Purchasing land in Mexico is the dream of many people who want to retire in nice warm weather to enjoy life.
Often they use their lifelong savings to do so.
As one of the most important investments in life, one must be careful of scams that may compromise the investment or even lose all your hard-earned money.
In my professional experience, I have seen many foreigners lose money to scammers and schemes. Sometimes they come to me once the damage is irreparable.
Individuals and companies are subject to real estate fraud throughout Mexico. They fall prey to corrupt schemes and collusion between unscrupulous sellers, governments, and investors.
It is impossible to include all the details to consider when making a real estate purchase in a single post, but I have identified the following essential points to consider:
Permit to Buy
“Let’s start on the right foot.”
Although you can buy a property in Mexico as a foreigner, it is necessary to obtain prior permission to buy it, which the Mexican government must grant. Therefore, you must go to the Secretariat of Foreign Relations in the General Directorate of Legal Affairs to request such a permit.
If you cannot submit the request in person, you can appoint a legal representative authorized by a power of attorney.
Price
“It’s too good to be true.”
When the property price seems to be a great bargain, we must hesitate. It does not mean that we cannot find great prices from time to time, but this may indicate that something could be wrong. For example, there are multiple real estate “offers” in litigation, either because the mortgage was not paid or the previous owner filed for bankruptcy.
These are not safe offers since, before acquiring ownership of the property, the litigation must finish, which, in many cases, can take many years and include “hidden costs” from lawyer fees and appraisers. In addition, no one can guarantee that the property will be granted to either party at the end of the trial.
There is the risk that property rights are not granted, resulting in losing all the money invested. One suggestion is to hire an independent appraiser before putting any money on the table.
This appraiser will check that the property’s price is under the market price.
An independent appraiser is generally inexpensive and can do his job in less than fifteen days.
The Seller Does Not Own the Property
“Selling what is not mine.”
A typical fraud in the sale of real estate is that the seller is not the rightful owner of the property.
In Mexico, each State has its own Public Property Registry where you can check who is the current legal owner of a property.
It is necessary to review the Public Registry to verify that the seller has the ownership rights, any mortgaged or liens over the property, pending litigations, or any special regime that prevents the sale of the property.
Restrictions on the Purchase Real Estate by Foreigners
“Using a Trust”
In Mexico, a constitutional restriction prohibits foreigners from directly purchasing real estate within 100 kilometers from the borders and 50 kilometers from the coast (the “Restricted Zone”).
As a result, frauds to foreigners who want to buy their dream house by the sea on the Mexican coast are frequent.
The safe way to buy real estate in the Restricted Zone is through a real estate trust (in Spanish, “Fideicomiso”).
In a real estate trust, the Bank is the legal owner of the property, but the foreigner has all the right to inhabit it, rent it, sell it, etc.
These Trusts are widely used and also offer exciting benefits. For example, the Bank can take care of renting your property while you are not using it, ensuring proper maintenance, and making sure you have the necessary insurance in case of, for example, a hurricane.
Fix the Exchange Rate
“The damn commissions.”
When buying a property in a different currency than the one that the price is in (for example buying with USD a property in Mexican Pesos), I advise including an exchange rate in the purchase agreement.
The exchange rate fluctuates a lot from one day to the next.
On the other hand, banks’ commissions for international transfers should be considered. The Bank usually deducts these commissions directly from the amount to be transferred to the transfer recipient. If not considered before the closing date, it could compromise the transaction as the seller may object not receiving the total price.
Taxes
“Varies from State to State”
When individuals buy a property, they shall pay the Property Acquisition Tax (ISAI), a local tax.
In some States, it is also called Transfer of Domain Tax.
The States collect this tax, usually around 2% of the selling price. Therefore, before acquiring the property, it is essential to consult with a specialist to find out what tax rate applies.
Notary
“Formalizing the purchase.”
In Mexico, a Notary Public must authorize the sale through a Public Deed.
Notary fees vary depending on the State where the property is located and generally correspond to a percentage of the property’s value.
It is expected that the buyer pays Notary fees.
After the Notary has formalized the sale, the Notary will register it in the local Public Property Registry, which may take several weeks.
While the Notary registers the deed, I request a signed letter from the Notary stating that such registration is in the process; this will help if there is an error or omission in the registration.
The Notary must pay for damages to the buyer in court with such a letter if the Notary fails to file the deed in the Public Property Registry.
Mortgage Credit
“When you are short in cash…”
There are different financing options to buy a property in Mexico as a foreigner.
Mortgage loans for foreigners can also grant you different benefits such as insurance and fixed monthly payments.
It is essential to have specialized advice throughout the process.
Every transaction is different, and there are many variables to consider.
I strongly advise you to contact us through our email at online@roelatam.com
We have extensive experience in real estate matters for foreigners, and we can advise you in all stages of purchasing your dream property.