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In Mexico, 100 kilometers from the border and 50 kilometers from the coast is a zone known as the restricted zone, and the only way a foreigner can purchase real estate in it, is by the means of Fideicomiso, otherwise known as a “Trust”.

Fideicomiso is a 50 year, renewable bank trust that grants the foreign buyer the rights for usage, improvement, lease, rent and selling of a property (mortgage  included), by becoming the Beneficiary of the Trust, enjoying all rights as if the ownership were fee-simple. As beneficiary, the buyer retains all ownership, rights and responsibilities of the property, this includes the ability to will the property to an heir.

Aside from the Beneficiary, the rest of the parties involved for a Fideicomiso are as follows: The Trustee (Fiduciario, Bank/Trustee) and the Seller (Fideicomiente).

Can I renew an expired Fideicomiso?

At time of writing, Fideicomiso’s are issued in 50-year increments, which can be extended by another 50 years at the end of that term. Once the 100-year term ends, you, the Benficiary, must apply for a new foreign affairs permit under Mexican law in order to extend it.

How do I create a Trust/Fideicomiso?

The closing Notario of the operation will write up the Trust/Fideicomiso and will work with the closing coordinator to establish it.

What happens if the Beneficiary dies?

The primary Beneficiary can appoint another in case of death. To do this you have to prove the Trustee bank that the Estate proceeding in the country of origin has started, and that no more than one person was appointed as the new beneficiary.

What is a Notary?

Known as Notario Publico in Mexcio, a Notary is a licensed attorney, certified by the State or Federal government. Notaries are official and unbiased representatives of the government of Mexico, and are tasked, among many other things, with the authentication of legal documents, calculations of capital gains taxes, and the ratifying all of the countries real estate transactions.

Without a Notary (or the proper recording of the transaction in the Public Registry), any ratified real estate transaction will be considered invalid and un-enforceable.

What do Notaries do in Real Estate Transactions?

Notaries are equally responsible to Buyers and Sellers during these transactions. However, they are ultimately responsible to the Mexican government. Notaries insure the legality of title transfers, and calculate and retain the Seller’s capital gain tax on behalf of the government, collecting 2% Acquisition Tax and paying it to the Department of Foreign Affairs (along with coordination of appraisals, certificates of no liens, of no debt, and requesting all corresponding permits).

After closing, the Notary records the transaction in the Public Registry and the Cadastral (Tax) Office. Notaries charge a fee for this service, varying depending on the value of the property.

What is a Trustee Bank?

The Trustee Bank is the Fiduciario, a Bank authorized by the Mexican government to act as Trustee. These banks must be registered into the financial institution (with an established trust department). It should be noted however, that properties held in trust are not bank assets and the size of the bank is not always a sign of a better service.

As the Buyer, you have the right to select any qualified Bank. However, the Notary is also in the right to help you when deciding on the Trustee Bank. The Notary will often look for one with a local empowered Trustee Officer, in order to achieve the closing more efficiently. As of time of writing, Los Cabos has the following operating Trustee Banks: BBVA, Bancomer, Banco Interacciones, Scotiabank Inverlat, S.A., HSBC, Santander Serfin.

Does my trustee bank option matter?

Since the Trustee Bank Officer’s signature is required at closing, litigation and at time of sale of the property, it is wise to know of the availability of said person.

When choosing a Trustee Bank, the Notary will always look for the Trustee Bank’s empowered officer. It is most important to have the officer located in or near Los Cabos, as well as the current Trustee of the property, just in the case of an assignment of rights of the existing bank trust. 

If such is the case, the Notary will use the Trustee Bank that holds the property in trust (which happens mostly during private resale of a property).

Is my property an asset of the bank?

Property held in trust or Fideicomiso is not an asset of the bank. In the exceptional case that the bank goes into financial troubles, the property goes to another Trustee Bank, as dictated and imposed by Federal Law.

What if the bank files for bankruptcy?

