Foreign ownership of real estate in México
Summary:
While foreigners can own property fee simple in the interior of México, including valuable sites in such tourist meccas as Guadalajara and Cuernavaca and the capitol of México itself, they are technically prohibited from holding title to property in the so-called "Prohibited Zone along the nation's coasts and borders. This restricted area, which was established under the Mexican Constitution, extends 100 kilometers (about 62 miles) deep along the coasts. This means that virtually all of Baja California is included in the "Prohibited Zone".
PLEASE REVIEW THE SECTIONS BELOW WHICH INCLUDE INFORMATION ABOUT EJIDO LAND, OWNERSHIP IN THE RESTRICTED ZONES AND THE INTERIOR OF THE COUNTRY.
Foreign ownership of real estate in México
CAN I BUY "EJIDO" LAND?
A very large part of Mexican real estate is classified as ejido land. Ejido land is not private property and cannot be bought and sold as if it were. However, since the constitutional reforms of 1992 ejido land now can be converted into private property and sold to third parties, including foreigners. The present article will briefly describe what an ejido is and how ejido land is classified as well as talk about the ways in which ejido land can be converted into private property.
WHAT IS AN EJIDO?
In general terms, an ejido is a collective group of people that live and work on a determined piece of property as a community. While the concept of the ejido in Mexico is prehispanic, most of the fundamental ideas and concepts that created what an ejido is today stem from the theories of democratic communism. Understanding this is very important when dealing with ejidos. Most people reading this article have grown up in a society based on democratic capitalism in which the individual and not the community determines what he or she is going to do. In a communistic society the community determines what it is going to do, including agreeing upon how the land they hold is to be used.
Taking into consideration the above, it is not hard to imagine the confusions that could exist when discussing ownership of ejido land. Most foreigners associate the word "ownership" with words such as "fee simple", "private property" "Adam Smith", while the ejidatarios idea would be more on the lines of "community rights", "right to use and enjoy", "governmental concession".
Until ejido land is converted to private property, foreigners cannot acquire "ownership" of ejido land in accordance with their understanding of the word "ownership".
Please remember:
1.- Ejido land cannot be sold to non-ejido members until it is converted into private property. There are exceptions where non-ejido members can acquire "posessionary" rights to ejido land, however the rules governing posessionary rights are not very secure, especially for foreigners. 2.- Foreigners cannot legally become ejidatarios.
3.- What an ejidatario understands as ownership is often times different than your understanding of ownership.
CAN EJIDO LAND BE CONVERTED INTO PRIVATE PROPERTY?
There are two principal ways in which ejido land can be converted into private property and they are as follows:
1.- By filing a suit based on prescriptive rights (adverse possession). This suit will only be productive when the person wanting to acquire title to ejido land can prove that he or she has possessed the land in good faith for 5 years or in bad faith for 10 years. Many professionals argue that this rule does not apply to foreigners. This article does not focus on converting ejido land into private property in this manner, however it should not be dismissed as a viable option.
The legal institutions of "prescriptive rights" or "adverse possession" are the methods of acquiring complete ownership rights to property, against the owner and other third parties, through possession of the property for an uninterrupted period of time. This time will be interrupted if the possession of the property is left or if the legal owner or a third party makes legal claims to the land. This method cannot be used if a contract exists between the owner and the person in possession of the property. Under the new Agrarian Law "prescriptive rights" can be used to acquire ownership to property. The "good faith", 5 year possession rule, in general terms, means that you have to possess the property for 5 years, be recognized locally as the owner, pay your property taxes and not know who the true owner is. The "bad faith" 10 year possession rule, in general terms, means that you have to possess the property for 10 years and you may or may not know who the owner is.
2.- By having the ejido agree to "certify" the rights of each person who owns or possesses land in the ejido and then convert the certificates to private property titles. In order to accomplish this the ejido must agree to enter and complete the following two procedures:
A.- PROCEDE.- PROCEDE or "Program of Certification of Ejido Rights" is a government procedure by means of which the government, upon the approval of the ejido, certifies the agrarian rights to land within the ejido. This is not an obligatory procedure and will only begin when the majority of the ejido agrees to enter into the procedure and the ejido does not have any legal conflicts that prohibit it from entering into the program. Some of the more common types of conflicts that inhibit an ejido from entering PROCEDE include: conflicting ejido boundaries, internal conflicts, pending litigation and determination of actual number of ejido members.
