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Tuesday, December 12, 2017

Bahias De Huatulco

How to Buy Real Estate in Huatulco Mexico

Own an oceanfront residence in one of the most beautiful spots on this planet, a palce where you will celebrate the best of life with your family and friends. Impregnate yourself with such soothing experiences that they will remain with you even when you are away from your little piece of paradise.

Since your better life can’t wait and everything indicates that Huatulco is tomorrow’s Cabo, be rewarded for owning today at ground floor prices while it is still possible.

What can go wrong? The answer - everything. However, with competent counsel, a real estate sale in Mexico can be as safe as one in the United States. Understanding Mexican property law can safeguard the investment.

The primary cause of Mexican real estate transactions going bad is that the legal process is not followed or all of the steps in the process not adhered to. This "loose" approach to property title transfer is not exclusive to foreign buyers. Mexicanos also get stung by private contracts that go wrong when property is purchased in a careless fashion.

The best way to assure title and your purchase of a Mexico Coastal property is to enlist the aid of a Mexican bank to establish a Bank Trust. The Mexican constitution limits the form of foreign coastal property ownership. Foreigners must purchase coastal property via a bank trust.

The bank trust (Fideicomiso) is similar to a living trust in the United States. Property transfers from the Mexican seller to the bank who places the property in trust. The buyer is the primary beneficiary of the trust and lists the heirs who continue the trust after the primary beneficiary's death. Heirs name their heirs and the trust remains in perpetuity with each new generation naming their heirs. Trust renewals are required every fifty years.

Many non-Mexicans have stayed away from purchasing or investing in the real estate of Mexico because of real or perceived risks to the stability of their investment. During recent years, the importance and the value of foreign investment to the economy of Mexico has led that country to make a number of revisions in its real estate laws.

Today, foreigners have expanded opportunities to purchase or invest in Mexican real estate. In much of the inland portion of Mexico, the purchase of real property by foreigners has the same legal basis as in the United States. The Mexican Constitution of 1917, however, prohibited foreign ownership of residential real property within approximately 31 miles of any coastline and 62 miles of its natural borders.

All of The Bays of Huatulco are included in this “restricted zone.”

Because most second or vacation home purchases by Arizona residents are likely to be within this “restricted zone,” further discussion is in order.

In 1971 (further expanded in 1989 and 1993) provisions were made for a mechanism that would allow foreigners to own property in the “restricted zone.”

Within the “restricted zone,” a foreigner purchases the beneficial interest in real property through a bank trust or “fideicomiso.” In this bank trust, the buyer of the property is designated as the “fideicomisario” or the beneficiary of the trust. While legal title is held by the bank, ( specifically the trustee of the trust or the “fiduciario,”) the trustee must administer the property in accordance with the instructions of the buyer (the beneficiary of the trust). The property is not an asset of the bank and the trustee is obligated to follow every lawful instruction given by the beneficiary to perform legal actions, i.e., rent it, make improvements, sell it, etc.

The Bank Trust is also very effective for Estate Planning because, as with any other trust, the Trustor can designate who will be the beneficiary in case of death. As the beneficiary of the trust, the buyer may have substitute beneficiaries who would assume beneficiary status upon the death of the buyer without the need of probate proceedings.

Most new trusts have a time period of 50 years. But, these trusts are almost always renewable for another 50 years.

As long as the buyer of the property adheres to laws and ordinances of Mexico and agrees not to invoke the pro- tection of the government of his country, he may exercise the same rights as a Mexican national with regard to the use of his property.

In summary, then, virtually all property in Mexico is available for purchase by foreigners, keeping in mind that the fideicomiso, or bank trust, must be used when acquiring property within the restricted zone.

In the United States, it is common for individuals or a group of individuals to form corporations for the purchase of real estate. While the laws of Mexico allow corporations to own real property, it is not possible for a foreign owned Mexican corporation to own a vacation or a retirement home for residential purposes (as opposed to business activities).

One final observation. In exchange for the ability to invest in real estate in Mexico, you agree that only the laws of Mexico will apply to any of your real estate transactions. In the courts of Mexico you will be treated the same as if you were a citizen of Mexico.

Fideicomiso

(From Latin: Fedei commisum. Fedei=Faith=Trust). Fideicomiso is the only option which a foreigner in Mexico can acquire and maintain a property on the restricted zone, according to the article 27 of the Constitution and the stipulated in the Mexican foreign investment law.

Fideicomiso that is made when a foreigner is going to acquire a property that i son the restricted zone, according the article 27 of the Mexican United States Politic Constitution (Constitución Politica de los Estados Unidos Mexicanos), witch says “In the area along 100km from the borders and 50km from beaches, by any circumstance a foreigner could get direct domain over land and water”

The foreigners only can acquire properties that are in the restricted zone through a bank trust, which can have duration of 50 years.

