Practitioner Code of Ethics

The Mexican Association of Real Estate Professionals (AMPI) has developed a Code of Ethics which must be observed by all members of that organization. Violation of the provisions may result in (1) a warning; (2) an admonition; (3) the temporary suspension of rights, or (4) expulsion from the Association. An Honor and Justice Commission oversees compliance.

Click here for the full Code of Ethics.

Entrance/Licensing Requirements

Currently Mexico does not have a license law though the states of Sonora , Sinaloa and Guanajuato require the registration of real estate practitioners. Agents working with clients in those states should verify local requirements for specifics.

In the rest of the country, there is no regulation of practitioners and any Mexican citizen can promote and offer real estate for sale. Non-Mexicans must obtain an immigration status permitting them to work in the field. This status could be a business visa for single transactions or the FM-3 (non-resident) or FM-2 (resident) status. Mexican Consulates in the U.S. and Canada can provide further information about the requirements for each different status.

No minimum educational requirements are in place though AMPI, the Mexican Real Estate Association, has signed agreements with The Normalization and Certificacion Board of Labor Competency (CONOCER) which establishes criteria and which tests basic proficiency in the subject matter. This is a new program which is being tested in Monterrey , Mexico and may be extended to the rest of the country.

Foreign Ownership

Fee simple ownership is permitted. No foreign relations permit is required but the deed must be recorded in the National Foreign Investment Registry located in Mexico City , in addition to standard recordation in the local property registry.

Non-Mexicans must obtain adequate immigration documents in order to promote and transact a real estate operation on behalf of others when the real property is located in Mexico . A real estate license issued in practitioner's state of residence will probably be required. Mexican Consulates can provide further information on the requirement.

For residential properties located in the interior of the country, NOT in the restricted zone:

Many foreigners acquiring property in the interior also put the property in trust in order to avoid the need for probate proceedings for the heirs. If no trust is used a Mexican will indicating disposition of the property is recommended.

For properties located within the “restricted” zone:

Article 27 of the Mexican Constitution of 1917 prohibits foreigners from owning residential real estate within thirty miles (50km.) of any coastline or sixty miles ( 100 km .) of either border. This area is known as the “restricted” zone.

In 1973, recognizing that many foreigners would enjoy owning a retirement or vacation home in Mexico, and would bring needed dollars to the country through such ownership, the Mexican bank trust, the fideicomiso, was established and approved for the purchase of real estate located in the restricted zone. For the first time since 1917, a non-Mexican could invest in a recreation or retirement home and feel safe that his or her investment was secure.

Under the bank trust, legal title is placed in the name of a Mexican bank, in trust, under a permit from the Secretary of Foreign Relations. The Mexican bank holds the title to the vacation or retirement home for the buyer/beneficiary of the trust, the non-Mexican who purchased the trust rights in the property. The bank administrates the property in accordance with the instructions of the buyer/beneficiary. The buyer/beneficiary enjoys the same rights of ownership as does a Mexican national. He may build on the property, tear down existing buildings, modify them, rent, lease or sell at anytime conforming only to internal bank regulations for this type of trust and to the general laws of the country established for all persons. Additionally, the beneficiary may finance the purchase and instruct the trustee bank to enter into the security agreement with the lender.

The trustee bank may not, without express written consent from the beneficiary, sell, transfer or encumber the property.

The beneficiary may name the parties he or she selects as co-beneficiaries and may name substitute beneficiaries upon death of the primary beneficiaries, thus avoiding probate in Mexico . Care must be taken however, in establishing the wording and terminology used in the succession of rights in conformance with applicable Mexican law.

A permit to establish a Mexican bank trust (fideicomiso) can now be obtained for a term of fifty years and can be renewed. In acquiring a property with an existing trust, the seller may assign the rights in the existing trust and the new buyer will enjoy the term established in the original trust permit. In other words, a trust established in 1995 will expire in 2045. Prior to 1993, the term of the trust was thirty years. Thus a trust established in 1990 would expire in 2010, unless extended or the original trust permit extinguished and a new permit obtained for fifty years.

The cost for the permit issued by the Secretary of Foreign Relations, including registration in the National Foreign Investment Registry is currently about $ 1,500.00 U.S. dlls. and bank trust administration fees generally range from $200. U.S. to $750. U.S. annually. There are other expenses involved in the acquisition of a property, however, and it is wise to request a written estimate prior to beginning the transfer process.

The Mexican corporation as a vehicle for acquisition of real property. Under the 1993 Foreign Investment Law, a corporation established in Mexico is considered as Mexican under the law, even if all the shareholders are foreigners. Thus a Mexican corporation with 100% foreign ownership can acquire real property in fee simple ownership, even in the “restricted” zone. This, however, is ONLY for non-residential property: a hotel, a restaurant or other type of commercial use property. Not only is it a violation of the foreign investment law to place a retirement or vacation home in the name of a Mexican corporation, but also it is generally more costly than through a trust due to the requirement for periodic tax declarations and taxes on corporate assets.

