase real estate anywhere in Mexico, including the Restricted Zone.  To do so, the buyer requests a Mexican bank of his/her choice to act as a trustee on his/her behalf.

Article 27 of the Constitution of the Republic of Mexico prohibits foreign ownership of real property located within 30 miles of any coastline or 60 miles of either boarder.  This is referred to as the "Prohibited Zone".

In 1973 President Echeverria, realizing that amny Foreigners were more comfortable with the rights of ownershipm and that they would bring needed dollars into the Country, approved the bank trust (Fideocomiso) form of ownership which is available to non-Mexicans.  This regulation was further expanded in the Foreign Investment Law of 1989.

Properties located within the prohibited zone, which includes the entire Baja Penninsula, may be acquired by a foreigner through a Mexican Bank Trust naming the buyer of the property as the beneficiary of the trust.  Fee simple is placed in the name of the bank selected by the buyer, as his trustee.  The bank administers the property according to the instruction of the buyer/beneficiary.  The buyer/beneficiary has full ownership rights; he may build ont he proeprty, tear down existing buildsing, modify them, rent, lease or sell at any time conforming to the general laws of the country.

The term of the trust is fifty years and can be perpetually renewed.  In other words, title to the property may rest in one beneficiary indefinitely, provided that it is renewed within the terms established by the law.

The procedure for establishing the Fideicomiso (bank trust) is as follows:  application must be made to the Secretary of Foregin Relations which includes a description of the proeprty to be placed in trust, the use for which it is intended and personal date on each of the beneficiaries.  Once granted, the bank instructs a notary to draw up the trust document, which is recorded int he State where the property is located.

Part of the cost to establish the trust will depend on the appraised value of the proeprty.  Normally the closing cost to the purchaser is around $5,000 US Dollars.  Your agent will go over the closing costs when you make an offer on your chosen property.

The bank obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust.  The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for antoher 50 year period.  During these periods the registered owner has the tight to transfer the title to any other parrty, including their family members.

The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary who has all the benefits of a direct owner, including the possibility of leasing or transferring his/her property rights to a third party or to a pre-appointed heir.  During this period, the foreigner is considered to be a Mexican National.

The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust, according to Mexican law.  It assumes full technical, legal and administrative supervision in order to protec the interests of the buyer/beneficiary.  Fideicomisos are not held by the trustee as an asset of the bank.

For practical purposes, even in unrestricted zones, many foreigners and even Mexican Nationals prefer to place their property under a Fideicomiso.

HOW IT'S DONE

Most real estate transactions are opened after a written purchase offer is accepted by the seller and when a purchase-sale agreement (Promissory Contract) is signed by both parties.  In most cases, a deposit is required by the broker in order to transmit the offer to the seller.  If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or lawyer be consulted before signing any papers or exchanging any money.

In some areas, it is common practice to deliver to the seller, as an advance payment, the equivalent of 20-50% (including the initial deposit) of the total price upon signing the purchase sale agreement, which shold contain a penalty clause in case there is a breach of contract by any of the parties.

Normally, when signing the escritura or official deed, which needs to be certified by a Notario Public (notary public), the balance is paid and the property is delivered.  This should not take more than 45 days.  In certain resort areas, the custom of suing "escrows" is being implemented.

NOTARIO PUBLICO

The Notario Publico is a government appointed lawyer who processes and certifies all real estate transactions, including the drawing up and review of all real estate closing documents, thereby insuring their proper transfer.

All powers of attorney, formation of corporations, wills, official witnessing, etc. are also handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all taxes involved.

Regarding real estate transactions, the Notario Publico, upon request, receives the following official documents, which by law are required for any transfer:

• A Certificate of No Liens from the Public Property Registry based on a complete title search
• A statement from the Treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.
• An appraisal of the property for tax purposes

OWNING PROPERTY THROUGH A MEXICAN CORPORATION

If you intend to use your property in the "restricted zone" as commercial and non-residential, then you can own it through a Mexican corporation and your corporation can be 100% foreign owned.

Some people argue that renting out your property counts as commercial use, and so in this way it is, in fact, possible to hold an essentially residential piece of property through a Mexican corporation.  The letter of the law makes a clear distinction between commercial property and residential property that is rented for income.  If you buy a seaside bungalow as a commercial property, you can't legally live in it.  If you buy it through a bank trust as a residential property, you can live in it or rent it for income or both.  In short, if you're not really doing busines in Mexico, what do you gain by holding your property in a corporation as opposed to in a trust?  Not much.

You probably won't save money.  A Mexican corporation must either produce profit or show losses through formalized receipts.  You will have to have an acountant file your corporate taxes monthly, which can become costly--you might pay $100 a month or ore for his services.

To form a Mexican corporation, you will need at least two shareholders but, as we've said, it is not necessary for either to e Mexican.  It will cost you between $1,500 and $3,000 to set up a Mexican corporation.  While you won't have to pay an annual fee as you would to maintain a trust, you will, as we said, have to file your corporate taxes monthly and pay a Mexican accountant to do it for you.

There are developers out there arguing that you can own your own raw beachfront lot (intended for residential use) through a Mexican corporation.  They advise you to assert that your corporation is "dormant," and say that on this "dormant" corporation you'll be exempt from the monthly filing requirements (through there are still some filing requirements).  But it's unclear what happens when you "activate" this corporation, or what act on your part would trigger such an activation.  Would the building of a house qualify, for instance?  It's unclear.

