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Understanding Real Estate in Mexico
Mitch Creekmore

The U.S. is getting closer to Mexico. No, the land isn't shifting, but NAFTA, technology, and sweeping changes in Mexican politics have forged a closer relationship between the U.S. (especially those of us in border states) and our neighbors to the south. Whether you have clients who might benefit from purchasing property in Mexico or you are entertaining thoughts of buying a vacation or investment property for yourself, the climate for real estate business is inviting.

Mexico is forecast to have a 7% growth rate for 2001 - double that of the U.S. economy In addition, the Mexican peso is expected to remain at its current level in relation to U.S. currency. Couple this with continued foreign-investment law reforms and Mexico's heightened awareness of protecting foreign investment in the public and private sectors, and the result is an abounding opportunity for new capital, investment, and infrastructure development in the country. With the slowdown in the U.S. economy, Mexico's real estate market would appear to be a viable alternative to other investment strategies.

Purchasing real estate in Mexico has changed dramatically over the past five years for non-Mexican nationals. Beginning in 1994, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area known as the prohibited zone. This restricted area includes 100 kilometers along all natural borders, 50 kilometers along all coastlines, and all of Baja California.

Prospective buyers outside of Mexico's borders seeking to buy tourist property, - including housing developments, condominiums, and timeshare projects - can now enjoy greater legal freedom and ownership rights under Mexico's new foreign investment law In Mexico, as in the United States, the transfer of real estate rights is administered by federal, state, and local laws. However, buying south of the border is not like buying property in the United States, and the worst a purchaser can do is to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country.

Foreign purchasers should be aware of the same basic issues that any prudent buyer would consider when acquiring real estate in the United States. Additionally they should not depend on the seller for information or advice about the property, because they have no way of knowing whether it is correct. The first thing a buyer must consider is whether the seller of the property has legal title to the property, and if so, whether the property can be legally transferred.

Although this seems to be a logical and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. Very simply, the seller didn't own the property or he had not completed the required development procedures for the conveyance of the real estate.

A buyer should always ask the seller for a copy of the public deed (escriturapublica) vesting title to the real estate. The buyer should request a copy of the lien certificate (certificado de libertad de gravamen) on the property that should indicate the owner of record, surface area and classification of property type, the legal description, and whether there are any liens or encumbrances filed of record against the property. The buyer can also request a certificate of no tax liability (certificado de no aduedo) from the local taxing authority.

The public notary in Mexico (notariopublico) is responsible for the title search in Mexican transactions. However, the notary typically only examines the current deed and a current lien certificate, resulting in the possibility of a short or incomplete title history of the property. A foreign purchaser always has the option of hiring Mexican counsel or a U.S. title company to provide an opinion on the status of title.

Title to all real estate in the prohibited zone being acquired by foreign purchasers can only be legally vested and recorded in one of two ways: in a Mexican bank trust or fideicomiso) for all residentially declared property; or in a Mexican corporation for all nonresidential real estate. There is no gray area concerning foreign acquisition in the restricted zone of Mexico.

Foreign nationals can be the sole and exclusive stockholders of a Mexican corporation that holds fee-simple title to nonresidential property in the prohibited zone. In any type of real estate acquisition in Mexico, non-Mexican purchasers must always register their ownership interest with the secretary of foreign affairs and must waive their rights to foreign government intervention in the event of a property dispute.

This is known as the Calvo Clause, which is constitutionally mandated, and is contained in all bank trust agreements. Jr should be noted that Mexican banks, acting as trustee for a foreign buyer in afideicomiso, make no warranty or guarantee of the title to the property in the trust nor do they provide any restitution in the event of a title defect. Foreign buyers should consult U.S. or Mexican counsel regarding real estate transactions.

Most real estate transactions in Mexico will have at least two contracts: first, an offer and acceptance (oferta) and/or a promissory agreement (contrato depromesa); and, second, a purchase sales agreement (contrato de compraventa). Specifically, the civil code of Mexico defines contracts as agreements that produce or transfer obligations and rights. In general, real estate contracts in Mexico must be recorded before a notary public and, to be binding on third parties, they must be filed with the public registry of property.

Once there is a written acceptance to the offer, it is recommended that the buyer's attorney draw up the sales contract or promissory agreement. Since this agreement is the single most important document the buyer will execute with the seller, and the agreement's contents will determine the terms and conditions of the transaction, the buyer should insist that his attorney assume this responsibility.

There are many aspects of Mexican real estate deals that are very similar to transactions closed in the United States. Click here to explore these with us in Part 2.

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