 Is there any restriction on the size of land I am purchasing?

Yes, acording to the article 14 of the foreign investment law, the Ministry of Foreign Affairs shall decide on the permits for seting up a bank trust according to the economic and social benefit of that trust to the Nation. In other words, they requiring a commitment from the beneficiary of the trust to invest certain amount of money on the property in order to give the permit for the fideicomiso.

Constitution of the Mexican United States

Article 27 section I.

Provides that in no manner foreigners may acquire the direct ownership of land and water within an area of 100 KMS. among the borders and area of 50 KMS. among beaches; such area is identified as “Restricted Area”.

Foreign Investment Law

Article 11

Through trust deed foreigners are allowed to acquire rights over Real-state within such called “Restricted Area”; The aforementioned is subject to prior authorization by the Secretary of Foreign Affairs.

Article 13

The maximum duration of a trust is 50 years, which is extendable.

Article 14

The Ministry of Foreign Affairs shall decide on the permits to which this chapter refers, considering the economic and social benefit that such operations imply for the Nation.

Any application to obtain a permit must be resolved upon by the Ministry of Foreign Affairs within five business days following the date of the application with the competent central administrative unit or within thirty business days if submitted before the state offices of said Ministry; otherwise, approval shall be deemed to have been granted.

 The Trust deed

By virtue of the trust deed, the Trustee (Institution) Receives one or more Real-state properties and destines such estates to any lawful and determined purposes in accordance to the purposes entrusted. “The Trust Agreement is a trusting commission”.

Parties in a Trust Agreement

Trustor / Grantor: Individual or legal entity which transfers one or more Real-states through the trust ownership.

Beneficiary: Individual  or legal entity with the appropriate capacity to receive the benefit granted by the trust deed, being able to appoint several beneficiaries to receive the benefits simultaneously or successively.

Trustee / Institution: Financial Institution, with the appropriate capacity to act in Mexico, who receives the property of the trust fund for the benefit of the Beneficiary and who must carry out specific duties with regard to the property.

Subject-Matter of the Trust
The subject-matter is constituted by the Real-state transferred by the Trustor to the Trustee (Institution), as well as the constructions, buildings and improvements, if appropriate, made by and on account of the beneficiary.

Purposes of the Trust

The purposes of the trust is the commissions granted to the Banking Institution to be exercised in favor and for the benefit of the Trustee / Beneficiary.

The benefits of this kind of trust agreements are the following :

  • The Beneficiary acquires the right to use and enjoy the Real-Estate subject-Matter of the Trust.
  • The Beneficiary shall have the possession of the Real-Estate with all authorities to occupy it.
  • Alternate Beneficiaries may be appointed for the event of death, who shall enjoy the benefits in a simultaneous or successive manner.
  • The Beneficiary shall have the right to transfer its rights and to freely agree upon the contribution or payment.
  • The Beneficiary shall have the authority to instruct the Trustee to transfer the Real-Estate Property to individuals or legal entities with legal capacity to acquire them.

 Prior to the agreement with the Trustee, the Trust deed may be amended under the understanding that a prior authorization granted by the Secretariat of Foreign Affairs shall be necessary in order to amend the purposes and/or to increase the subject.matter of the Trust Agreement.

Requirements for the incorporation of a Trust Agreement

Trust requires:

  • The authorization from the Secretary of Foreign Affairs that appoints article 11 of the Mexican Foreign Investment Law;
  • A deed attested and certify by a Mexican notary, who is obligated to assure the authenticity and lawfulness of the transaction.

Cost of setting up a Bank Trust


Affordable title insurance is a relatively new product in Mexico and worth buying at any time; either during property purchase or years after the fact. In the past ten years, both foreign and Mexican home owners in Rosarito and Ensenada were forced to re - purchase property they had already paid for as a result of title disputes. A majority of these properties were in bank trusts.

A bank trust (Fideicomiso) does not provide title guarantees. It is merely a legal instrument for foreigners to acquire all the benefits of ownership in Mexican coastal property. In the interior of Mexico, foreigners can hold title without the necessity of a trust In a property trust, title is transferred from the Mexican land owner-seller to a living trust in which the bank acts as the fiduciary in providing ownership rights to the foreigner.

U.S. Title companies insure foregners in Mexico
The same title insurance coverage you purchased on your home in the U.S. is available in Mexico. First American and Stewart Title Insurance companies, are two of the largest title insurance underwriters in the world and they welcome your business in Mexico.

