CANADA

About Financing a Second Home

Historically, because of a lack of mortgage finance and high Mexican interest rates, Mexican real estate transactions were made in cash. Today obtaining a loan for a beachfront condo in Rocky Point is a new world.

Over the past few years the real estate finance industry in Mexico has dramatically improved. American buyers now have numerous mortgage options from both Mexican and American companies, offering market interest rates and terms comparable to those in the United States.

Changes in Mexican finance laws coupled with the advent of U.S. title insurance policies covering Mexican property, numerous publicly traded U.S. companies, including GE Capital and Textron are offering mortgages to foreign property owners in Mexico. Furthermore, the stability and value of Mexican mortgages has recently pushed the industry towards a secondary mortgage market. This move will open up international financing resources to desirable mortgages at reasonable rates, which will provide excellent values for foreign investors who execute real estate purchases.

Financing and Title Insurance

Over the past few years the real estate finance industry in Mexico has dramatically changed. Historically, because of a lack of mortgage finance and high Mexican interest rates, real estate transactions and purchases in Mexico were made in cash.

Changes in Mexican finance laws, and the availability of title insurance policies and mortgages from American companies, have made purchasing property in Mexico a more attractive, familiar and stable process for American buyers. The stability and steady increase in value of mortgages for Mexican property has created favorable conditions for an industry push into the secondary mortgage market. This move will open up international financing resources to desirable mortgages at reasonable rates, which ultimately provide excellent values for foreign investors who execute real estate purchases.

Buyers have numerous mortgage and title insurance options from a slew of both private and publicly held companies (many of which are Fortune 500 companies).

The title insurance companies in Puerto Penasco, Rocky Point include – but are not limited to: First American Title Company (NYSE: FAF) and Stewart Title (NYSE: STC). [*Tessoro at Las Conchas holds a master title insurance policy for our property with First American Title Company]

Mortgage companies doing business in Mexico offer market interest rates and terms comparable to those in the United States. The companies operating in Rocky Point (Puerto Peñasco, Mexico) include – but are not limited to: Finance North America; M&I Bank (NYSE: MI); Global Acceptance; and BBVA (of Spain). Many of these companies are backed by large U.S. financial institutions such as, GE Capital (NYSE: GE) and Textron Inc. (NYSE: TXT). The mortgage qualifying and application process (for American buyers) of these and other companies is nearly identical whether purchasing property in Mexico or the United States.

About Real Estate in Mexico

The Mexican real estate industry is similar in many ways to the highly advanced U.S. industry and continues to advance and develop. The real estate industry has been quick to take advantage of modern technology, paralleling the industry within the U.S. For instance, “Asociacion Mexicana de Profesionales Inmobilarios” or “A.M.P.I” is the largest national realtors association in Mexico and is quite similar to the National Association of Realtors (NAR) of the United States. The A.M.P.I. is expanding rapidly and regulates the industry, much like the NAR of the U.S.

Although the A.M.P.I. helps to regulate the real estate industry, there are currently no Government licensure laws regulating real estate brokerage and sales in Mexico. Anyone can, in effect, offer properties for sale in Mexico. Therefore, caution should be taken by potential buyers when preparing to purchase in Mexico. A potential buyer would be wise to check with the local Chamber of Commerce Associations, prominent law firm and/or seek references with regard to brokers and developments.

How can Foreigners own property in Mexico?

A common misconception is that foreigners cannot own real estate in Mexico. The likely source of this fallacy is misunderstanding and misinformation with regard to the “Restricted or Prohibited” zone.

Under certain conditions, non-residential property may be purchased and 100% owned by foreigners through a Mexican corporation. To accomplish this, the foreign-owned Mexican corporation must state in its by-laws that the corporation and its foreign owners accept and agree to be subject to Mexican laws, forfeiting their ability to invoke the laws of their native country. The real estate must also be registered with the Foreign Affairs Ministry as being used for non-residential residential activities. With those requirements met, a foreigner may directly acquire properties destined for tourist, commercial and industrial use.

The Mexican Constitution regulates ownership of land, and establishes the Restricted or Prohibited zone, and states,

within a zone of 100 kilometers along the border or 50 kilometers along the coast, a foreigner cannot acquire the direct ownership of the land.

This provision does not prohibit foreign ownership of land within this zone, but establishes that a foreigner or foreign corporation can obtain all the rights of ownership, but must do so through the use of a Fideicomiso or bank trust.

Purchase Process

Tessoro at Las Conchas strives to make your purchase with us as easy, hassle-free and rewarding as humanly possible-after all, happy customers are our best form of advertising.

To help make your purchase as smooth and worry-free as possible, our Sales Associates and Executives will help to educate you about purchasing in Mexico and will act as liaisons between you, your mortgage company (if you choose to mortgage) and the trust company of your choosing.