Land Registration System

Title investigations and the public registry. The Public Registry system in Mexico is not unlike that of the United States and Canada in that title, whether in trust or in fee simple ownership, must be registered in order to give notice to third parties as to the interest in the property. A certificate can be obtained from the Public Registry in the municipality where the property is located. This will provide information as to encumbrances on title. Title insurance is now also available in many parts of Mexico . Automated data bases are not available so an investigation of title requires review of each and every document in the chain of title. These documents should be available through the Public Registry in the municipality where the property is located but there are occasions when the Notary Public records should also be searched.

Since possession is a highly important factor in establishing ownership, a physical inspection of the property being considered is essential.

Closing Costs, Procedures and Parties involved in a transfer:

The costs involved to transfer property can range from 3% to 6% of the price of the property, depending upon total amount of the purchase and the value declared. The lower the purchase price, the higher the percentage of cost to price, due to certain fixed amount permits and costs. Following is an example of some of the steps involved in obtaining a registered title, and the costs for same. Costs will vary with the property and a written estimate should always be obtained prior to initiating the process.

Amount to be declared in the transaction:

Mexican law says that taxes must be paid on the higher of the following: purchase price OR appraised value. Since many appraisals are lower than the actual selling price, transfer taxes and subsequent property taxes may be considerably lower if the appraisal value is declared. Payment on this basis has taken place for many years in many parts of the country. It is, however, illegal. Should the buyer choose to pay taxes this way, it is vital to understand that: 1. it is violation of the law and 2. the tax base will be low for declaration of value in the property when it is resold.

If financing the property through an institutional lender, full value must be declared.

Official appraisal:. The appraisal must be made by an appraiser who is usually an architect or civil engineer and who is recognized as a Perito Valuador, Official Appraiser, by the property tax authorities in the municipality where the property is located . In most of the Mexican states there is a public appraisal entity which provides the “minimum legal value” of the property. If you buy a property under this amount, you will be subject to a capital gains tax. The official appraisal is required prior to completing any transfer of title. If an institutional lender is involved, a commercial appraisal may also be required. The official appraisal will generally cost $300. to 500. dlls. plus a modest amount paid to the public registry department for authorization of the appraisal.

A commercial appraisal will generally range from 0.1% to 0.3% of the total value of the property.

Foreign relations permits: If the property you are purchasing is already in a trust (fideicomiso) you may either: request assignment of the rights to you, or may request a new trust for fifty years. In either case, a permit from the Secretary of Foreign Relations is required and the new deed must be registered in the National Foreign Investment Registry. The difference in cost for the permit to establish a new trust and for a permit to assign rights is minimal. The factors to be considered are: 1. Remaining term of the existing trust - when will it need to be renewed?; and 2.-What are the annual bank fees under the existing trust?

If the permit has an unexpired term of less than thirty five or forty years and/or the annual bank administration fees are more than $500.00 U.S. dlls., it probably makes sense to obtain the permit for a new fifty year trust with a bank offering more attractive fees.

Notary fees - The Mexican Notary Public is an attorney who has practiced his profession for at least five years and has been appointed by the governor of the state in which he is practicing. His duties and obligations include; drafting of the deed, calculation of seller's capital gains taxes and buyer's acquisition taxes and to "give faith" to the validity of signatures. The persons signing before him must prove they are who they say they are. Because the responsibility and potential liability for the actions of the Mexican Notary Public are considerably higher than those of Notaries Public in the U.S. and Canada , the notary's fees will also be substantially higher than those charged on the other side of the border. These fees are based upon a rate schedule reviewed and approved annually by the College of Notaries Public and are tied to the amount declared in the property transfer.

I.V.A. - The Impuesto Sobre Valor Agregado (I.V.A.) is a value added tax which is charged on all services. It is currently 10% of the value of services provided in the Northern border cities, the Baja Peninsula and Quintana Roo, and 15% for services provided in the rest of Mexico . Many trustee banks are headquartered on mainland Mexico , thus the I.V.A. charged on their services will be 15%. IVA taxes must be paid on services provided by the Notary, the appraiser and any other professionals whose services are used.

Bank administration fees: If title to the property being acquired is in a bank trust there will be annual fees for the administration of same. Over the past few years there has been a substantial decrease in annual fees and it makes sense to shop around for the most favorable rate for the property being purchased if a new trust is contemplated. If an assignment, new rates may possibly also be negotiated. Traditionally, trustee banks have not sent annual statements. It is important to request a statement from your trustee bank at least ninety days prior to the anniversary of the trust and pay on time to avoid penalties, or to contract with a company providing this payment service.

