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As you
may know or noticed already, because of its beauty and weather,
Pátzcuaro has become an ideal place to live in, which has caused a
huge increase in the real estate prices, a high demand of properties
and a growth in the offer as well. Unfortunately, since more people are coming into
town, "risky business" are growing too, meaning that
some local people or foreigners (most of them working illegally in Mexico) are selling
/ renting properties.
An
easy purchase or one out of the law, can cause not only the local
ones to go into jail or the foreigner ones to be deported from Mexico,
but that your dream of own a
property in town to spend few months a year or the rest of your life,
could be frustrated forever as well just because of a blind trust in a
cheater.
So,
read the following carefully and always try to be sure of that those
offering you a property or a construction, if Mexicans, to be known
in the community as
trustable and honest people. If alien citizens, to have the proper permits that allows them
to make legal business in Mexico and of course to be trustable as
well.
PURCHASING PROPERTY IN MEXICO
WHAT DO I NEED?
One of
the most commonly asked questions is, "What Do I Need?" To purchase
you need a photo id, preferably your passport and the blue and white
tourist visa you received when you entered the country. Your T.R.E.G.
(The Real Estate Group) agent will take care of the rest!
IMMIGRATION
Once
you want to live in Mexico for more than six months at a time you
need to apply for your immigration papers, or FM3. The FM3 is easy
to obtain; you can do most of the paperwork yourself. The FM3 grants
nonimmigrant status and is applied for through the local immigration
office in Puerto Vallarta. The FM3 needs to be renewed on an annual
or annual basis. After holding your FM3 for 5 years you can then
apply for your FM2. The FM2 grants immigrant status and is applied
for through the Mexico City immigration office. These papers can
take awhile to be processed and you will probably need professional
assistance. Your T.R.E.G. agent can refer you to an attorney who can
assist you in obtaining these papers.
The
privileges of both a FM2 and FM3 are the same; however, there are a
few differences that you do need to be aware of. With an FM2 you are
only allowed to keep a foreign plated car for 5 years, after the 5
years the car will need to be sold out of the country. With an FM3
you can keep your foreign plated car for as long as you hold your
nonimmigrant status. When you have an FM2, you can not leave Mexico
for more than 18 months total in a 5-year period. There is no such
rule with your FM3 papers, you can come and go as you please.
You
may apply for your FM3 visa at your nearest Mexican consulate office
in the U.S. or you can wait to apply when you get to Mexico. It is
just as easy to wait until you come to Mexico. There are English
speaking people in the immigration office here in Mexico and there are local attorneys who will be more than happy to help you for a
small fee. You will need original or certified copies of your birth certificate and marriage license (if applicable). You will also need
to document the minimum income requirements. You will need to show
$1,000.00 U.S. dollars monthly income for each month you stay in
Mexico. You can provide paycheck stubs, or 3 months bank statements
showing reserves or a letter from social security showing your
retirement benefits. The reasoning behind this is to verify that you
can support yourself without working for the length of your stay.
You will also need to provide an address for where you will be living and proof of the address, such as phone, electric bill, or
the deed to your property. You will need to obtain passport photos
and have your documents translated from English to Spanish. In some
cases a visa holder is allowed to obtain work in Mexico. You will
need to find an employer who will sponsor you and ask for your
permission to work in Mexico. The biggest deciding factor when
immigration is granting permission for employment is whether or not
you are taking a job away from a Mexican National. Your FM2 or FM3
can also help you to avoid capital gains taxes when selling your
property. Once you have purchased your home, your immigration papers
will need to have the address of your property. If someone proves
they were living on their property for six months in Mexico, they
can avoid paying any type of capital gains. (This is usually done
with electric or phone bills) Warning, please apply for your
immigration papers early. It can take up to eight weeks to receive
your completed documents. Do not let your tourist visa papers expire
prior to receiving your FM3.
You
are allowed to bring your car across the border. However, there are
a few rules you need to follow. Once you reach the border you will
be stopped at a check point about 20 minutes inside of Mexico. There
you will need a certified copy of the car title or a certified letter from the lien holder that you have permission to cross the
border into Mexico. You will also need a credit card; there is a
small fee that must be paid on a credit card. You will then receive
your blue and white tourist visa and a sticker to place in the
window of your car. The sticker is to let the Mexican officials know
at a glance that your car is legal.
