26 August 2008 1,312 views One Comment

If you are in the market for a second home or vacation home, let’s face it, the US real estate market is not your best bet. On the other hand Mexico presents one the best international investments for real estate. Mexico was also ranked the World’s Top Retirement Haven by International Living in 2007. However you may have some fear of the unknown due to unfamiliarity with the real estate system in Mexico. While there is nothing wrong with cautious investing, a little research will show you that the purchasing process and real estate system in Mexico is quite simple and doing a few simple things can minimize your risk.

Try Before You Buy
As with any big purchase it pays to do some first hand research on a particular area and property you are interested in. Spend some time experiencing what life is like and if the amenities are sufficient for your lifestyle. There a many little things that can affect your life satisfaction so it is wise to test the waters. Of course, always have a third-party also inspect the property for any issues that could jeopardize your investment.

Set up a Fideicomiso
The Mexican constitution restricts foreigners from owning land 50 km from the coast or 100 km from international borders. However the government recently amended the constitution to encourage foreign investment by allowing foreigners to own restricted land through a 50-year bank trust called a fideicomiso. Several major Mexican banks can set up a fideicomiso for you for a relatively low set-up and annual maintenance fee. A fideicomiso will legally grant you the same ownership rights of a Mexican citizen, except that the bank technically holds the title. This means you are free to inhabit, sell, lease, renovate or bequeath the property. It also provides some level legal protection because the government would have to take the property from the Mexican bank, most of which are foreign owned.

Use a Third Party Escrow
Never give earnest money to an agent or seller, unless you don’t expect to get it back. Instead hire a major U.S. title company that provides escrow services to hold your money and transfer it to the seller only when they have met their obligations.

Buy Title Insurance
While the notario publico, the government lawyer who is required to review documentation of a real estate transaction, is required to perform a title search, there is no guarantee that the notario publico’s findings are accurate. Title insurance companies can provide you insurance in the form of a contract of indemnity, meaning the title company will take on the liability if the title turns out to be invalid or if there are legal claims on the property by creditors.

Hire an Independent Attorney to Represent You
It is highly recommended to hire an English-speaking Mexican attorney who will work with the seller’s agent to draft the legal documentation to include the agreement of sale. Real estate agents in Mexico are not required to be licensed to sell real estate and because contracts are drafted in Spanish you may unknowingly sign something you don’t understand. It would be wise to have an attorney to represent your interests and guide you through the proper legal processes.

If you take these simple steps, you will have almost completely eliminated risk that the government will take your property over an ownership dispute. One word of caution is that the Mexican court system is notoriously slow and widespread corruption has been well documented. This makes getting title insurance even more important.

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