Mexico Information
Much has been written about the kidnappings, roadside hijackings, crooked cops and ever the infamous bandidos in some of the regions of Mexico. Most of the violence in Mexico is directly related to the drug cartels – some in the community of Culiacan - and the authorities who are trying to eradicate them. Keep in mind that there is absolutely no pattern of any innocent U.S. citizens being randomly murdered in drug violence.
Though much of the violence occurs in border towns, even Tijuana is much safer than the most dangerous cities in the United States. If you use common sense and don’t purposely place yourself in any danger, your stay will most likely be wonderful and without any incident. Mexico needs and wants tourism, and the country is doing a much better job protecting foreigners.
Let’s remember that the United States is plagued with inner-city crime. Guns are commonly used in the U.S., (they are against the law in Mexico) and convenience store clerks should receive combat pay. Tourists in the States also are attacked, often with more violent consequences than are found in many "uncivilized" countries.
While kidnapping has been a problem faced by some wealthy Mexicans, it rarely is a problem for tourists. There have been a few cases of tourists being forced to withdraw money from an ATM in the evening and then held until after midnight when a second withdrawal could be made. And, this situation can happen in the evening in any country.
Mexico is still a relatively safe place to live and visit. However, some “gringos” leave their brains at the border and behave as if all of Mexico is a safety zone – acting totally differently than they would back home. Public drinking may be tolerated, and even encouraged in many Mexican tourist destinations, but public intoxication can easily lead to a spectacle and arrest. As anywhere on earth, think twice before walking home alone at 3 a.m. Play it safe and smart, no matter where you are.
Popular Recreation, Retirement and Investment
Mexico has become a popular location to own a recreation, retirement or investment property. Many people from around the world — and especially the United States and Canada — are actively buying real estate in Mexico. In recent years Mexico become an attractive place to invest. Most of us know at least one person who has recently visited Mexico or who has made a real estate investment in the country.
Here are several reasons behind this trend:
- The prices of Mexico properties are often favorable in comparison with other destinations. And, with more and more people discovering Mexico, many experts believe the long-term investment prospects remain attractive.
- Mexico’s culture and services are increasingly welcoming of foreigners. While Spanish remains the primary language in Mexico it is also true that more and more people speak English, enabling Americans and Canadians to have a more comfortable experience. These days it is not uncommon to encounter a Home Depot, Starbucks, McDonald’s and other “American” brands while in Mexico. Cell phone service, Internet and Wi-Fi are also increasingly common in the more popular locations. All in all, Mexico feels more like accessible and comfortable than in the past.
- Over 70 million people in the United States are now over 50 years old. This segment of the population is prone to seek vacation homes, retirement locations and real estate investments. There is also more wealth worldwide than ever before and much of this wealth prefers to invest in real estate. As more and more people invest in Mexico additional services are built to support this trend. As this occurs, it often makes Mexico even more appealing to new investors.
- The long-term future of Mexico looks promising. The country itself is becoming stronger economically and the opportunity for long-term real estate appreciation in most regions continues to be favorable.
- Mexico's warmer climate is attractive to many from the United States, Canada and other foreign locations. For decades many people have enjoyed vacationing in Mexico. "Purchasing" property is the natural next step.
- Over 1 million North Americans now own Mexican property. Along with residents who have moved from other countries this large population has proved the safety and viability of life in Mexico.
- Most of the popular destinations in Mexico offer an array of interesting and fun things to do. From beach life and fishing to golf and tennis most people are excited at the numerous ways one can recreate in Mexico. Those who enjoy exploring the rich history and culture of Mexico find endless opportunities to explore – each region has its own unique opportunities. And, of course, many people find that Mexico is the perfect destination for simple rest and relaxation.
- There is growing inventory of condos, villas, homes and land plus a wide selection of resorts and developments with extensive amenities. This provides a steady supply of inventory for interested buyers and investors.
As you can see it is no surprise that Mexico provides an increasingly attractive location for Americans, Canadians and other foreigners. Most experts believe that Mexico real estate provides an attractive opportunity for both investment and enjoyment for decades to come.
Defining the Mexican Restricted Zone
What is the “restricted zone”?— As defined under the Mexican Constitution, the restricted zone is the area 100 kilometers from any Mexican border, and 50 kilometers inland from any coastline. Because it is so long and narrow, the entire Baja peninsula is considered to be in the restricted zone and the Mexican bank trust (fideicomiso) is required for any non-Mexican acquiring property for third-party residential use.