What is true is that a single Mexican corporation can own as many pieces of real estate as it wants, but individuals must estalbish a separate bank trust for each piece of proeprty they purchase.

On this point, be wary.  Consult an attorney about the best way to own land in the restricted zone.  Make sure you understand all the impliations of each method of ownership efore you set up corporate ownership of what is essentially residential proeprty.

EJIDO LAND - JUST DON'T DO IT

Ejido land was estalbished in 1917 as a result of the Mexican revolution.  It is not private property.  It is government land granted for use by members of local ejidals, something like Indian lands int he U.S. and Canada.  This land can be converted into provate property, but he process is long and complicated.  It is outright illegal to own ejido land in the restricted zones and it's dicy in the interior.

Prices for ejido land are often unbelieveably low... for obvious reasons.  You might well purchase a parcel of ejidal land and live on it without trouble for many years.  But was it sold with the consent of everyone necessary in the ejido?  Was the guy you bought it from even a member of the ejido?  Will someone in the ejido wake up with an attitude five years from ow, decide they were shortchanged, and contest the sale?  Will a guy in a suit knock on your door someday with a local constable and say the government never fully approved privatization of the land and you have to get off - now?

We don't recommend even considering the purchase of ejidal land.  One of the most important aspects of title research is making sure the plot you're interested in has never been ejidal land or, if it was, that it was successfully privatized a long time ago and never challenged.  Too much can go wrong.  Just don't do it!

PROCEDURE AND CLOSING COSTS

The procedure for purchasing property in Mexico is similar to that in other countries, but it does have certain differences of which you should be aware.

The first document you will see is an Offer to Purchase form which your Real Estate Agent will fill out on your behalf when you are making an offer.  On this form will be detailed all the conditions of the purchase, including the standard ones requiring clear title and a Certificate of No Liens.

Once an Offer is accepted, and this may require several rounds of offer and counter offer, the final agreed offer is attached to a Promise to Trust Agremeent and forms part of your legal right to the property pending the creation of the Fideicomiso in your name.  The signing of the Promise to rust agreement is when the balance of the down paymnent is placed with the escrow company, or the Real Estate company, and the transfer of the registration into your name is started.

The Seller is responsible for providing the Buyer with all the existing documents proving title, as well as the latest receipt for the Proepty Taxes and Bank Trust Fees.  If the property is in a Condominium Regime, a statment is rquired fromt he Homeowners Association showing any outstanding Homeowners Dues.

A notarized letter is then drawn up and signed by the Seller, informing the Bank holding the trust that the property ahs been sold and asking them to apply to The Ministry of Foreign Relations for a new Permit to allow them to hold a new Trust document in your name.

At this point you will have to decide who your second beneficiaries are going to be so that they will have their names in the document.  The second beneficiaries will inherit the property if anything should happen to you during the life of the trust.

While the Bank is obtaining the Permit from the Department of Foreign Affairs.  The Notary will be drawing up the Title Deed in the name of the Bank appointing you as the first beneficiary.  At the same time the Certificate of No Liens and the Appraisal will be obtained.

Once all these papers are available it is possible for the Notary Public to calculate taxes and prepare the final papers for signature and registration with Foreign Investment Registry and the Public Records Office (Registro Publico).

Capital Gains Taxes are paid by the Seller and any outstanding taxes or homeowners dues would be prorated to the date of possession.  The Buyer has to pay an Acquisition Tax of 2%, also the Notary, the Bank charges for setting up the Trust and all fees to cover permits, appraisals and registration of the sale.

The total closing costs can amount to around 6% for a property below $100,000, dropping to about 3-4% for more expensive investments.  At the time of your offer you should ask your agent for an estimate of the closing costs for which you would be liable, based on the latest information and experience.

Regular FM3:

If you own property or rent in Mexico you will need a regular FM-3.  They can be obtained either in Mexico or at any Mexican Consulate upon the presentation of all of the following:

• A valid Canadian or US Passport
• Documentary evidence that the applicant will receive a monthly income of at least $1,000 for himself and for everyone dependent over age 15 (including spouse).
• Two front-view studio passport photos
• The consular fee, as established at the time of application which as of October 2004 was $126.  A visitante-rentista may temporarily take house and personal effects into Mexico duty-free.  If a person owns property in Mexico, the dollar amuonts ($1,000 and $500) are cut in half.

Working FM3:

   To obtain a permit to work in Mexico you will need:

• Tourist Card of FMT.  This is the blue and white paper issued on airplanes.  It is your permission to be in the country as a visitor and when you are herded through immigration upon your arrival, you may find flying hands rubber-stamping it, accompanied by unfamiliar mumbles and little or no eye contact.  Make sure you get the maximum of 180 days at this point if you intend to stay and work in Mexico.  Perhaps not, but you might need that time to complete the application process for your work permit.
• Birth Certificate.  Your birth certificate must have a stamp of authenticity, issued by the Mexican Consulate nearest your place of birth.  If you can't remember where your parents put this precious little document all those years ago, you can order an official copy from the County Registrar's Office where you were born.  You must then sent it (es I know it is sacret, but you must do it) to the Mexican Consulate nearest your place of birth (accompanied, of course, by a