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Mexican Financing: What You Need To Know, About
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One of the most important things for you to know
is your investment, by all reasonable standards,
is safe and most likely will be held in a “Bank
Trust”. While foreigners can own property fee
simple in the interior of Mexico, they are
technically prohibited from holding title to
property in the so-called "Prohibited Zone"
along the nation's coasts and borders. The
prohibited zone which was established under the
Mexican Constitution encompasses (1) the land
area within 100 kilometers of Mexico's
international land borders (with US, Belize
and Guatemala) (all of the border towns and a
little more); and (2) the land area within 50
kilometers of Mexico's ocean front areas (the
coast line of Mexico). The Mexican Bank Trust
was created in the early 70’s to promote tourist
and retirement investments along popular
coastlines. You do not have to worry about
figuring out how to set up your bank trust,
Marquest will guide you though the process. The
property you hold in a Bank Trust is yours to
improve, build, sell, leave to your estate, etc.
You’ll enjoy all the same rights you have in
your US fee simple real estate via the Bank
Trust. Your Family Trust in the USA can also be
the owner of the Bank Trust if you so desire.
When you decide to sell your home, in all
probability, another foreign person will be
purchasing your Bank Trust Rights. You will
write a letter of instruction to the Bank that
will include your new Buyer’s name and
beneficiaries. If you sell your Trust Rights to
a Mexican National, he has the option to take
title in his name in the Trust or remove the
property from the Trust and take title in
“Escritura” (Mexican National form of
Ownership). Sometimes the Mexican National will
opt to pay the annual Trust fee and stay within
the Trust, especially, if his most likely buyer
would be another foreigner. Although the Bank
Trust is a safe and only way to hold title, is
it not free. The set up fees are usually
$600-$1000 and the yearly maintenance fee
averages around $500 per year.
Water Rights:
A condition to financing a property in
Mexico is that the property have a city or
community water system (which is why the
original water bill is required to complete
financing). In Mexico, water is deemed to be
part of the public domain -- the property of the
nation. According to Article 27 of the Mexican
Constitution, waters are an integral part of the
property through which they flow; thus, water
rights are incorporated into the real property
rights. Historically, an owner could exploit the
water from his property but could not sell water
rights without selling the property. Recently,
Mexico has vested the authority over its waters
in a National Water Commission, which may
control the use and the cost of water.
Foreign Investment in Real Property:
The Mexican Constitution and the 1973
Foreign Investment Law prohibited "direct"
foreign ownership of land or water within those
border and coastal areas known as the restricted
zone except through a title holding "fideicomiso"
-- a bank trust. Until recently, a "fideicomiso"
for restricted zone property could last not more
than 30 years. After that, the trustee had to
sell the property to a "qualified" buyer (a
Mexican citizen or another trust). Indirect
ownership through a Mexican company owned by
foreign investors also was prohibited.
In 1989, Mexico promulgated new regulations to
allow the 30-year trust term to be renewed at
least once. As a result of further reforms in
1993, the term of the trust may now extend to 50
years, and the trust may be renewed indefinitely
for additional periods of up to 50 years each.
The 1993 new foreign investment law also allows
ownership of "non-residential" real estate
within the restricted zone through a
foreign-owned Mexican corporation, provided that
formal approval is obtained from the Secretariat
de Relationes Exteriores (SRE). Otherwise, all
foreign individuals and foreign corporations as
well as Mexican corporations which include any
foreign investment may hold title to property
within the restricted zone only "indirectly"
through a bank trust arrangement known as a "fideicomiso".
Foreclosure:
Mexico does not have procedures for non-judicial
foreclosures such as trustee's sales. In
general, a borrower's rights under hipoteca
cannot be terminated except through judicial
process. A foreclosure sale takes place by
public bidding. The price is based upon an
expert valuation, and the lowest allowable bid
is two-thirds of that appraised value. Bidders
must pre-qualify by making a deposit of ten
percent of the appraised value. Until the
termination of the foreclosure sale, a debtor
may redeem the mortgaged property by paying the
debt and accrued costs. After the foreclosure
sale, a debtor does not have the right of
redemption.
Title Searches and Title Documents:
Title to real property is evidenced by an "escritura
publica" which must be signed before a notario
and recorded in the local public registry-- "el
registro publico de la propriedad". Therefore,
except in the case of "ejido property" or
federal zone property, the public record of a
parcel of real estate can be obtained from the
local public registry. An official stamp
attached to the last page of a document assures
the parties that the instrument has been duly
recorded and also provides the necessary filing
information. Title documents will include the
chain of title, the meets and bounds description
of the property (including, in some cases, the
name of the owner or the nature of abutting properties) and the
public registry filing information. In general,
the public registry will not provide information
regarding concessions that have been granted in
connection with the land. When an attorney does
the title search, it usually reflects at least
the three prior owners. In many instances, it
may be worthwhile to trace the chain of title
back further.
Title Insurance:
There are a number of differing opinions on
the need for title insurance. Unlike residential
homes in the US, title insurance for the lender
is not required. There are some strong arguments
that purchasing title insurance for you is a
wise decision. Title insurance is not available
to Mexican Citizens and Corporations, including
a Mexican subsidiary of a US corporation.
Instead, Mexicans usually rely upon a notario's
title search and the opinion of a Mexican
attorney. A number of US Companies offer title
insurance on Mexican real estate interests to
non-Mexican investors and lenders. These title
policies will typically have additional coverage
limitations, which are not common in the US,
and the cost also will be greater. An
application fee is paid up front for the
lawyer's title search and for copies of the
documents, which are necessary in order for the
company to issue a title commitment. A survey
will also be required. The title search and
survey requirements usually mean that the
turnaround time for the issuance of a commitment
is considerably longer than we are used to in
the US, but obtaining such a commitment is a
valuable part of a buyer's due diligence. Under
these policies of title insurance, the
obligations of the title insurer will be decided
under US law and in the United States.
Otherwise, the only defense or recourse against
title defects is to litigate in Mexico.
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