Real Estate Financing on the Island of Isla Mujeres, Mexico
Courtesy of MEXLEND.COM
Buying Property in Mexico with Financing
So you have found your dream property in Mexico!
The process may seem a little daunting and different than in your country, but well worth it. The key word is different not better, not worse, just different. With our team at MEXLend working in tandem with your real estate professional, you will be amazed at how quickly you become comfortable with the process.
In many ways, purchasing real estate utilizing a financing option further protects your investment. U.S. and Canadian lending institution impose rigid documentation requirements for the sellers of Mexican properties, to ensure clear and clean title. You, the client, can rest assured with the knowledge that your weighty investment has been scrutinized by teams of experts and deemed a worthy transaction.
The following is a summary of some of the terms and professionals that will be involved in the acquisition, but remember, don’t let these terms scare you…our team at MEXLend and your real estate professional will be guiding the entire transaction.
Fideicomiso (Bank Trust):
This is perhaps the most misinterpreted aspect of purchasing property in Mexico. Historically, foreigners were denied the privilege of owning property in Mexico in the restricted zones. The restricted zones are the coastal areas and borders. However, realizing the benefits of foreign investment capital, the government of Mexico has found a way to make that easier. That way is the Fideicomiso or Bank Trust.
Simply put, your property is placed in a Trust to be administered by a Mexican Bank on your behalf. The life of your Fideicomiso or Bank Trust is 50 years. You are in control of that Trust and it is willable, saleable, transferable and renewable. This is NOT A LEASE; it is a trust and acts the same as a Trust in the U.S. to protect your interests.
There is a fee (usually $690) or so to set up the Trust, and thereafter there is a yearly fee for the administrative costs.
Should the bank holding your trust be bought out by another institution or become insolvent, your trust will automatically be assigned to another banking institution. In other words, your trust IS NOT an asset of the Trust Bank; they are merely the stewards of the trust.
For further information: The what and why of the Mexican Real Estate Trust
Offer and acceptance:
Once you have identified a property that you wish to purchase, your real estate professional will draw up a contract of offer. Once the offer has been accepted, You will be required to make the contract official, and MEXLend will guide the Opening of an escrow account with normally approximately 10% of the agreed upon purchase price.
One of the most exciting developments for protection of both you and the seller has been the involvement of U.S. escrow companies in the process. It is from this stateside account that all disbursements will be issued towards you purchase. Lenders insist on utilizing escrow accounts. This protects both you and the seller. Funds to be dispersed upon closing. For more information visit: First American Title
A notary public in Mexico is a far more important personage than in the U.S. A notario is a lawyer that has passed stringent exams set forth by the Mexican government and is indeed, a government official. All business transactions including real estate sales must be officially registered and officiated by a notario. There are only a handful of notarios in each municipality, so they are very busy folks.
Mexico Real Estate Trust
The What and Why of the Mexican Real Estate Trust
The reasoning behind the Mexican bank trust for foreign ownership of property in the so-called restricted zones, like so much of life in Mexico, is steeped in tradition. The current Constitution of Mexico was enacted in 1917. It was created in a form to protect all Mexicans from the kinds of foreign invasions they had suffered for centuries. In the spirit of that protection of natural rights, the Constitution forbids the direct ownership of land by any foreigner within 100 kilometers (62 miles) of the national borders of Mexico or within 50 kilometers (31) miles of the seashore.
In olden days, the usual way of conquering someone else’s territory was to encroach upon it and establish a base. Once you set up camps and then settlements where your citizens or armies actually owned property, you could claim that the land was no longer in the possession of the other country, but belonged to you. So, armies often landed on the coasts of Mexico or crossed its border and began this form of conquest by possession. Mexico lost a great deal of its original land mass, won in the war of independence from Spain, in just such a manner. The current Mexican Constitution was designed to ward off this kind of threat.
Over the years, it has become less and less probable that such an outmoded form of military attack would be used to attempt to conquer another country’s territory, especially in North America. Nonetheless, rather than amend the national constitution, the Mexican people through their government have designed a system through which foreigners can and do enjoy all the benefits of property ownership in the highly desirable restricted zone … especially along the sea coasts.
The Mexican Bank Trust is based on a common set of fiduciary principles. Much like a trust in the United States, property owned or controlled by one party is turned over for the benefit of another party, using the stewardship of a trustee – a third party. Your uncle may die, for instance, leaving his estate in trust for the benefit of your widowed aunt for as long as she lives, giving a trustee the responsibility for managing the estate and ensuring that it is used for your aunt’s needs and desires.
In Mexico, a “fideicomiso” is a bank trust agreement whereby the bank, acting as trustee, manages the ownership of the land and improvements for the use, enjoyment and enrichment of a beneficiary. If you are a foreign citizen and you buy property in the restricted zone in Mexico, you arrange with a bank to be your trustee. The bank actually ensures that the closing is legal and appropriate and takes possession of the real estate for your sole use – until you give them instructions to the contrary.
If you decide to sell the property, you must instruct the bank’s trust department in writing to transfer the trust ownership to your buyers. The buyers can either assume your existing trust, or they can initiate a new bank trust with a different bank, if they choose. Bank trusts are typically written for 50 years, and they are renewable for any number of additional 50-year periods. When you set up your bank trust, you must even specifically name your beneficiary or beneficiaries who will automatically own the property in trust if something happens to you. The trustee, that is your bank trustee, is prohibited by the trust agreement and by Mexican law transferring ownership of the property, changing the beneficiary rights or from doing anything else concerning the property without your written instructions.
There is an initial fee to set up the trust. It will be included in your estimate of closing costs. There is an annual fee for maintaining the trust, which is typically only a few hundred dollars a year. Under the trust agreement, you maintain and enjoy the right to occupy, rent, repair, expand (within property building codes) and sell the condo or house at your will.
As you make your decision about owning a home or vacation property in Mexico, relax and enjoy the search, knowing that your acquisition will be yours and yours alone, that you will be able to enjoy it as long as you like, that you can sell it whenever you want and that, if you do not sell it, it will legally pass to your named heirs.