According to Robert Calamari, President of Global Title and issuing agent for First American in Mexico : "We have determined that our risk, as underwriters on Mexican property, is not much greater than insuring property in the United States. Assuming the same due diligence standards in researching the property are met".

In assuring safe transfer of title in Mexico, the same protocol followed by U.S. escrow officers is adhered too. Verification that the seller and title holder are one and the same, certification that the property is free of: creditor liens, mechanical liens, tax liens, and utility department liens. Most important, a 50 year study of the property's history to assure that each transfer of title was done in accordance with federal and state laws.

To buy coastal property, as a foreigner, for personal use (the entire Baja peninsula is considered coastal property), you must do so in a living trust. If you are buying for commercial purposes, a 100% foreign owned Mexican corporation can allow fee simple transfer of property title to foreign owned corporations.. Either method provides the benefits of ownership: Resale, succession of rights to heirs in perpetuity, or commercial use.

Title insurance in Mexico is affordable
Title insurance is a wise "value added decision". Given the horror stories about Mexican real estate in the U.S. press; a future buyer will value the fact that the property is insurable against any future title problems. The added value, is greater than the cost to be insured. The cost is $8.00 for every one thousand of property value. On a property worth $200,000.00 you will pay $1,600.00 to be insured.

Title insurance in Mexico is reliable
Title policy conditions, and payment for loss, are the same as those protecting U.S. properties. If it is a U.S. company providing the insurance, the title policy is a private contract entered into by two parties in the United States. Therefore, any disputes are subject to U.S. courts to resolve. In an insurance industry article, Robert Calamari, wrote: "Responding to customer requests, title companies active in the commercial field have all moved forward on the international front. Some have sought to actually expand operations and establish a local presence in certain foreign jurisdictions. Others have developed an ALTA - like product that can be used in any foreign jurisdiction that meets the company's qualifications. This type of product, as used by our companies, keeps the policy solely in the U.S.. A contract of insurance between the insured and insurer. Despite the foreign territory, all litigation regarding coverage is determined in the U.S.. In courts that are familiar with title insurance law".

About risk, Calamari explains: “Although legal systems and real estate records may be extremely stable and accurate in a given country, it is - for the most part - an unknown landscape for investors. From an entirely different perspective, we have seen lenders venture to jurisdictions they have previously not considered as "safe harbors" once they are aware that a lender's policy is available. In addition, we have seen the borrowing rate lowered by 7 to 10 basis points when title insurance is used, as opposed to a non-insured loan".

A Guide for Foreigners Purchasing Property in Mexico

  1. 1. Understand and follow the Mexican law concerning real estate purchases.
  2. 2. Obtain the advice and services of a U.S and/or Mexican attorney, a registered Mexican real estate agent, a title insurance company and/or an appraiser. Look for consultants with demonstrated experience in both the geographic area and the type of transaction you are considering.
  3. 3. Obtain a property disclosure statement from the seller, as available.
  4. 4. Obtain a copy of existing public deed (escritura pública) complete with recording information, and a current copy of the lien certificate (certificado de libertad de gravámen).
  5. 5. Request a copy of any existing commitment for title insurance on the subject property. Obtain a current commitment for title insurance on your specific property.
  6. 6. When dealing with residential developments advertised in the United States, look for a copy of the State's Public Report.
  7. 7. Obtain a copy of applicable Mexican state/ municipal development authorizations.
  8. 8. Obtain a copy of any Covenants, Conditions or Restrictions for the property and any homeowners’ association bylaws, budget and financial statements.
  9. 9. Analyze all risks associated with purchasing property where any infrastructure, building or other improvements have not been fully completed.
  10. 10. Analyze all risks associated with seller financing.
  11. 11. Estimate closing costs associated with your purchase.
  12. 12. Complete due diligence, including investigations of title and value, prior to committing to purchase, or make the purchase contingent on those investigations.
  13. 13. Enter into a written purchase contract (in Spanish and English) that defines the details and contingencies of the agreement with the seller.
  14. 14. Place all deposits in a neutral, third party escrow account, pursuant to a fully executed escrow agreement.
  15. 15. Obtain title through a Mexican Notary Public, and title insurance, at the time of full payment.
  16. 16. Ensure proper recordation of the title transfer with all applicable municipal and federal registries at time of title transfer.

Over the past few years, more feasible, attractive options for financing Mexico real estate purchases have become available for non-Mexican buyers. If real estate buyers or investors plan to finance their purchase, there are steps they need to follow in order to make sure they are choosing the appropriate form of financing. While the steps are similar to purchasing with financing in other countries, there is some important information which buyers should be aware of during the process.