You
will also need to put on your border papers a list of everyone who
will be authorized to drive your car while in Mexico. Tourist visas are good for 6 months. So make sure when asked "how long will you be
in Mexico?" you receive all 6 months on your visa. This way you will
have enough time to reach your destination and apply for your
immigration papers. Then you will go through a border check where
they have the red light green light system just like the airport. If
you receive the red light you will be stopped and your car and belongings will be inspected. Be prepared to pay a duty tax on any
electronic equipment you bring across the border. Computers are a big question… laptops are acceptable to bring in; used stand-alone
computers are not allowed to cross the border. New computers in the
original box are "said" to be acceptable to bring across the border,
but you will have to pay tax. You can buy computers down here for a
reasonable price with all of the latest software. Remember to be
patient and understanding when dealing with the locals and any type
of border or check point official, the fastest way to slow a Mexican
down is to raise your voice.
HISTORY ON BUYING IN MEXICO
In
1917 despite all of the sparring between the Mexican government and
the Mexican rebels, Carranza got a convention together in Queretaro
to formulate political and social goals. The result was the
constitution of 1917. The constitution, among other things, gave communal or ejido land to every Mexican village. This land
was given by the government to the villages for use only and could
never be sold away to the highest bidder. All land was to be either
communal land for use only or owned by Mexican Nationals only. This
law was greatly placed in effect for the past problems with the
Spanish, French and Americans, controlling both land and waterways
in Mexico. In 1973, a constitutional amendment known as the Foreign
Investment Law allowed foreigners to purchase property anywhere in
Mexico, except in the restricted zone. The restricted zone, stated
in article 27, is 50 km (32 miles) from high tide and 100 km (64 miles) from any border. The largest problem with this amendment is
that most of the foreigners wanted to purchase specifically in the coastal and border areas. In January of 1994 NAFTA had been
finalized and President Bill Clinton gave a multibillion-dollar loan
to Mexico. In succession with NAFTA Mexico passed another amendment
to the constitution that foreigners could now own property in the restricted zone with a bank trust or fideicomiso. The trust system
circumvents the constitution allowing foreigners to legally own in
the restricted zone.
How
does a Trust deed work?
The
bank (know as the trustee) holds the trust deed for the person or
persons purchasing the property (know as the beneficiaries). This property is not part of the bank’s assets and cannot be subject to
any lien or attachment for any bank obligations The beneficiaries
has all ownership rights to the property and may sell, lease,
mortgage or pass on to their heirs as desired under law. A bank
trust is not a lease.
The
Mexican government established the trust agreement as a way of
protecting foreigners interested in owning property in Mexico. The
reasoning was that by making ownership pass through the trust
process, there would be an automatic review of the transaction to ensure it was legal and unencumbered. The bank is required to check
ownership, insurance and indebtedness of the property, providing further protection to the foreign owner. In the past numerous
foreigners have purchased property, illegally and with liens
unknowingly. At that time there was no way to protect the foreigners
because there was no check and balance system. With the new laws and
the influx of professional real estate agents your transactions are
now safe and protected. Please do not purchase property without a professional agent which is an AMPI member. Many people are lured
into "cheap beach front property", remember anything that seems too
good to be true probably is.
A
trust may be granted and extended in 50-year periods. If you
purchase property currently held in a trust deed, a new 50-year
period can be established or the existing trust deed may be assigned
to the purchaser. Trusts are renewable at any time by simple
application with the bank. It was never the intent that these
properties pass back to the government at the end of the trust
period. This is a common misconception and fear of most buyers. In
fact at the end of the 50-year period the owner has an additional 10
years to renew the trust with the bank.
Trustee Fees
There
is a fee of approximately $450.00 US dollars to open your trust
account and an annual fee as long as you have the trust. You need to
check with your TREG agent on actual fees to set up the trust as
they can vary from bank to bank. This fee pays for the paperwork and
government reporting on your behalf. To open your trust account you
will need your accepted offer for purchase, a photo ID and 10% of
the purchase price of your new home. At that time you will also
receive wiring instructions, to wire the remaining money into the
bank when you return home. Do not give anyone any money that is not
being handled by a bank escrow representative. You should sign a
bank contract with a banking official at the time you put down your
deposit. Your TREG agent with help you with setting up your escrow
account.
Taxation
Property taxes are very low in Mexico as a whole. The property tax –
known as predial is .1% of the assessed value. Taxes are paid annually, with the assessed value determined at the time of sale. If
you purchase a property of $100,000.00 US dollars your annual tax rate would be $100.00US dollars. The reason taxes are so low is due
to the fact that they have never been a source of revenue for the Mexican government.
The
Closing Process
The
closing process takes between 30 to 45 days. While you are waiting
to close your T.R.E.G. agent is working with the bank to set up your
escrow account, with the notary to prepare your legal deed and
closing papers and to check if there are any liens or problems with the title of the property. Closing costs are paid by the buyer and
are usually about 6%-8% of the purchase price. 2% sales tax to the Mexican government, 4% to other closing costs, such as title search,
attorneys fees, filing of all legal documents and closing deal. Ask your T.R.E.G. for a good faith estimate of the closing costs for
your purchase. The seller is responsible for his or her capital
gains tax and any real estate fees owed on the property at the time
of sale. The buyer does not have to be present at the time of sale.