Nothing, nothing at all. As mentioned before, properties under a trust to acquire property in the Mexican Restricted Zone cannot be part of Bank Assets and will simply be passed on to another Trustee Bank.

How do I title my property?

A purchaser may title the property just like any other property in the USA: either via individual names, joint tenancy or tenants in-common, another individual or family trust, any LLC or US corporation, etc.

Often times, this is better determined by the Purchaser’s accounting advisors, as tax and legal consequences in Mexico are the same for a foreigner regardless of property title.

Can I title my property with a Mexican Company?

Yes you can, and it can be held fee-simple (no Fideicomiso). However, you should know that it is illegal for a foreigner to own property like this for residential purposes. It is recommended then, that you discuss this option with your legal counsel, and financial advisors, prior to taking such a decision.

Why are in-house Closing Officers so important?

We employ a Closing Coordinator to watch over the integrity of the transaction. Much like a title/escrow agent in the USA, the Closing Coordinator is tasked with the handling of all aspects of the sale, working with Purchaser, Seller, respective legal counsel/representatives on performing the following:

  1. Preparing the escrow agreement and instructions (to be signed by Buyer and Seller).
  2. Act as liaison between Buyer, Seller and Mexican Notary.
  3. Collecting all documentation required from Buyer and Seller.
  4. Coordinating the completion of all due diligence requirements.
  5. Coordinating and confirming all deposits to escrow.
  6. Obtaining all title commitments and title insurance (on behalf of Buyer).
  7. Creating and providing the final closing statements, prorates, and escrow instructions.
  8. Providing you with a final closing binder, with your trust, final statements, receipts, executed agreements (copies) and all documentation related to the closing process.

When do I get the title of my property?

When the title is signed by all parties in the operation: Purchaser, Seller, Notary and Trustee Officer. Once that is done, the Title is officially and irrevocably transferred.

Do note that the Notary must record the newly transferred deed for public record. Said process takes about three months after closing and once recorder in the local tax office and public registry, the Notary will prepare the final statements. These include the fully registered deed, submitted to the title insurance company, and the final closing package, forwarded to the Real Estate Closing Officer (who will then forward it to the Buyer).

When do I get the title of my property?

When the title is signed by all parties in the operation: Purchaser, Seller, Notary and Trustee Officer. Once that is done, the Title is officially and irrevocably transferred.

Do note that the Notary must record the newly transferred deed for public record. Said process takes about three months after closing and once recorder in the local tax office and public registry, the Notary will prepare the final statements. These include the fully registered deed, submitted to the title insurance company, and the final closing package, forwarded to the Real Estate Closing Officer (who will then forward it to the Buyer).

What does the final closing package include?

  1. Deed of the title (Fideicomiso)
  2. English translation of the deed of title
  3. Copies of executed Purchase Agreements
  4. Final Closing Statements and Receipts (Facturas)
  5. Copies of the CC and R’s of the Development
  6. Information on how to pay your annual bank trust fees and property taxes (along with any other information or due diligence materials requested).

When do I pay the Seller?

Funds in your escrow account stay there until the trust (Fideicomiso) is fully executed and the ownership transfer is completed. Once fully executed, all funds required to pay the Seller release in accordance with the disbursement instructions accorded by Buyer and Seller.

What type of escrow is opened finding a property?

A limited escrow opens after the purchase contract is signed to receive deposits from the Trustee, Lender and Notario.

Why is third Party Escrow so important in Mexico?

Escrow is not currently recognized in Mexico (formally). Many area Brokers use basic checking accounts to call escrow accounts. This however, is not a safe way to operate, since the Broker has full control over the release of funds.

This reason is why we recommend a third party escrow for Mexican transactions. In a true escrow account, only the Purchaser and Seller can perform or allow the release of funds. These conditions of release are agreed to in disbursement instructions, signed by both Buyer and Seller.

How long does Closing Process take?

