[Michele]

Our Real Estate lawyer here in Playa (who I highly recommend) wrote this for a client of ours. I thought it was worth posting.

Mexico has over 8,000 kilometers of coastline, spectacular natural parks, impressive archaeological sites and colonial cities that allows an unlimited tourism development.

In Mexico real state property includes, among others, the land and the improvements of said land.

Mexican Law divides the land in “Finca Rustica” which is the rural property located outside of the city limits, and in “Finca Urbana” which is real estate located within the city limits.

1. The Restricted Zone.

The Mexican Constitution prohibits foreigners from purchasing or owning real estate within the so called "Restricted Zone" which includes the entire territory of Baja California and all other land located within 100 kilometers from Mexico's international borders or 50 kilometers from its coastline.

2. The Federal Zone.

The federal maritime land zone (Zona Federal Maritimo Terrestre) consists of the first 20 meters of beach-front property on firm traversable ground. The 20 meter distance is measured from the high tide line or from the first point above that line where the slope is no more than 30 degrees.

The federal zone is intended to remain public land and to be enjoyed by every person; however, the Mexican constitution allows the government to grant "concessions" for use of the federal zone by means of a concession title.

3. Ejido Property.

The ejido could be defined as an agricultural cooperative that has its origins after the Mexican revolution.

The agrarian law requires the ejido communities to establish procedures whereby their members may obtain private ownership of their respective parcel (pequeña propiedad).

Until such ejido has been incorporated as a group of parcels, the entire property is deemed to be owned by the ejido as a legal entity. An ejido community also may transfer ownership of a portion of its property known as its "common use" property to a partnership, corporation or joint venture in which either the ejido itself or its members participate.

Ejido property is registered in the Public Agrarian Registry and transfers must also be registered with, the Ministry of Agriculture.

4. Foreign Investment in Real Property.

The 1993 Foreign Investment Law (Ley de Inversión Extranjera) allows ownership of "non-residential" real estate within the restricted zone through a foreign-owned Mexican corporation, provided that formal approval is obtained from the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores).

Otherwise, all foreign individuals and foreign corporations as well as Mexican corporations which include any foreign investment may hold title to property within the restricted zone only indirectly through a bank trust arrangement known as a "fideicomiso".

5. Notary Public.

A Mexican notary public (notario público) (“Notario”) is a licensed lawyer, commissioned as a public notary, fulfilling a public function delegated by the government.

The Notario drafts documents, verifies the facts therein and records the documents with the public registry. The Notario's fee generally ranges between 1% and 2% of the value of the asset and the total amount which the buyer pays to the Notario (including taxes) is usually approximately 6% of the price.

6. Escrow agreements.

Escrow arrangements as we know them generally do not exist in Mexico. It is important to place deposit money with a reputable Mexican or U.S. attorney to be held in a trust account. A bank may also perform this service but will charge a setup fee and a commission based on the amount of money held.

7. Real Estate Loan Documents.

Mexico does not have procedures for nonjudicial foreclosures such as trustee's sales. In general, a borrower's rights under hipoteca cannot be terminated except through judicial process. A foreclosure sale takes place by public bidding.

8. Mortgage Alternatives

Because of the risk that a buyer or borrower, through appeals, may delay the final outcome of a foreclosure process, some sellers and lenders prefer not to use a mortgage. One common security device is the "fideicomiso" where a Mexican bank acting as a trustee ("fiduciario") holds legal title and has fiduciary responsibilities to the borrower or buyer and to the lender or seller.

9. Fideicomiso.

The parties of this bank trust agreement are the seller or the lender of the property ("fideicomitente"), the bank which acts as trustee ("fiduciario"), and the buyer or borrower ("el fideicomisario") which is the beneficiary of the trust.

The beneficiary retains the use and enjoyment of the property, and the trustor agrees not to revoke the trust so long as there is no default.

A fee for registration of the fideicomiso must be paid to the Ministry of Commerce. The amount will vary depending upon the duration of the trust. If foreign ownership is involved, a registration fee also must be paid to the Ministry of Foreign Investment.
In addition, the bank will charge a fee for review and acceptance of the trust, an annual administration fee, a fee for any contracts executed by the trustee, and a fee based upon the recorded value of the property or the sales price.

In the restricted zone, the fiduciario holds the title solely to satisfy the requirements of the Mexican Constitution.

10. Title Insurance.

Certain U.S. companies, however, are now beginning to offer title insurance on Mexican real estate interests to non-Mexican investors and lenders. These title policies will typically have additional coverage limitations which are not common in the U.S., and the cost also will be greater.

It is highly recommended to purchase a Title Insurance, U.S., title insurance is available for properties in Mexico purchased by U.S., citizens.

Under these policies of title insurance, the obligations of the title insurer will be decided under U.S., law and in the United States. Otherwise, the only defense or recourse against title defects is to litigate in Mexico.

11. Title Searches and Title Documents

Title to real property is evidenced by an "escritura publica" which must be signed before a notario and recorded in the local public registry "el registro publico de la propiedad".

An official stamp attached to the last page of a document assures the parties that the instrument has been duly recorded and also provides the necessary filing information.

Title documents will include the chain of title, the meets and bounds description of the property (including, in some cases, the name of the owner of or the nature of abutting properties) and the public registry filing information.

12. Real estate documents and agreements.

In general, contracts relating to real estate (including sales, leases, mortgages, etc.) must be in writing, and the document must be in the form of a public instrument.

A preliminary "promissory agreement" (contrato de promesa) is commonly used as the basic document for a purchase and sale. In the promissory agreement the parties establish their respective conditions, and, upon satisfaction of those conditions, agree to execute a final public agreement, either a sales agreement, a real estate trust, or an assignment of the beneficial rights in a real estate trust.

The promissory agreement, which is a private contract between the parties, should never be used as the final agreement, although by signing it and exchanging consideration the parties do create a binding obligation.

13. Subdivision Development.

A subdivision of land for development purposes is referred to as a "fraccionamiento". A developer must obtain governmental approval in order for them to subdivide the property and, by obtaining such approval, the developer becomes obligated to install the offsite improvements (grading, drainage, water, electricity, streets, etc.).

14. Possession of Land.

Mexican law creates a presumption that the person in possession of property is entitled to continue in possession and has all related ownership rights. This presumption is designed to prevent a breach of the peace. Before acquiring any real estate, it is important to verify that no one is in possession of the property.

15. Time-Share Properties.

Time-share contracts are required to be registered pursuant to federal standards known as Normas Oficiales Mexicanas, which are enforceable throughout Mexico. A time-share purchase, is not considered to be an investment in real estate, and even if the property is located within the restricted zone, a fideicomiso is not required.

16. Condominiums.

Various states of Mexico have adopted local statutes to govern condominiums and these may vary significantly from one state to another. A condominium owner ("condomino") is the individual or legal entity who owns and is entitled to the exclusive right to possession of the premises and has a co-ownership right to the common areas.

The condominium owner's interest in the common areas is proportional to the respective original values of the units as determined in the condominium's title documents. Common walls and floors that separate only particular individual units are deemed to be owned by the contiguous owners.

17. Closing.

Prior to the closing, the Notario will examine documents of the selling party to ensure their accuracy and legitimacy; verifying title; searching the public records to determine the status of seller's title to the property and the existence of liens against the property. The Notario is also responsible for the collection and payment of all applicable property taxes and government transfer taxes.