  1. 1. Evaluating Finances
    As in any real estate purchase, a buyer needs to take the basic first step of evaluating their financial situation, before making an effort to find a property; how much money can a buyer invest into a Mexican property? A closely related question is, can the buyer increase this amount through financing part or all of the purchase? A buyer must evaluate what monthly payments they will be able to make, or, more generally, what kind of payment plan they can manage. If the property is for investment purposes, the buyer must consider if the costs of financing (interest and fees) can be justified by the income or profit expected from the property.
  2. 2. Exploring Financing Options
    After evaluating the numbers, a buyer will need to explore the financing options available and see if they fit into the plan developed. This is where the process becomes more specific to Mexico. Currently the financing options for buying Mexico real estate are:
    A. Financing from the Buyer's home country
    Until recently, this was the only secure way for non-Mexican buyers to finance a property in Mexico, and some buyers still take this approach. This means that buyers leverage the a mortgage against an existing property in their home country, at a banking institution from their country, using the funds to make a cash purchase in Mexico. Typically the financing amount will be 50% of the value of the property back home. The advantage is that buyers are dealing with an institution and process they are familiar with, and quite possibly a property that their home bank is familiar with.
    B. Mortgage from a Mexican Institution
    This option is relatively new, and has been available for about 5 years – for Mexicans and non-Mexicans alike. Previously, Mexicans usually relied on informal loans from family and friends, or informal seller financing with risky personal contracts. Mexico mortgages appeared as one of the later outcomes of NAFTA, and the government and banking institutions have been cautious in easing regulations and releasing this kind of funding. For this reason the process is longer and includes more paperwork compared to processes in other countries. The upside is that property buyers can leverage their financing against the same property they are buying, leaving their property back home free of risk from any loss. Interest rates are attractive right now, around 6.5% in May 2010, and institutions will finance up to 75% of the purchase value. Banks also offer various types of mortgage options, including fixed or variable rates, and mortgage "packages" where property insurance, for example, (which is required for this kind of financing) is included in the monthly payments. A consideration to be made when evaluating this option is that, in Mexico, banks require higher credit scores, and the buyer's debt-to-income ratio must be lower, compared to requirements in the U.S. or Canada. Mexico also charges a small tax (1.4%) on bank mortgages.
    C. Seller Financing – Bank Trust in Guarantee
    While in the past, seller financing in Mexico was very unofficial and risky, the process of making a down payment to a seller and paying installments for the balance is now a very secure process, and is becoming more common for international purchasers. The buyer and seller can now make this process official through a "Bank Trust in Guarantee," which is a legal document naming the buyer as the beneficiary of the property and the seller as the secondary beneficiary. The document details the payment terms, guaranteeing that the seller will receive all payments on time, and that the buyer will have legal and physical possession of the property while payments are being made. The notarized bank trust is registered in the public registry, and is as formal as a bank mortgage. While the initial costs of setting up this trust are higher and a very slightly higher tax of 2% is required, sellers often charge very low interest, or sometimes none at all, more than balancing these initial costs.
  3. 3. Credit Pre-Approval
    After exploring the options, the buyer will have to decide which is most suitable. The next step is to gain pre-approval for a mortgage. It is important to note that it is usually not be the best idea to apply for pre-approval more often then necessary. First the buyer must make sure they have investigated their options well, and have complete information about each institution. It will also be helpful to speak with a mortgage broker or real estate expert to develop an overall strategy in this application process. Once a pre-approval certificate is given, the buyer will know exactly which property price range they can search for; even if a buyer is looking for seller-financing, this is an important step in order to keep options open.
  4. 4. Property Search
    After the bank prepares the buyer credit report and provides the pre-approval document, the buyers will be prepared to begin searching for a property, knowing exactly which price range they can consider. Following these steps will eliminate time spent on searching for properties that do not fall into the buyer's financing possibilities, and if a suitable seller-financing option is found, this will be a plus for the well-prepared buyer.

"Developers and some real estate agents are…optimistic. Let’s leave it at that. They like to tell us about the possibilities. The roads that will be built, the facilities you will have access to, the services that will be available, etc.  Thing is, once you’ve signed on all those dotted lines, you’ve purchased exactly what you see––nothing but. Not to sound pessimistic or suggest that developers simply want to make a sale (ahem), but there is no guarantee that any of these possibilities will come to fruition. Consider this a hard and fast rule: buy what you see." - Robbie McDonald International Living Magazine

This is especially valid for new condominium developments where the completed amenities and services are a big part of the value proposition. And is one reason why in America, they have implemented stricter rules for government backed financing of new condominium projects. A successful track record and the integrity of the developer is also a prime consideration. Make sure it's not their first rodeo!

HuatulcoBeachHomes.com Bahias de Huatulco, Oaxaca, Mexico
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