How Foreigners Can Buy
Real Estate in Mexico
By John Flemming

Debunking the Myths

Americans are some times afraid to buy property in Mexico. Often their fears are based on stories they.ve heard at third hand, or confusions between past history and present practice. Here are some of the myths I hear more often, followed by an explanation of the facts of the situation.

1. Americans can't own real estate in Mexico.

2. An American must have a Mexican partner (who has at least 51% ownership) in order to own real estate in Mexico.

3. A bank trust is a lease agreement.

4. The Mexican government can take away foreigners property at any time.

1. Americans can't own real estate in Mexico.

Not true.
     In most of Mexico, Americans, or any other foreigners, can own land outright with what.s called fee simple title the same kind we have in the United States.

     Only in the restricted zone . 50 km. (31.05 miles) from the ocean and 100 km. (62 miles) from the borders . it is true that foreigners can't hold in fee simple title. Puerto Penasco is in that area, so this limitation applies. Perhaps one reason for this restriction is that the Mexicans were somewhat concerned about having lost so much territory to the U.S. in the 19th century, about 1/3 of their country. Texas in 1845, and in 1848 through the treaty of Guadalupe Hidalgo the territory that became California, Nevada, Utah, most of Arizona, and parts of New Mexico, Colorado and Wyoming. The treaty was signed shortly after the American forces had captured Mexico City. The U.S. paid $15,000,000.00 for all of this land. And in 1854 through the Gadsden Purchase the U.S. acquired the rest of what are now Arizona and New Mexico. It.s not surprising that Mexico was a little nervous about allowing foreigners, especially Americans to acquire any more land in Mexico.

     But old wounds heal, and now the U.S. and Mexico are working hand in hand. NAFTA has promoted good business relationships, but even before NAFTA, Mexico wanted to make it possible for foreigners to invest in their country, so in 1971 they developed the bank trust (fideicomiso) as a way for foreigners to buy residential property in the restricted zone.

2. Americans can't own real estate unless they have a Mexican partner.

Not True.
It used to be that for a partnership or a corporation, foreigners had to have Mexican partners who owned at least 51% interest. This is no longer the case. Under the new Foreign Investment Law of 1993, foreigners can own a Mexican corporation 100%, and the corporation can buy and own any property with fee simple title. As long as it.s use is non-residential.

3. A bank trust is a lease agreement.

Not True.
Under a bank trust the beneficiary (buyer) has all the rights of ownership: the right to use, borrow money on, make improvements, on, and transfer. A lease grants only the right to use the property. If the tenant makes improvements, such as a building a house on the property, that house belongs to the landlord. Nor can the tenant sell the property or borrow money on it. In Puerto Penasco there have been in the past many long-term lease agreements for land. Before 1971 the bank trust was not available, and leasing was the only option for Americans. Apparently some of them were confused about the difference between a long term lease and ownership: Thus they built homes and made improvements on the land that they were leasing. After the bank trust was initiated, some leases expired and the landlords declined to renew, which was their legal right. The tenants then lost the houses they had built.

The frightened other Americans, who thought their compatriots had had their ownership rights taken away, when in fact they had never possessed such rights. In many cases, however, the tenants of the former leases were able to regularize their situations by purchasing the property under a bank trust.

4. - The Mexican Government can take away foreigners property at any time.

Not True.
      The bank trust is established by the government and gives foreigners the same rights as Mexican citizens. The only difference is that they never receive the actual fee simple title. It is held in trust for them by a bank. When first established, the term of a bank trust was for 30 years only, in 1989 it was made renewable for another 30 years, and in 1993 the term was extended to 50 years, and renewable for another 50 years.

     It may help in understanding the bank trust to compare it with the Deed of Trust, a type of financing instrument used in the U.S., people who buy homes for cash receive their titles right away. But the majority don.t but with cash. Under a Deed of Trust the buyer of a house has only equitable title, or an equity interest, with the right to use but only a restricted right to sell, until the loan is paid off, after which the owner receives the actual fee simple title. Until the loan is paid off, after which the owner receives the actual fee simple title. Until then it is held by trustees, usually a bank or title company.

     In Mexico the bank trust is held by a trustee, but the buyer never receives the actual title. Realistically many homeowners in the U.S. never receive title to their properties either, because they sell or refinance their properties long before the 30- year term of their loan is complete.

5. A Notario is a lawyer.

     The position is similar to that of judges in the U.S. It is not the same as notary public in the U.S. although the names sound alike. In the U.S. anyone can post a bond, pay a fee, and become a notary public. But a notary public in Mexico has several years of apprenticeship after his legal training and must pass a very difficult examination. I hear it.s as bad as the bar and the CPA exams rolled into one.

     Notarios are appointed by the governor of each state in Mexico, and there are very few of them (only two in Puerto Penasco). Their functions are a combination of real estate lawyers, tax assessor and IRS auditor; it is they who close real estate transactions, like escrow officers in the U.S., but with expanded powers. Since the Notario is a neutral party.

     Procedures are changing. Two U.S> companies I know of are now offering title insurance in Mexico; Stewart Title and Lawyers Title. This will provide added security for foreigners; it.s also attractive to Americans or foreigners. It.s also attractive to American loan companies who are lending to Americans for buying Mexican property. Although costly at the moment, title insurance and financing rates will probably soon be lowered by competition. I.ve heard that possibly in the not too distant future the Bank Trust will disappear, and fee simple title will be available for foreigners also. The pattern of its history supports this assumption.