You can rest assured knowing that your purchase is being handled by Tessoro’s professional staff with a wide range of professional and educational experience and knowledge in areas as diverse as law, American real estate, Mexican real estate, and land development (Foreign and Domestic).
Reservation Process
The purchase process with Tessoro at Las Conchas begins with either the execution of a “Reservation Form” or “Promise of Trust Agreement”.

Tessoro offers all potential buyers the option of reserving a unit prior to executing the “Promise of Trust Agreement”. Upon signing a “Reservation Form” and providing Tessoro with a reservation deposit, you will receive a “Promise of Trust Agreement” to review and sign. Your reservation deposit will remain refundable for a period of fourteen (14) days from the day your unit was reserved. Upon the fourteenth day (or any time before), if you return to Tessoro the signed copy of the “Promise of Trust” agreement, your reservation deposit will be applied towards your down payment and your purchase transaction will be considered “open”. At any time before the end of the fourteenth day after signing the reservation form, if you decide not to proceed with the purchase, your check will be destroyed or returned to you-whichever you choose.
Promise of Trust Agreement
Your purchase transaction with Tessoro at Las Conchas will be “opened” after a written “Promise of Trust Agreement” (Offer to Sell and Purchase) has been reviewed and signed by both you and a Tessoro representative. From the day of execution, you will have an agreed upon amount of time in which to make your down payment.
Notario Publico-Notary Public
A Notario Publico (Notary Public) is a Mexican government appointed lawyer who receives education, training and certification beyond that of regular Mexican attorneys. Notarios process and certify all real estate transactions, including the review of all real estate closing documents, insuring the proper execution and transfer of property.

In addition to their real estate duties, Notarios are also responsible for handling all powers of attorney, the formation of corporations, will, official witnessing, etc., and is responsible for the related collection of taxes.
In connection with real estate transactions, the Notario, upon request, receives the following official documents, which by law are required for any transfer of property:

• A nonlien certificate from the Public Property Registry based on a complete title search.
• A statement from the Treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.
• An appraisal of the property for tax purposes.

Closing Costs
Upon closing, the buyer is responsible for paying the transfer or acquisition tax (ISAI) as well as all other closing costs, including the Notario fees and expenses. The seller is responsible for paying capital gains tax (ISR) on the transaction.

The total closing costs for the buyer of Mexican property are generally between 3 and 5 percent of the price of the property, based on the highest amount of the following:

• The amount for which the property is sold.
• The value of the official tax appraisal (generally less than the sales value).
• The value designated by the property assessment authorities.

“Escritura”- Official Deed
Normally, the Escritura or Official Deed is signed and certified by a Notario Publico or Notary Public when the balance is paid (by you or your mortgage company) and the property delivered. Generally, this process should take no more than 45 days.
Capital Gains Tax
The Capital Gains Tax in Mexico differs from that of the United States. In Mexico, the gain from the sale of property is considered as normal income and is taxed (without deductions or adjustments) at a rate of 35%. To determine the gain, the following costs and expenses are deducted from the official amount of the property sale:

• The original land cost and the depreciated construction cost, based on the number of years the property was held, adjusted for inflation according to the official consumer price indexes.
• Additions, modifications and improvements, but not maintenance, made on the property (construction), adjusted as above.
• Commissions paid to real estate brokers by the seller.

The closing costs, including all expenses, taxes and fees paid by the seller.

The Notario will retain the calculated gain after deductions and forward it to the Ministry of Finance and Public Credit. The seller will then deduct this amount agains his or her annual tax return, which becomes and adjustable tax credit in the U.S.
According to the IRS, if the seller has held the property as his or her primary residence, no capital gains tax is due.

What is a Fideicomiso?

A Fideicomiso is the equivalent of an American beneficial trust. Any foreigner or Mexican National can execute a Fideicomiso through a Mexican bank in order to purchase real estate anywhere in Mexico, including but not limited to areas within the Restricted Zone. To execute the Fideicomiso, the buyer requests a Mexican bank of his/her choice to act as a trustee on his/her behalf.

The bank then obtains a permit from the Ministry of Foreign Affairs to acquire the property in trust for the exclusive use of the buyer/beneficiary. The Fideicomiso is established for a maximum term of 50 years and can automatically be renewed for another 50 years and can automatically be renewed for another 50 years. During these periods, the foreign owner maintains all the rights of fee simple ownership, including the right to lease or transfer the title to any other party, including a pre-appointed heir or family member (thus establishing continuity of ownership in cases of will or estate plan execution).

Under a Fideicomiso, the bank is appointed as trustee and assumes full technical, legal and administrative supervision of the trust, with the task of protecting the interests of the buyer (beneficiary). As an added layer of security for the buyer/beneficiary, the Fideicomiso is not held by the trustee as an asset of the bank. Additionally, as a matter of law, during the period of the Fideicomiso, the foreign beneficiary is considered to be a Mexican National.

For many practical reasons, many foreigners as well as Mexican Nationals prefer to hold their property under a Fideicomiso, even in unrestricted zones.