In the interior of mexico foreigners can own and hold title in their name. However, the mexican constitution prohibits foreigners from directly owning property (fee simple) within 50 kilometers from all coastlines and 100 kilometers from the border. Foreigners can acquire beach property through a living trust or forming a mexican corporation.
Mexico’s coastal and border property law historically remembers that california, colorado, texas, arizona, new mexico and nevada were once northern mexico. Foreigners were allowed to move in and took the land away.
ALL THE BENEFITS AND SECURITY OF OWNERSHIP
The dream of millions of Americans is to own a home at the beach. The only obstacle for most folks is money. A postage size lot in Southern California, with an ocean view, costs in excess of one million dollars. In Ensenada, a beachfront home and land can be had for less than $350,000.00 - In San Felipe $450,000.00.
If the beach is not your cup of tea, you can buy a three bedroom two bath home in a middle class Ensenada or San Felipe neighborhood for $65,000.00. I have never seen a better market in twenty years of living in Baja. With zero unemployment and proximity to the border, we are attracting workers from all over Mexico and Latin America. Foreign owned manufacturing (maquiladoras) are spreading to Rosarito, Mexicali, Ensenada and Tecate as Tijuana has become industrially saturated. Tijuana is home to almost one half (1200) of the entire country’s maquiladoras.
Baja is the fastest growing state in Mexico. This is reflected in the lack of rentals available. Consequently, we have a significant increase in U.S. and Canadian citizens buying Baja properties as income-investment as opposed to vacation/retirement. The housing demand has doubled rental prices in the past five years. Historically, the problem for buyers and sellers of property has been the unavailability of credit. After the peso crash of 1995 the banks were broke and had to be bailed out by the government.
The credit situation is turning around as Mexican banks are being bought by foreign banks. Citigroup now owns Mexico’s largest bank – Banamex. Current Interest rates are significantly higher than in the U.S. with Mexican peso mortgages at 12% per annum and dollar loans (U.S. citizens) purchasing Mexican property at about 9% interest per annum. Typical loans are for 70%of value and a term of 20 years.
This is the first time in Mexico’s history that U.S. financial institutions are entering the Mexican mortgage market. This should unleash a wave of new buyers and cause home values to appreciate significantly. Especially since the median age of Baja buyers has dropped significantly. Young working adults find home ownership north of the border prohibitively expensive. Internet communications, allows work to be done from virtual offices on the beach or the desert. Seller financing is still the most common form of home financing, with interest rates and payment schedules that often compare favorably with stateside mortgage contracts.
BAJA PROPERTY – A SAFE INVESTMENT?
The safe way to buy property in Baja is a process that is no different (exactly the same) as the process used to assure a safe investment in the United States:
1. Check title and certify property is free of liens at the County Department of Public Records
2. Certify that no property taxes or utility bills are owed
3. Obtain an appraisal on the property by a licensed appraiser.
4. Legally transfer title, pay the applicable taxes, and register the title change in the Department of Public Records.
5. Buy title insurance.
Foreigners, who do not speak Spanish, typically use Mexican lawyers or consultants to complete the due diligence and manage the transfer process. Banks will become involved in the purchase if you are a foreigner wishing to buy a personal residence. If the coastal property is for your personal residence (non commercial use) the law requires a trust. Commercial use by foreigners allows them to purchase property “fee simple” in a 100% foreign owned Mexican Corporation.
Mexican trusts (fideicomiso), provide all the advantages and security of ownership: sell the property to a third party, either foreigner or Mexican, and pass the property rights on to your heirs in perpetuity. You can be assured that the bank will insist on all the proper due diligence. You will not find trust departments in small town banks. In Baja California, most of the banks that have trust departments are located in Tijuana. The only other city that has a trust department is La Paz.
REAL ESTATE TIPS
Don’t invest in property leases. Mexican leases are only valid for ten years, unless it is ejido land (farm cooperative). Ejido leases can be written for a maximum of 30 years. There are so many good investment opportunities for purchase I see no good reason to improve somebody else’s property with your money.
