Foreign Buyer Guide for Purchasing in Merida and Surrounding Areas
Below is some fundamental information on purchasing property as a foreigner in Mexico.
Fideicomiso (fe-day-eh-co-mee-so): The Mexican Constitution of 1917 prohibited foreigners from owning land within the Restricted Zone, defined as within 100 kilometers of any national border and 50 kilometers of any coastline.
This changed with the Foreign Investment Law of 1973, which allowed foreigners legal ownership through a Fideicomiso, or Trust, without contravening the Constitution. The investment trust program proved successful, and in 1989, the law was amended to allow foreigners to extend their trust easily upon its expiration. In 1994, the updated Foreign Investment Law permitted a trust to last 50 years, with the option for renewal. The trust is held by a Mexican bank authorized as a Trustee. These trusts are not bank assets, and the bank cannot act without the beneficiary's written instructions. The bank simply holds the title to the real estate in trust, while the foreigner has the beneficial rights, including the right to sell, lease, improve, bequeath to heirs, or exercise any legal right under the law.
Parties Involved: Three parties are involved in a Fideicomiso—the trustor (property seller), the trustee (Mexican bank), and the beneficiary (foreign buyer).
As of 2024 the average cost to establish a Fideicomiso is approximately 47,000 – 55,000 pesos, with an annual maintenance fee on average of 500 - 600 USD. This initial fee covers the first year's maintenance, the federal government permit to buy property in Mexico, and the bank's fee to set up the trust.
A fideicomiso offers numerous advantages, first it is in complete compliance with Mexican Law providing a secure and seamless way for foreigners to hold title and:
1. A fideicomiso can enable you to qualify for a capital gains exemption if you decide to sell. (You must also hold a residency visa y have additional documents.)
2. With the ability to designate substitute beneficiaries in the trust, the Fideicomiso simplifies the inheritance process for successor beneficiaries in case of the primary beneficiary’s death, bypassing the need for a lengthy and complex probate procedure in Mexico
3. The property is safeguarded from seizure.
4. All documentation is in order as the Trust's Administrator reviews all documents for the purchase.
Estate Planning: With the ability to designate substitute beneficiaries in the trust, the Fideicomiso simplifies the inheritance process for successor beneficiaries in case of the primary beneficiary’s death, bypassing the need for a lengthy and complex probate procedure in Mexico.
Mexican Corporation: A second option for foreigners purchasing property is a Mexican corporation. This method allows holding property in the restricted zone for foreigners as a corporate asset. It must be set up within Mexico and can be utilized for business activities both domestically and internationally. This entity operates independently of its owners and investors, known as shareholders. Shares of the corporation can be held by individuals, other corporations, or Mexican corporations. Once established and registered, the corporation possesses an identity distinct from its shareholders and managers. Corporations have the ability to issue shares, allowing multiple individuals to jointly hold the title to a property or asset. Mexican corporations are used by many foreign nationals who operate businesses in Mexico. Setting up a Mexican corporation can be accomplished more swiftly than establishing a fideicomiso. If you intend to purchase more than 2000 square meters of land, a corporation is the method of holding the property. A fideicomiso limits the amount of land to 2000 square meters.
** Owning a Mexican Corporation involves complexities beyond those of a fideicomiso, making it crucial to consult with a qualified closing attorney.
Purchase Requirements: The sole requirements for purchasing property with a fideicomiso are a passport, a tourist visa, and proof of your home address via a utility bill or any monthly statement.
Payment: Financing options are limited as this is predominantly a cash market. There are no contingencies; entering into an agreement implies a commitment to fulfill the transaction.
Closing costs vary depending on the property and location; these are very specific to the property. Upon finding a property, we can request a closing cost estimate.
There are a few companies that offer financing for Americans and Canadians, with stringent criteria, mandatory good credit, and typically a minimum deposit of 30%. For more information, please contact us.