In Los Cabos, most cases take about 60 working days for a cash transaction or 90 working days for transactions involving financing. Do note however, that due to Mexican Holidays and permit delays, delays may occur every now and then. Such delays are not considered defaults by Buyer and Seller (being events beyond their control).

What does “closing date” even mean?

Closing Date is the established date in the Promise to Purchase. However, do remember that the he closing date is the “target” closing date, and the actual closing date is determined by the Notary (due to the many variables of a Mexican closing, ranging from Permit Delays, Holidays, Bank Trustees, Government Offices, etc.).

Who are the parties involved in the purchase?

  1. Buyer, Realtor and/or Legal Counsel
  2. Seller, Realtor and/or Legal Counsel
  3. Real Estate Closing Officer
  4. Escrow Agent
  5. Notary
  6. Trustee Bank
  7. The Lender*
  8. The Loan Officer*
  9. The Appraiser*

*If financing is involved.

Do I need to be present during closing?

No in most cases. The Notary will prepare a simple bank instruction letter, with a specific power of attorney for the Purchaser and Seller to sign remotely. The letters will advise the trustee bank of the party’s individual intentions with regards to the purchase and sale of the property, directing the trustee to act on their behalf.

This letter comes attached to the Fideicomiso at closing, taking the place of the parties signatures.

What are the closing costs in Mexico?

Much different from the US. The largest portion is the mandatory 2% Accquisition Tax paid by the Buyer (for all real estate accquisitions), with other costs including notary fees, permits, certificates, appraisal, etc. Depending on the price, closing costs can go from 3.5% to 6% of the purchase price. Closing costs are also deductible expenses when selling your property.

What are 2 Important closing facts you should remember?

  1. In Mexico, the burden of transferring title is on the Purchaser, not the Seller. The Seller has no responsibility in the sales process with the exception to their legal fees and payment of capital gain tax. As such, all costs for closing are of the Purchaser’s expense, and all the expense’s receipts issued are deductible for the Purchaser (which will eventually become the Purchaser’s future capital gain tax, if you ever happen to sell the property).
  2. In the USA, your closing would be likely overseen by a title company, which would charge a minimum shared fee. In Mexico however, the title is transferred by the Notary; who acts on behalf of the state and federal government.

The Notary is responsible for the transfer of title, maintaining it on file and recording the documents with the public registry, tax offices and so on. The Notary is also responsible for the payments of all related taxes and fees.

The Notary’s fees are charged based on an established grid provided by the Mexican government. Said grid is based on the purchase price.

Where is the title registered?

In the local Public Registry Office. Catastral, the local tax office, is also updated with owner info once the title is finally transferred.

What is the Public Registry?

Known locally as Registro Publico, the Public Registry is the Registry of Public Properties. It maintains records of ownerships of all properties in the municipality, and any contract will not be validated until it has been properly registered.

Is personal information held in the Public Record?

The owner’s name is of public record. However, everything else is kept confidential by the Trustee Bank and the Notary.

Annual taxes?

Property taxes (Impuestos Prediales) are the only taxes due annualy in Los Cabos. These municipal taxes are published at the end of the month of January and must be paid at the local tax offices. These are located in San Jose del Cabo, next to the fire department, and in Cabo San Lucas in the municipality offices. If the payment is done by the end of febuary, you may become eligible for a 10% discount benefit.

Are any of the taxes paid in this process deductible in the USA?

Yes. Thanks to NAFTA, the federal tax and the Seller’s capital gains can be credited in the US. Any other (possible) deductible fees or taxes need to be discussed with your national financial advisors.

What is a factura?

An official, tax-deductible invoice issued by a Mexican company/individual. The facture is the only receipt in Mexico that is tax deductible. It is a customized, printed invoice, which can be identified by the red factura number located in the upper right hand corner, the payee’s tax ID number, and the seal (known as Cedula) placed in the bottom left corner of the factura.

The receipt requires the paying party to pay an additional 10% of IVA for the value of any goods and/or services.