Puerto Vallarta Real Estate FAQ’S
During the early 1970’s, the Mexican government recognized that it was crucial to make foreign investment in Mexico safer and easier for non-Mexican citizens. Because the Mexican Constitution prohibits foreigners from purchasing or owning real estate within 62 miles of the U.S. international border, or within 31 miles of the Mexican coast, an innovative and secure method of holding title was created. This method allows foreign ownership through a Mexican property trust called a Fideicomiso.
In order to obtain the rights of ownership, the Department of Foreign Affairs in Mexico City issues a permit to the Mexican bank of the Purchaser’s choice, allowing the bank to act as Trustee of the property. Essentially, the bank acts as the “Trustee/Purchaser” for the trust and the Purchaser is the “Beneficiary” of the trust. The trust is never considered an asset of the bank.
The Beneficiary has the right to use, occupy, lease and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified Purchaser, or bequeath the property to an Inheritor. The initial term of the trust is 50 years, however the trust can be renewed.
The Beneficiary / Purchaser has the rights to enjoy, sell, rent, improve, or encumber (use as collateral) etc. This is not to be confused with a land lease – the Purchaser is not a lessee. The property is held in trust by the Trustee (The Bank), for the benefit of the Beneficiary / Purchaser. In the event of a sale, any equity gained throughout the ownership of the property in trust, goes directly to the Beneficiary/ Purchaser.
No, a Fideicomiso or Bank Trust is not a lease. The lease only provides you with a certain period of time to use and you are not the owner of the rights to the property.
The trust is the only vehicle that allows you to own the TRUST RIGHTS by which in practical terms, that allows you to freely, use, enjoy, rent, inherit, encumber, and otherwise dispose of the property as you may see fit.
How Long Does it Take to Establish a Trust?
Real property transactions in Mexico are handled by a Notary Public (Notario Publico) but in Mexico a Notary Public is much different than a Notary Public in the U.S.
In Mexico, Notaries are specialized attorneys who act on behalf of the state and federal government in relation to any transaction; they are comparable to a U.S. Clerk of Courts.
On average, a Notary Public can obtain your Bank Trust within 60-90 days. Your AMPI agent can oversee the entire process and make certain you understand each and every step involved in your purchase.
If you have purchased your real property in a Bank Trust will be asked for your list of Secondary Beneficiaries to your trust. You can assign your beneficiaries percentages of ownership as Tenants in Common or you may assign your beneficiaries as Joint Tenants with full rights of survivorship.
If you are purchasing your property without a Bank Trust (outside of the restricted zone) you will need to create a Will with a Mexican Notary Public outlining your desires.
The Purchaser should only release funds when the Purchaser is assured of receiving clear title. By utilizing a U.S. or Mexican third party escrow service provider, your money is held in an individually numbered escrow account until your trust is complete and the property rights have been transferred to you, the Beneficiary / Purchaser.
When you purchase real estate in Mexico you may want to consider Title Insurance for your property purchase. Title Insurance is available for properties in Mexico purchased by foreign and Mexican citizens through several Title Insurance companies (check your AMPI real estate professional).
How Do I make sure that I have legal right of ownership?
In the trust document the foreign Beneficiary / Purchaser must name and appoint the Beneficiary of the property. The Beneficiary Purchaser can be an individual, multiple partners, a foreign corporation, an estate trust, or another entity. The Trustee (the Mexican bank) will take direction from whomever you appoint as the Beneficiary / Purchaser. You can appoint a U.S. corporation as the Primary Beneficiary of the trust. This is perfectly legal.
If your plan is to use a US or Mexican Corporation to own the rights of the property your are purchasing in our area, please consult with your AMPI real estate professional to get the appropriate advise from other professionals in this field.
Closing Costs are charges involved in the transfer of the rights in property purchased in Mexico. The total cost can vary depending upon the circumstances. It is generally prudent for the Purchaser to plan on approximately 4% to 8% of the purchase price to cover these costs. It is always best to request an estimate from the Notary Public who will be performing the closing of the transaction. It is customary for buyers to cover all closing costs. The seller will pay capital gains tax if applicable, cancelation of Trust and real estate fees.
Capital Gains Tax.
This tax known n Mexico as ISR (Impuesto Sobre la Renta) is paid depending on your fiscal residence and also on the requirements of the tax department Secretaria de Hacienda. This is an individual situation and every transaction is different. Please consult with your AMPI real estate professional, so that you can receive the appropriate recommendation to a fiscal expert.