Inspections: Inspections are optional and are financially covered by the buyer at their discretion.
Keep in mind that inspection capabilities are limited. Local construction may differ from what you're used to, with homes built from block and concrete, including the roofs, and historic homes constructed with mampostería (stone masonry). It's impossible to see behind concrete or stone, but an inspection can provide a general assessment of the property's condition.
Offers: Initial offers are made informally, often via phone call, email, or most commonly, WhatsApp. Once agreed, a formal contract of sale, or Promesa, is drafted, legally binding on both buyer and seller.
Transactions are typically cash-based, so in general there are no mortgages or hefty property taxes, property upkeep is quite economical, therefore many sellers can afford to wait for an offer that meets their expectations, unlike in countries where mortgages and high property taxes necessitate quicker sales.
When purchasing "AS IS," buyers should not anticipate a contingency based on the sale of their own home, nor should they expect to request repairs. The property is to be purchased "as is," with the buyer assuming responsibility for repairs.
Contract: Once the buyer and seller agree on the sale terms, the agency drafts the sale contract (Promesa). The contract, providing protection for both parties, will be drawn up promptly. For the buyer, it safeguards against property-related debts, title issues, and outdated documentation. An automatic extension is included if the deed preparation exceeds the closing date. Delays due to government or bank actions, such as those by the fideicomiso administrator, are not the fault of either party. The contract will be bilingual and includes penalties for either party breaking the contract without cause.
Deposit: The earnest deposit is transferred to the escrow account within five business days post-contract signing. This deposit is non-refundable unless the seller is unable to provide a clear title.
While it's common in Mexico for sellers to receive the deposit directly, we advocate for escrow use. Most seller that are foreigners, (Non-Mexican Nationals) are familiar with escrow, however some Mexican sellers may not consent to escrow and insist on receiving the deposit, a condition buyers should be ready for.
Once the contract is signed and the deposit is made, the property is "Under Contract." During this period, we collect documents from both buyers and sellers to prepare the "Closing File." Once we have all the necessary documents required by the closing attorney, the file will be uploaded to them.
Closing Process: When the closing attorney receives the "Closing File," they will initiate the process, which includes obtaining the fideicomiso permit from the foreign affairs office. Upon receiving this permit, we know that the closing attorney will start drafting the deed and submit the paperwork for the bank's review to establish the Fideicomiso. After the permit is granted, we anticipate that the closing will occur within the following 30 – 45 days.
Closing: The closing typically occurs 45 to 120 days after the deposit is received, although this timeframe can vary depending on the specifics of what needs to be done. It may be extended during holiday periods, particularly around Christmas and New Year's.
Waiting…. During this time, it will primarily be a waiting period for you.
The final payment is usually made through escrow once all documents are in order.
Although the contract specifies a closing date, which we aim to meet, documentation issues can cause setbacks. It's crucial to consider, at the time of contract signing, whether a limited Power of Attorney would benefit you. It's simpler to arrange this while in Mexico rather than legalizing one after returning home. We recommend having one ready in case you cannot return to Merida promptly. This limited POA authorizes the closing attorney to sign on your behalf solely for the property purchase at closing.
After Closing: After the closing, you or your designated representative will immediately receive the keys, (unless you have agreed to a delayed possession in your contract) or in some cases, the Attorney/Notario may retain the keys until your arrival. Typically, within seven days post-closing, you can request a certified copy of the deed, (escritura in Spanish, is the notarized document.) This document is essential for conducting business in Mexico, such as applying for building permits and opening a bank accounts, as it serves as proof of ownership.
Property Registration: Following the closing, the Notario's office will forward the signed documents to the federal government for property registration. This process typically takes three to four months. Once completed, you will receive a comprehensive packet of documents.
Post-Purchase Considerations: If you do not plan to reside in the property, it's advisable to have a property management plan in place.
Property Taxes: The annual property taxes in the city may range from 100 to 600 USD, depending on the property's location and size.