Acquiring Property and Holding Title in Mexico

In 1997 my parents and I decided to jointly acquire a property in Bucerias. They acted like a search team, exploring many of our coastal communities as I was too busy working to participate and they soon announced that our best option was Bucerias. The town was liken to the Vallarta of decades past, and we judged that its pueblo size and feel would be more to our liking than Vallarta where we had traditionally vacationed. I’ve now enjoyed residency in Bucerias for more than 20 years, and, at the time we experienced the process of becoming an owner just like my clients do today—from making the offer to learning how a foreigner takes title.

Now, as a real estate professional, I explain that process to my customers and erase the myths that are often the result of pool-talk with people who may never have been through the process, though might try to counsel would-be owners.  I say that “ tongue in cheek” because many of my customers comment to me, “I heard in the pool that you can’t own property in Mexico.”  Please count on your real estate professional to explain the facts.

Firstly, the basics to purchasing are very much parallel to North America…find the right property, make an offer, negotiate, settle on a price and terms, exercise key diligences and proceed to closing.  As the market and methods for transaction have evolved here, we use protected, secure Escrow accounts for transfer of funds.

From there, the big question has always been, “how do I hold title to my property?”  That depends on whether you are a foreigner or a Mexican citizen and on the location of the property in Mexico. If you are a citizen then you will own fee simple and hold the title to your property directly.

Where it gets a little hazy for foreigners to understand the process is that, we have some lines drawn that identify the areas known as the “restricted zone”, which is an area of protection due to the massive losses of land to the United States dating from the annexation of Texas, which had been a part of Mexico until 1836, when, in that year a group of settlers from the United States who lived in Mexican Texas declared independence. This act contributed to the coming of the Mexican-American War (1846-1848), a conflict that started, in part, over a disagreement about which river was Mexico’s true northern border and much history ensued which led to the articles of constitution that limited foreign possession of property.

The Mexican Constitution of 1917 indicated a protectionist article that foreigners could not own in the sensitive areas where this possible risk of takeover might compromise their borders: allocating the zones within 50 km. (approximately 30 miles) of the marine borders (ie: Puerto Vallarta and Riviera Nayarit) or within 100 km. (60 miles) of the international borders as restricted.

On the contrary, if you choose to own beyond those boundaries, you will take title just like any national Mexican owner.

Back to the “restricted zone” and where we are in Bucerias…as the clock went forward to the early 70’s and modern day development took place, especially in manufacturing and tourism, it occurred exactly on the frontier and in the coastal zones respectively. Foreigners wanted to take part—build hotels, build manufacturing plants and maybe simply buy a house or condo. Mexico wanted their investment. This spawned the creation of a Foreign Investment Banking Law, providing an administrative mechanism to skirt the restriction in a controlled way and allow possession, however “indirect” via a trust. This was as long ago as the mid-70’s so it is not a new concept.

How it works is that, we, as foreigners, apply for a permit from Foreign Affairs to own in such and such an address. This provides a registration for your presence and act of possession and a great way to know who is who in case we have another Alamo—NOT! Then, a trust is constituted which is administered by a national chartered bank. The trust functions much like a family trust does in the United States. You are the first/sole beneficiary of the trust with all the rights of use and enjoyment, improvement, ability to rent or chattel and to transfer (sell) the property at will, and it also provides a tool to designate substitute beneficiaries (heirs) in case of your death. The trust is not an asset of the bank (in the same way your money in the bank is not theirs). Annual trust fees can range between $450 USD to $800 USD a year depending on the banking institution you choose to administer your trust.

One day the constitutive article will be modified to simplify this more for foreigners and like erase the need for a trust but, in the meantime, in my opinion it’s a great way to own and, with the strict succession laws of Mexico I’d probably keep my trust in place due to the neat and tidy ability to name my heirs without what amounts to probate.

In a future article I will explain closing process and costs.

Pratt contributes regularly with insight on real estate-related matters and “nice-to-know” topics for both residents and visitors alike.  Contact her for information and services at: victoria@timothyeralestategroup.com