FOREIGN PROPERTY OWNERSHIP MEXICO Article provided by Sergio Martin del Campo Campillo Attorney at law/real estate advisor __________________________ The legal acquisition of Real Estate in Mexico through the Bank Trust system has been enjoyed by many thousands of non-Mexican individuals and corporations as a result of the Foreign Investment Law decreed by President Luis Echeverría in 1971 and codified by the Mexican Chamber of Deputies in February 1973. This decree recognized the importance of foreign investment to Mexico‟s economic development, a recognition which has grown geometrically, especially over the past five years and continues to do so today. They key to Real Estate investment in Mexico for a non-Mexican, whether developer or individual purchaser, is the fideicomiso, or trust. The 1973 decree declared the fideicomiso to be the proper means for foreigners to obtain interest in Mexican lands. While Article 27 of the 1917 Mexican constitution banned foreign ownership of any land within 64 miles of the borders and 32 miles of any coastline the Foreign Investment Law decreed in 1973 specified different treatment for property within the Restricted Zone and outside the Restricted zone. Outside the Restricted Zone foreigners can obtain beneficial trust interests in land for a finite period of years. Under regulations of the law to „Promote Mexican Investment and Regulate Foreign Investment”, signed in May 1989, within 6 months to 1 year prior to the expiration of the original trust period, an extension can be obtained by simple application. The new Foreign Investment Law passed at the end of 1993, providing foreigners with the ability to acquire direct title to commercial real estate in the coastal and border areas through the establishment of a Mexican corporation. Furthermore, the acquisition of residential real estate can now be accomplished through a 50-year bank trust, which renewal for another 50year period is guaranteed by Article 20 of the May 1989 Regulations, giving additional security to the foreign investors. The key to the trust is any one of the privately held Mexican banks authorized to act as trustees. The bank holds title to the property – in trust, while the beneficiary – whether as an individual, jointly with a spouse, or other partner, or as a corporation, will be designated as the holder of the beneficial tights of the trust including those rights to sell, improve, will to heirs or do anything the holder of those beneficial rights legally wishes. As beneficiary, he has an ongoing equitable interest in the property which enjoys whatever market variations may occur over time. In fact, it has been suggested that the trust concept of property ownership has allowed the Mexican Government to effectively provide foreigners the beneficial rights to real estate, without ever having to go through the political minefield of having to amend its Constitution. In terms of an actual sale transaction, the foreign investor simply assigns his beneficial interest in the trust to the new buyer, should he be another nonMexican or he may instruct the bank to endorse the title in favor of the buyer, should he be a Mexican National. Should the new owner wish to establish a new 50 year bank trust in his name, he would simply issue the appropriate instructions to the Mexican Notary Public in charge of the closing procedures. Unlike the USA or Canada, Mexican Notary Publics are highly qualified Attorneys-at Law appointed by the State Governor and enabled to give Public Faith to the legalities involving Title Transfers, wills, etc. Before the actual title is signed by the parties the Mexican Notary Public obtains through a Certificate from the Public Registry of property, a 10 year search of the title to the subject real estate, to verify that there are no liens or encumbrances recorded. As well as a Certificate from the local City Hall to prove that the annual property taxes have been paid currently. The Public Deed (called “Esritura Publica” in Spanish) is then drawn up by the designated Notary Public (normally chosen by the buyer), including as well in said Deed the legal description of the prior title in order to establish an equivalent to the “title chain” researched by Title Companies in the USA. Either course of action takes place concurrent with receipt of proceeds, which generally will be in US funds, either by the way of a US Bank Cashiers Check, or by way of Bank-to-Bank Wire Transfer, anywhere in the World. There are no currency restrictions in Mexico. Closing costs, usually the responsibility of the buyer, are determined in accordance with the purchase price which becomes the basis for all taxes and fees related to the closing process. Legally, the seller is responsible for his „Capitol Gains‟ (Impuesto Sobre la Renta – I.S.R.) taxes which will run the lesser of 20% of the purchase prince, or 35% of the difference between the purchase prince recorded in the prior title, indexed in accordance with the rate of inflation, and the new purchase prince of the property, less deductions for any improvements, any closing costs which he may have paid on purchase INCLUDING REAL ESTATE COMMISSION WITH RECEIPT. The seller is also responsible for the real estate fees when selling the property. The buyer will be responsible for the transfer tax which (2% of the purchase prince) together with the costs of the establishment of the bank trust-if so required an not already in existence – notary fees, registration fees, tax appraisal fees, and trust permit fees. The total closing costs to the purchaser, excluding the capitol gains tax of the seller and his real estate fee, will be in the area of 8 to 10 % of the purchase price, including all trust fees. The typical time frame from the acceptance of the Offer to Purchase to final closing, providing the title is in good order, is about 60 to 90 days. As in any transaction involving taxation each individual case warrants proper analysis. If you have questions and/or comments, contact Sergio Martin Del Campo.from u.s.a. 01152(686)568-4363-(686) 01152-(686)9464327. or mail at sergiomartindelcampo1@ yahoo.com.