However, a power of attorney will need to be given to T.R.E.G. to
help to execute the closing process for you.
The
Notary
The
notary is a government appointed official that helps to close and
educate you through the closing process. The notary represents a high level of legal standing and their services are required for the
transfer of real estate property. The Notary is the attorney of
record and the unbiased, official representative of the government.
A notary has a fiduciary responsibility to both parties and
sanctions the contract from a tax and legal point of view. A notary
must first be an attorney and then must take special instruction in
real estate law to become a notary. Once he has finished his
instruction the attorney must then be appointed by the government.
This "Notario designation" can also be taken away by the government
should he not follow the rules and regulations. Your T.R.E.G. agent
will refer you to a Notario that we know and trust.
PROPERTY OWNERSHIP THROUGH A CORPORATION
This
is a question that is very frequently asked. In 1994 change in the
Mexican Foreign Investment Law allowed a Mexican corporation to be
100% foreign owned. You are also, in a corporation, allowed to own
title, with out a bank trust, in a restricted zone. This is a great benefit for foreign business owners. However, this is not the answer
for everyone. Commercial property carries higher water, electric and
phone rates. You also are required to do additional government
reporting and tax payments. You can not own a single-family residence in a corporation. The government had cracked down on
purchasing property in a corporation unless it is actually for
business use. The trust deed is just as safe and less problems with
the government.
Maintaining Your Property
Many
property owners leave their property for some time during the year.
If you have a condo you pay your monthly fees and they will maintain
your property area. Homeowners should consider hiring a property
management agent to handle the upkeep and bills of your home while
you’re out of town for any length of time. T.R.E.G. has a list of
property management companies for this purpose, please ask your
sales agent for more information.
Insurance
There
are various types of insurance in Mexico. You can receive health,
life, auto and property insurance. The rates are relatively low and
should be purchased for your piece of mind. Your T.R.E.G. agent can
help you to set up your insurance policies and can refer you to a
reputable insurance company.
Financing
Real
estate transactions in Mexico have historically been all cash deals.
Recently, the Mexican market has been opened up to financing. There
are different types of financing available. We offer a choice of
finance companies which finance in Mexico. They can also help you with second home tax breaks in the U.S. As your Real Estate Company
we would also like to help and educate you on the financing of your
home so feel free to ask any question necessary. Ask your T.R.E.G.
agent to set up an appointment with the mortgage representative to
help handle all of your financing needs.
Obtaining Financing
To
start your loan process you will need to answer a few simple
questions.
Full
name:
Address:
Phone:
Fax:
Job
Title:
Years
on Job:
Job
Address:
Job
Phone:
Annual
Income:
Job
Title:
Years
on Job:
Job
Address:
Job
Phone:
Annual
Income:
Mortgage Loan:
Balance:
Monthly Payment:
Total
mo. Debts:
Checking/Savings
Balance:
Ira
Balance:
Stock/Bonds:
The
Closing Process
The
Agreement
Congratulations! The offer you have made has been accepted. Our
offer has been defined and redefined by our attorney. They are double columns and in English and in Spanish. In order for a
contract to be legal in Mexico, it must be written in Spanish.
However, we provided a side by side translation in English. We know
buying in a foreign country is very difficult, we go out of our way
to make you feel more comfortable. Once the offer is signed by both
parties (the buyer and the seller) and witnessed, you have a legal
contract.
Escrow
The
accepted offer is combined with a 10% of the purchase price deposit
(or earnest money). The funds are held in an escrow account set up
at the bank for you by your T.R.E.G. agent. We use the deposit
towards your closing cost. This money is used to start your closing
process by ordering all of your legal documents, appraisal, survey
and title search. The remaining money is held in your escrow account
until the day of signing the deed (or escritura).
Your Deed (Escritura)
In
order to obtain your deed, T.R.E.G. with the Notary (Notario) and
the bank escrow officer will work to complete the following steps:
-
Ensure the property is free and clear of all liens. This is
guaranteed by obtaining a non-lien certificate at time of
closing (Certificado de no Adeulo) from the treasury. Additional
checks are made to endure there are no outstanding water bills
or state taxes.
-
Obtain a permit from the Ministry of Foreign Affairs to
establish the trust deed.
-
Obtain the appraisal or the assessed value of the property.
-
Obtain a survey of the property.
-
Prepare all documents for both the buyer and the seller.