What is a fideicomiso?—The fideicomiso, or trust, is not only one of the most misunderstood legal instruments but also one of the most dynamic. The fideicomiso is the vehicle used by the government to exercise its discretionary power permitting foreigners to acquire ownership rights to real estate within the “restricted areas” of Mexico, granting the trustee (a Mexican bank), legal title to the property for a determined period of time.
The parties to a fideicomiso are:
- The seller (fideicominte)
- The trustee (the Mexican bank - fiduciario)
- The beneficiary (buyer - fideicomisario)
As trustee, the Mexican bank acts on behalf of the foreign beneficiary in any and all transactions involving the property held in fideicomiso. However, the beneficiary retains the use and control of the property and makes the investment decisions regarding it. The beneficiary has the right to use, mortgage, encumber, improve, lease without limitation and sell without restrictions and to pass the property to named heirs. In essence, the beneficiary has the same absolute rights to use, benefit and enjoy the property as if it were in fee simple (direct) ownership.
Understanding Ejido Land
For years foreign purchasers have been persuaded to “purchase” ejido parcels or beach front lots without fully understanding that they can’t legally own ejido property nor can the ejidatarios (those individuals who have the beneficiary interest in the land) legally sell it. Hence, all potential buyers of Mexican real estate should know the difference between private property and land described as ejido.
An ejido is an old communal farm formed when the campesinos (farmers) of every village in Mexico were given property to form a co-op. The Constitution of 1917 proclaimed that all land in Mexico would either be ejido (communal) or owned by Mexican nationals. The ejido is owned by no one and worked by everyone—not unlike a huge community “pea patch” in the United States that no single person owns yet many use as a garden to grow flowers and vegetables for whatever reason they please. However, in most cases, the ejido-cultivated land is divided into separate family holdings, which cannot be sold, although they can be handed down to heirs.
Article 27 of Mexico’s Constitution allows the federal government of the United Mexican States to create agrarian lands for the benefit of their citizens. With its constitutional inception in 1917, Mexico began the process to provide campesinos a beneficiary interest to land owned by the government. Entitled under La Ley Agraria (the Agrarian Law), these government parcels, known as “ejidos”, are recorded with the Registro Agrario Nacional (National Agrarian Registry) in Mexico City. The ejidatarios can live, farm, homestead and construct dwellings on the property but they do not own it. Under Agrarian Law, the ejidatarios cannot sell, lease, subdivide, joint venture, contribute, mortgage or encumber the property. As mentioned, they have the use and benefit of the land, but they do not have title to it.
In 1992, recognizing the inherent value ejidos presented because of their geographic, border or coastal location, coupled with the development potential they created, the Mexican government enacted a Constitutional Amendment in order to “regularize” agrarian lands.
Does the seller have legal title in Mexico?
The first thing a buyer must consider is whether the seller of the property has legal title to the property, and if so, whether the property can be legally transferred. Although this seems to be a logical and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. Very simply, the seller didn’t own the property or had not completed the required development procedures for the conveyance of the real estate.
A good example would be agrarian land (or ejido,) not properly regularized, or the conveyance of a condominium unit that does not have a recorded condominium regime (regimen de condominio) or even the sale of a lot or house in a residential subdivision (fraccionamiento) that does not have the required and published state/municipal development approvals. In any of these cases, the result is that the purchaser has paid money for the acquisition of the property but cannot receive legally recorded title or beneficiary interest in a Mexican bank trust.
How do I confirm that a seller has the right to sell?
An adequate title search of the property should be performed.
A buyer should always ask the seller for a copy of the escritura vesting title to the real estate.
The buyer should request a copy of the lien certificate (certificado de libertad de gravamen) on the property that should indicate the owner of record, surface area and classification of property type, the legal description and whether there are any liens or encumbrances filed of record against the property.
The buyer can also request a certificate of no tax liability (certificado de no aduedo) from the local taxing authority.
The notario publico is responsible for the title search in Mexican transactions. The notary typically only examines the current deed and a current lien certificate resulting in the possibility of a short or incomplete title history of the property. Today, there are U.S. title companies, as well as Mexican companies, that facilitate the title examination process on a more in-depth basis and issue either a Commitment for Title Insurance on Mexico Land or a title report from the Mexican company. A foreign purchaser always has the option of hiring Mexican counsel to provide a legal opinion on the status of title as well.