Title search and insurance: In the recently formed state of Quintana Roo and Baja California Sur (changed from territories to states less than thirty years ago) and in some of the Southern states, there are few databases. In some other states such as Nuevo Leon, Coahuila, Jalisco, Mexico, Chihuahua, Guanajuato, Aguascalientes, etc. Databases are computarized and the title search process is easier. Two U.S. based companies are legally established and authorized by the Mexcian Insurance Commission to issue title policies to domestic and foreign investors. Title search and insurance is a highly important part of title acquisition.

Property taxes: are a municipal tax and income benefits the municipality. Typical rates for residential dwellings is 6.5 (pesos) per 1,000 and 13 per 1,000 for properties destined as rental units Vacant lots are rated at 26 per 1,000 with an increase of 2.6 per annum for each year there is no construction declared on the lot. Maximum amount is 52 per 1,000. Valuations for property tax purposes are generally made every two to three years or at the time of sale of a property. Property taxes must be brought current prior to transfer of the title. Since property taxes are voted by each state congress, the amounts stated above can vary from state to state.

Other Industry Professionals

Some lawyers become involved in the promotion and sale of real estate as a specialty, as do certified public accountants. A law or an accounting degree, however, is not a requirement for selling real estate in Mexico .

All deeds transferring title to real property must be executed before a Mexican Notary Public who is a quasi-public official appointed by the governor of the state in which the Notary Public is practising his profession. The notary must be an attorney and is responsible for the legal form of the deed, as well as the tax declarations which are required when a foreigner is involved as buyer or seller.

An appraisal made by an appraiser appointed by the local municipal government is also a requirement of transfer in many parts of the country.

Practitioner Dispute Resolution Systems

Through NAFTA, provisions have been set up for binding arbitration between the three signatory countries;.the U.S. , Mexico and Canada , at the government level, the company level, and at the individual level. Arbitration is carried out per the rules of one of the established arbitration commissions and provisions have been made for enforcement of the arbitration award in the applicable court of law if it becomes necessary. Should the losing party in the arbitration award choose not to honor the agreement made through arbitration, the applicable court will enforce the award.

Mexico 's arbitration law was enacted on July 22, 1993 and is contained in Articles 1415 through 1457 of the Mexican Code of Commerce. .

International arbitrations are governed by this law when they take place in Mexico . They are defined as arbitrations between parties who are residents of different countries or the place of the arbitration is located outside of the country in which the parties have their residency. The parties may specify the place of arbitration in their agreement. If this is not done, the statute specifies that the place which had the most substantial relationship of the agreement/litigation will be the place of arbitration. Many real estate practitioners are now suggesting that the arbitration clause be included in all contracts for the purchase and sale of real property.

Practitioner Services

The real estate agent is prepared to list and promote property for sale. More and more of them are marketing on the internet. While the basics of a fiduciary relationship is outlined in Article 267 of the Mexican Commerce Code, buyer and seller separate agency is not common in Mexico , most agents represent both parties. The foreign agent who wishes to represent his/her buyer should probably obtain a written agreement with the listing agent outlining duties and responsabilities of each agent and determine the method of payment of commission and amounts, at the beginning of the negotiations.

Property Marketing Systems

On line multiple listing systems are used in limited areas of Mexico and it is hoped that usage and cooperation with other agents will increase.

Referral Systems

At present Mexico does not have a national referral system, nor an official referral policy. Some franchises such as Century 21, Realty World and ReMax encourage transnational referrals but success is limited at this point since many Mexican practitioners are not yet accustomed to representing different parties and sharing commissions.

Remuneration

The real estate agent generally works on a commission basis, not a salary. Commission is generally paid by the seller at the time of buyer's signing final documents at the Notary Public office. It is important for cooperating agents to obtain a written agreement with the Seller's agent prior to closing of the transaction.

Escrow: (Handling of Trust Funds)

Traditionally, the buyer and seller have met at the Notary Public's office to sign the deed and to exchange funds and deliver possession of the property. With increasing sophistication in the marketplace, some agents have established trust accounts and manage third party funds for release upon the performance of conditions. Currently no bonds or errors and omissions insurance is available in Mexico to protect these funds.

Certain companies in the country have established escrow services as third party neutral agents. Some of them maintain principal escrow accounts in FDIC insured accounts in the United States . Since there is no Mexican government regulation of these companies or accounts, it is important to request references and track record if one is going to use their services.

Certain title insurance companies are now offering the escrow services through their U.S. based escrow accounts when used in conjunction with the issuance of a policy of title insurance.

Since agent management of third party funds is a new area in Mexico , it makes sense to check carefully on costs, operating procedures and reputation of those who will be handling the funds in a transnational operation.