Mi Casa, Su Casa
Protecting your Mexican
real estate investment
By David M. Brown
Contrary to what you may have heard, Americans, or any non-Mexican nationals, can purchase property fee simple (or direct deed) in Mexico except when the property is in the restricted zone: 32 miles from the shoreline or 62.5 miles from the border.
However, buyers can acquire coastal and border-area properties in the restricted zone by establishing a Mexican Bank Trust, or fideicomiso. The bank, as trustee, charges an annual service fee and holds the legal title to the property for up to 50 years. For less than $1,000, the potential buyers register for a permit to establish the trust at the Secretariat de Relaciones Exteriores. The permit issued, a notario prepares the deed or “escritura.” After acquisition taxes and filing fees are paid, the deed is recorded.
Unlike the English common-law based American system, Mexican law is a civil law system and therefore heavily codified. However, it is specific regarding fee-simple ownership. The Foreign Investment Law of Mexico (FIL), established in 1971 and amended twice since, explains what properties must be in a “fideicomiso” and what properties are nonresidential and therefore can be purchased by foreigners in a Mexican corporation, explains Mitch Creekmore, director of business development for the Mexico Division of Stewart Title Guaranty Company in Houston.
As beneficiary of the 50-year fideicomiso, the buyer can basically do what he or she wants: Improve it, lease it, sell it, mortgage it, will it. Your estate becomes the beneficiary, and you or the estate can indefinitely extend the trust in 50-year periods. Buyers of a property already in a fideicomiso can begin a new 50-year cycle.
Dinero is spoken here
Don’t worry about financing either. Although most purchases of Mexican real estate by Americans have traditionally been cash deals, through home equity loans on a primary residence, or through private lenders, a growing number of developers are becoming involved in financing. In addition, third-party lenders in the United States are available, often accepting as little as 20 percent down on a purchase.
One of these lenders is the International Mortgage and Investment Group, based in Phoenix with offices in Austin and New York. Led by Timothy K. Kelley and Kevin Hardin, the IMI Group is helping to solve the former challenges of securing financing for property in Mexico. “In the past year and a half, there have been entities that have lent private-equity money to individuals buying homes,” says Hardin, the company’s CEO and a certified mortgage banker and certified mortgage consultant who has placed more than $10 billion in mortgages into the secondary market.
“Right now our biggest initiative is to educate people on either side of the transaction,” adds Kelley, a native Phoenician who learned about the Mexican industry by living and working in Mexico City for 10 years before returning to Arizona.
In addition, the men are working to establish a sound secondary market for selling Mexican-based mortgages. By providing a dependable means by which existing mortgages can be sold, more capital will be freed for new buyers, creating what Hardin calls a “free-flowing market.”
The IMI Group is also leading a nationwide effort to create an International Mortgage Lenders Association to represent individuals and entities involved in or related to the business of lending money to Americans buying property in Mexico. The men are working with stakeholders such as the Arizona Mexico Commission, the National Law Center for Inter-American Free Trade and financial-industry players such as GMAC-RFC, Stewart Title, Collateral International and M&I Bank.
Both men agree that the process for financing property in Mexico is much more accessible than it was even a few years ago. “It’s identical to the U.S. mortgage process, much like a Fannie Mae structure, in U.S. dollars, with a U.S. company, a U.S. escrow agent, and with a high level of confidence.” Similarly, title insurance policies are almost identical to those issued for American properties.
Get good counsel
Most importantly, when buying property in Mexico, have the right information and the right counseling, specifically with professionals who have experience on cross-border matters.
“More and more, the practice of law in Mexico is resembling the practice of law in the United States,” explains Benjamin Aguilera, an attorney with the Phoenix office of Greenberg Traurig. The reason for this, of course, is that so much of the capital is from the United States, though a U.S. attorney must still be familiar with the proper documentation in order to comply both systems.
Aguilera underscores: “There is no single glove that will fit every transaction.” Different states, for instance, may have different laws. “Despite the proximity, the ease of traveling, the appeal and allure of doing business in Mexico, it is a different country with very stringent laws and its own judicial system.”
He offers a few caveats: “Don’t eschew common sense in your south-of-the-border transaction. Don’t do in Mexico what you wouldn’t do here.” Furthermore, just being able to habla espanol isn’t enough. “It involves being knowledgeable of the interrelation of the two legal systems, the protocol for doing business, the nuances of the spoken and body languages and the financial effects on both sides of the border,” he says.