Checking basic Mexican tax issues
In the United States, American citizens may exclude the capital gain they realize when they sell their principal residence after occupying it for a period of not less then two years during the five years preceding the sale and meeting other specific IRS requirements. There is no federal income tax liability on up to $250,000 gain in U.S. dollars ($500,000 gain for joint filers) on the sale of their primary residence.
Mexico has a similar provision in its tax code for primary residences—even for U.S. citizens. The Mexico Tax Revenue Code (Código Fiscal de La Federación), states that Mexican nationals and foreign owners of a home in Mexico may be entitled to certain tax exemptions on the capital gain realized if the home is a primary residence. In fact, Mexico has no ceiling on the gain rendered by the sale of a primary residence, but U.S. citizens must stay within the $250,000–$500,000 limits, regardless of where their primary home is located.
The issue of capital gains tax has long been a troubling problem for many foreign purchasers of residential property in Mexico whether it is used as a residence or investment. Many sellers, whether Mexican or foreign, have tried to reduce their tax liability on the sale of a residence by using a lower “declared value” in the transaction rather than using the actual sales price. As a result, unknowing buyers can inherit additional tax consequences when they ultimately sell the home in question because their “basis” in the property is less than what they actually paid. For several years now, some real estate agents in Mexico have advised their non-Mexican clients not to worry about capital gains taxes because they would qualify for an exemption. They often advised the prospective buyer that he or she would be able to demonstrate to the local public notary (notario publico), who is responsible for the collection and payment of the capital gains tax, that the residence was their primary residence and therefore they qualify for the exemption. At the very least, this was misleading and poor advice to receive from a seller or real estate agent.
Summarizing Mexican closing costs
It is common practice for the buyer to pay the transfer or acquisition tax as well as all other closing costs, including the notary fees and expenses, and the seller pays capital gains tax and the broker’s commission.
Since January 1, 1996, the federal law regarding the real estate transfer tax, which was two percent for the entire Republic of Mexico, was modified in order to allow each of the Mexican states to determine its own tax. The range may be from one percent to four percent of the tax appraisal value, which is generally less than the sales value. The rest of the closing costs, which exclude the property transfer cost, may vary from three percent to five percent of the appraised tax value or more, depending on the particular state. These percentages are applied to the highest value of the following: the amount for which the property is sold, the value of the official tax appraisal, or the value designated by the property assessment authorities. Most real estate companies in Mexico charge a brokerage commission of five to seven percent, based on the actual sales price of the property. However, different area broker rates reflecting higher broker expenses may be found, such as in resort areas.
Based on the present tariff, the bank charges the person desiring to set up a real estate trust, or fideicomiso, an initial fee of approximately $500 for drawing up of the original trust agreement and establishing a trust, plus a percentage according to the value of the property. In addition, the bank charges an annual fee, depending on the value of the property, to cover its services as a trustee.
What exactly is FM status?
Mexico has crafted several different immigration designations and most of the major ones are part of the “FM” family. Most are for nonresidents who plan to stay fewer than six months.
The FM-T may be easily and continually renewed by simply leaving Mexico within the allotted six-month period, and then reentering.
The FM-3 is designed for persons who want to live at least part time in Mexico but do not necessarily intend to make it their permanent home. To be granted an FM-3 status, you must prove you have sufficient resources to be financially independent, or meet certain requirements to be able to work or own a business in Mexico. FM-3 rentista status has monthly income (from Social Security, investments, etc.) guidelines. If the applicant owns property in Mexico, the amount of income required is reduced by nearly one-half. An individual with FM-3 status is allowed to own foreign-plated vehicles and operate them in Mexico.
The FM-2 status is designed for those who intend to permanently reside in Mexico with requirements only slightly more stringent than FM-3 status. After five years of successfully meeting FM-2 requirements, an individual may apply for inmigrado status, which includes most of rights and privileges of a Mexican citizen. However, inmigrado status does not carry the right to vote and does not require the holder give up native citizenship. Holders may freely work and remain in Mexico without annual renewals.
There are restrictions on bringing and keeping foreign cars in Mexico. A valid driver’s license is all that is required to legally operate a car or truck. Typically, holders of FM-T and FM-3 immigration status are allowed to drive and keep foreign-plated vehicles for the length of time indicated on their visas. A permit can easily be obtained and renewed through the aduana (customs agents) at the border. A copy of the FM visa should be carried in the car at all times for verification. Skilled Mexican mechanics for maintenance and repair are available in every town but always ask local friends and sources for referrals.
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