Buying Restricted-Zone (Coastal and border zone) property
Here are a few of the major things that I think any prospective foreign buyer of restricted-zone (meaning coastal or border zone) real estate should know, with appropriate caveats as to my amateur status.
I'm not an attorney (and I don't even play one on TV), but I've been through a couple of real estate deals in the Puerto Vallarta area, and gone to the brink on several others. Consequently, I've become intrigued by, and thus studied fairly thoroughly, the restricted-zone purchase process. But, your readers should always consult with a local notario publico (government-appointed real estate attorney; more on how they work below) about the specifics of their situations.
First, as most folks are aware, Mexican residential property in the coastal or border zones can be legally purchased byforeigners, but only through the fideicomiso (bank trust) method set up expressly for this purpose by the federal government. The trusts are for 50 years, and are automatically renewable (for a nominal fee) at the end of the term. As primary beneficiary of the trust, you have essentially all the rights of fee-simple ownership, including the right to name an heir. (Your heir, or "secondary beneficiary" is written into the trust at inception-thus avoiding probate. Very efficient.) You may improve, rent out or sell the property, as you desire. The only major condition is that the property continue to be used for residential, as opposed to commercial, purposes.
Generally, as you shop around, consider only already-deeded (escriturado) property. And beware of two potentially risky areas that have brought a lot of heartache to foreign buyers: developer-financed property and ejido property.
You should be extremely cautious about contracting for developer-financed property. Increasingly, developers are legitimate, and structure things so that your investment is protected, even if they go belly-up. But, unfortunately, many developers are still much more sloppy -- with often disastrous results for the buyer. On the blithe advice of the developer, too many folks rely solely on their "installment purchase contract," only to find years later, after making that last payment, that the developer has gone bust. The contract, which was never a legal transfer under Mexican law, is now completely worthless. The buyers have lost all their investment, and have no recourse.
If you do purchase developer-financed property, have a local notario publico (again, more on this below) examine every aspect of the deal before you sign anything. Follow your notario's advice. Don't rely on the developer's assurance that, "No hay problema," or the cynical pressure of, "What's wrong? Don't you trust us? You're just a nervous gringo!"
Other gringos often make the mistake (in my opinion) of "purchasing" ejido (non regularized, non-deeded,) communal property. This is cheaper, because it carries great risk. It is technically not even legal for the ejido to sell property to a foreigner, but it is often done nonetheless. Sometimes the ejido is able to "regularize" and deed the property after the fact; often it isn't. You can never be certain if it will work out or not. In rare cases, the ejido votes to reclaim the land (along with any improvements you may have made). When that happens, there is nothing the foreigner can do because, strictly speaking, you don't have a legal leg to stand on.
But not to worry - most of the property available to foreigners in developed coastal zones is deeded property. Lately however, more realtors are pushing low-end, ejido property. Naturally, most will assure you, "Don't worry, it'll be deeded to you eventually. No hay problema." Pues, tal vez. Maybe it will and maybe it won't.
All legal real estate transfers must be handled by a notario's office. This works to protect both parties. Each notario is a specially trained and government-appointed attorney, charged with handling real estate deals in a manner fair to both sides. Most notario offices are busy, highly professional places, with assistant attorneys and several secretaries on staff. Generally, an area has several notarios to choose from. For example, PV has four or five, and Bucerias has two. (By the way, you should comparison shop for a notario. Their fees are set by law, but there is some wiggle room. They will give you an itemized estimate of all closing costs on request.)
Contracts, especially real estate, are their raison d'etre. You do not, generally, need your own "outside" attorney to represent you. In fact, private, non-notario attorneys are notorious for balling up the works. Out of ignorance, we made this mistake when we bought Villa Hadley five years ago. We paid a lot of money to a non notario attorneywho did absolutely nothing, except waste our money and time. To clarify; you won't necessarily work directly with the notario himself -- most likely you'll work primarily with one of his staff attorneys. That's perfectly adequate.
Once your offer has been made and accepted verbally, or on your realtor's contract form, you should have a formal sales contract drawn up to really nail things down. It is best to use a notario-prepared and witnessed "Contrato de Compraventa Definitiva" -- a definitive and legally binding sales contract -- from which neither party can back out without penalties. This will require you, the buyer, to place a ten percent deposit in escrowed-in-trust funds. The notario office then does all the paperwork to prepare for closing, which usually takes about six weeks. They do the title search, set up your foreign ownership trust with a bank, and ensure that there are no oustanding liens or encumbrances. Finally, when all is ready, they will host the closing in their office. At the moment of transfer of the balance of funds, the seller signs the 'escritura' (deed) over to the buyer. "Trato hecho." (Done deal.) You'll get a preliminary copy of your 'escritura' on the spot, and in a couple of months, a final copy reflecting that it has now been recorded in the public registry.
The closing costs vary, but as a rule of thumb, buyer's closing costs run about six to seven percent of the purchase price. That includes your first-year trust fee; the fee to the notario for handling it all; foreign permit; appraisal fees; etc. (If you happen to buy from another foreigner -- and assume the existing trust -- you can save a few hundred dollars or more in closing costs.)
Traditionally, and even now, the vast majority of deals in Mexico are cash deals. In other words, mortgages are not widely available and thus not involved. Lately, a few US companies are offering dollar-based mortgages on Mexican property. But, the rates are fairly steep. High rates, 5-20 years amortization.
A few owner-carry situations can be found. Generally, these are 3- to 5-year contracts. This can be really sticky if problems arise. Especially if both parties are foreigners. Litigation here drags on forever, and if both litigants live outside the country -- well, what a mess.
Some good news: Property taxes, even in PV, are stunningly low. On a $200,000 (US dollars) house, expect to pay the equivalent of well under $100 (yes, one-hundred) US a year. However, as a foreigner, you will also have to pay an annual trust maintenance fee to the bank that holds title-in-trust (the fideicomiso) to your property. This averages around $400-500 (US) yearly.
In sum, purchasing coastal-zone property can seem complex and confusing. But so long as you involve a notario from the get-go, your rights will be protected.
Lorena's Note: Also read our extensive interview with Robert & Deborah about living in Puerto Vallarta at Villa Hadley (Villa Hadley is now for sale)