When
all of these items have been completed, the remaining balance should
be transferred into your escrow account. You will then issue a
letter of release to the bank, stating that the money is to be
released to the Notary for the signing of the deed. The letter will state how the money and the closing costs are to be dispersed. Your
T.R.E.G. agent will help you to write the letter and fax it for your approval. When the Notary disburses the money, you will then be the
proud owner of a home in Mexico!
Capital Gains Taxes
As
of January, 2007, the Capital gains laws have changed again.
*The
seller pays Capital Gains taxes at the time of closing. Capital
gains taxes are 28% of the difference between the purchase price and
the selling price or 25% of the sales price, whichever is the lowest,
with adjustments made for inflation. Your T.R.E.G. agent can assist
you in your tax planning.
To
avoid Capital Gains with the new law depends on interpretation of
the Notario handling the closing. Information we received from one
Notario is as follows to avoid gains:
Applies to Nationals and Foreigners:
*For a
foreigner you must have Inmigrado Status (FM2)
*You
must have lived in the primary residence at least 5 years to be
totally exempt.
*If
living less than 5 years at the property and the property is worth
less than approximately $500,000 USD, then the property will be
exempt from capital gains tax.
*If
living less than 5 years at the property and the property is worth
more than approximately $500,000 USD, then the capital gains will be
calculated on the amount of the gain between approximately $500,000
USD (exempt) and the price of the actual sale.
*Only
one property per year will be eligible for tax exemption.
However, things work a little slower and a lot different here. Do
not get frustrated; enjoy the education and the dream of your home
in Mexico.
At the
time of this page, we believe all information to be true, although
laws in Mexico do change, we can not be responsible for any changes
in the law, although will will try to keep this updated. It is best
to check with your notario before time of closing.
WORKING IN MEXICO
Is it legal for a foreigner to work in Mexico?
Yes, provided that you have the right permit. You
are not permitted to travel to Mexico, enter as a
tourist and seek gainful employment there. You must
have the correct migratory permits to do so before
you go.
Permits are gained from the Mexican Government and
are issued to people who are sponsored by companies
in Mexico (or foreign companies with Mexican
operations / subsidiaries), or by people with
specific skills required in Mexico. You can enter
Mexico to work for a foreign company provided that
you do not receive any remuneration directly from a
Mexican company or subsidiary.
Permits can also be arranged for investors (i.e.
setting up your own company), but you'll need to
invest 40,000 times the daily minimum salary* in
order to qualify. Casual investors (for example,
buying stocks on the Mexican Stock Exchange) can
also get resident permits, although as with direct
investment, you will need to invest the same amount
as above.
These mechanisms are in place to ensure that you
will not be: a) taking jobs that Mexican nationals
could otherwise have and/or; b) ensure that if you
don't have an immediate income, you have the means
to support yourself without relying on the Mexican
State in any way.
What kind of work can foreigners do?
The kind of work you do will depend on your
circumstances. If you are an employee of one of the
many large multi-national corporations that have
offices or manufacturing facilities in Mexico, you
may be assigned to the country for a specified
period of time, to report to the local management
and carry out duties according to your specialist
knowledge. In such circumstances, your company will
normally take care of all the necessary legal
paperwork and the logistics of the move to Mexico. You
show up at the office with a brief and work at what
it is you do best.
Some foreigners decide to move to Mexico and set up
a small business there: perhaps a bar or a
restaurant. Some people sell consulting services,
either in business development, and especially in IT
and Internet related fields.
Teaching English as a Foreign Language is a popular
work placement. You will need to hold the TEFL
certificate (as a minimum) and with it, you'll have
a chance to work in one of the many private schools
and language centers based in Mexico. Learning
English is an absolute requirement for Mexicans who
want a professional qualification. Most private
schools teach at least half of their lessons (including
math and sciences) in English.
Those with specialist skills and experience, plus
the relevant qualifications are more likely to
succeed in finding work than those who just show up
in the hope of 'casual' work in Mexico.
Some foreigners go to Mexico to take part in
community and social projects. By doing so, they
help local people by sharing their knowledge and
experience, while gaining unique and authentic
access to the local ways of life, culture and
language.
Do I have to reside in Mexico to work there?
Not necessarily; this will depend on your
circumstances and work requirements.
If the work you plan to undertake will only take a
few days or weeks, then you can use the business
section of the tourist card and enter into Mexico
without the need to complete additional paperwork
and pay special business visitor permit fees.
If your work requires you to be in Mexico several
months or years, then you will need to consider a
more permanent living arrangement.
What Permits do I need to legally work in Mexico?
There are various different kinds of work permits
available, depending on how long you want to stay
and for what purpose.
If I need to live in Mexico, what do I have to do to
get a permit?
Moving to Mexico from Western Europe, or the US/Canada
will be quite a complex logistical task, and forward
planning is essential, especially if you're working
there, and have a family to take with you.
For more
information about this matters visit:
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