Buy a home already built unless you plan to daily supervise the construction. It is difficult enough to manage a contractor in the States. Add language, cultural and business practice differences and your dream home could become a nightmare. If you do choose to build, ask for foreign client references of contractors, get three competitive bids and create a written contract with the builder you select. Get legal assistance in writing the contract. Notarios are a good option because the contract will be made part of the public record.
NOTARIOS in Mexico are keepers of the public record. Lawyers who give up private practice to assure that all documents that become “public” are done in accordance with proper legal protocol. They are the gatekeepers in the transfer of all property tittles and must sign the title transfer documents before acceptance by the Department of Public Record.
If you buy into a subdivision, don’t pay a developer the full price of your purchase until all subdivision improvements are completed. The state enforcement of obligating developer completion is weak. A civil suit for non infrastructure completion is often the only recourse.
A legally registered homeowner’s association can litigate as a group. Thus reducing the costs to individual homeowners. If a homeowner association exists or is in the process of formation make sure it is a legal entity now or in its formation. An “Associacion Civil” is a non profit corporation under Mexican law that, in a dispute, is guaranteed the same rights of a Mexican citizen. Many homeowner associations in Mexico are formed informally. But without becoming a legal entity, a home owner’s association has no clout. You can be assured that many homeowners will not pay maintenance dues and you can be stuck with a deteriorating subdivision.
Federal Zone Concession Rights - If your beach house is not 20 meters from mean high tide you are on the federal zone and you cannot be there by law without a special concession. The federal zone belongs to the Republic. If the home is on the federal zone make sure that said presence has been approved by SEMARNAP, the agency that governs the federal zone. If the property, either on the federal zone or adjoining the zone, does not have a federal zone concession, apply for it. Prevent someone other than you from buying the concession. If someone else does buy it, they could develop “your beach”.
Apply for an FM-3 resident permit from immigration. If you have property in Mexico you are required to have said documentation. In order to defend yourself in a legal dispute or solicit permits that affect your property you must have an FM-3.
TITLE INSURANCE CAN BE PURCHASED ANY TIME
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. Especially after recent events in Rosarito and Ensenada: foreigners and Mexicanos were forced to re-purchase property they had already paid for years before. Some of these properties were in bank trusts”. The bank trust does not insure title protection.
You can buy the same title insurance coverage you purchased on your home in the U.S. in Mexico. According to Robert Calamari, Agent for First American Title: “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”.
As a consultant to foreign investors, throughout the republic of Mexico, I have managed the legal title transfer process in hundreds of real estate acquisitions. To date, not one deal that we managed from the initial contract stage to closing has gone bad. The reason - DUE DILIGENCE.
In assuring safe transfer of title, we follow the same protocol followed by U.S. title companies. 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.
During my twenty year career in Mexico, I have been asked to intervene in hundreds of deals that were going bad or had already gone bad. The reason-always: A lack of due diligence or the foreign buyer believed Mexicano-Gringo real estate mythology. The myth that foreigners can only lease property or assign it to a “presta nombre” (borrow a name), in which a foreigner buys the property in the name of a Mexican citizen. Risky business to say the least.
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 value, title protection provides, is greater than the cost to be insured. The cost is 8.00 for every one thousand of property value. On a property worth $100,000.00 you will pay $800.00 to be insured.
Title policy conditions, and payment for loss, are the same as those protecting U.S. dirt. And the contract is with a good ole Miami financial institution. The Mexican judicial system has no jurisdiction regarding payout for loss of title. 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 a recent 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 company, 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”.
BAJA MERCANTILE AND CIVIL LAW CODES RECOGNIZE ESCROW - USE IT
The concept of escrow is not understood by most Mexicanos. It is not understood because it is not part of most of the 38 states’ legal codes. Mexico City, the nation’s centrist capital, is within the State of Mexico. This state does not have escrow specified in the law, therefore, not available without the aid of special bonding and security institutions. The transaction is bonded as opposed to a simple escrow in which a third, uninterested party, holds monies according to buyer and seller instructions.
In Baja California, the concept of escrow is spelled out in both mercantile and civil codes. Its legal description defines a true escrow as we know it in the States.
I am insuring property, I purchased as a foreigner, ten years ago. Why not? It is affordable and will enhance resale value. Most important: My peace of mind, what’s left of it after 20 years in this crazy land.