Once the ejido has agreed to enter into PROCEDE, the government at no expense to the ejido, will study the documents of the ejido and begin the often time long procedure of surveying the entire ejido. The surveying procedure often takes a long time due to the fact that each individual lot, parcel and common use land needs to be surveyed. These surveys are based on radiolocation points and GPS and the maps are registered with the corresponding governmental agencies.
Once the entire ejido is measured, an ejido meeting or "Asamblea" is called to assign each parcel and lot to the person the ejido recognizes as the owner. If there are areas in the ejido in conflict or that have not yet been assigned to a specific person, the ejido can agree to leave such area to be assigned at a later date. Once the land of the ejido has been assigned, the government will issue the certificates or titles that correspond to the land in questions. Certificates and titles are not synonyms and different rules apply to each one. One thing that must be understood is the fact that in accordance with laws governing ejidos there are three basic types of ejido land. These three types are land are classified as follows:
1.- "Solores" or lots and which are converted to private property through the PROCEDE procedure and do not require the "Dominio Pleno" procedure to be converted into private property titles.
2.- "Parcelas" or parcels. Through PROCEDE parcels are given "certificados parcelarios" or parcel certificates and which are governed by agrarian or ejido law until converted to private property titles through the "Dominio Pleno" procedure.
3.- "Uso Comun" or common use land. Common use land cannot be converted directly into private property titles but can be converted into either "Solares" or "Parcels".
As soon as the government has issued the majority of the ejido titles or certificates the second procedure which is called "Dominio Pleno" can begin and by means of which each individual ejidatario can convert his parcel certificate into a private property title.
B.- Domino Pleno.-
The Dominion Pleno procedure is much less involved than the PROCEDE procedure. Once the ejido legally can enter into Dominio Pleno, an ejido meeting has to be called and the members of the ejido have to agree that each individual ejido member can, from the date of the agreement, convert their parcel certificates into private property. This does not mean that from this moment on all the land in the ejido is now private property. The only thing that the approval of Dominio Pleno means is that each individual ejido member, whenever he or she feels it is convenient, can convert his or her parcel certificate into a private property title.
Once the parcel certificate is converted to a private property title and dully registered, the ejido member can sell to persons outside of the ejido, including foreigners, observing certain third party legal rights.
Please understand, even though the Dominio Pleno procedure is much less involved than the PROCEDE procedure, there are many formalities that must be observed. If these formalities are not observed the transfer of the corresponding property title could be declared null and void.
The fact that vast tracts of ejido land can now be converted into private property, coupled with the fact that recent reforms in Mexican legislation now allow foreigners to secure tile to land much easier add up to huge investment possibilities for people looking for security through real estate investment with the probability of large returns. Please contact me if you have any questions regarding the above or are interested in acquiring ejido property.
Foreign ownership of real estate in México
Four Ways to Hold Property in México´s coast lines ("prohibited zone")
The Mexican Bank Trust
The Mexican Bank Trust was created in 1971 to promote tourist and retirement investments along popular coastlines by Mexican President Echeverria, which authorized the 30-year Bank Trust program. This is the most secure method to hold real estate in Baja California.
Your Bank Trust must be established at an authorized Mexican Bank in their Trust Department.
In 1989 President Salinas mandated the 30 year Trust be extended for an additional 30 years. Then, December 27, 1993, President Salinas extended the Trusts from 30+30 year arrangement to the new 50+50 year time period. Bank Trusts are perpetually renewable.
The property you hold in a Bank Trust is yours to improve, build, sell, leave in your estate, etc. You'll enjoy all the same rights you have in your U.S. fee simple real estate via the Bank Trust.
When you decide to sell your home, in all probability, another foreign person will be purchasing your Trust Rights. Your buyer will have the required documents from you to instruct the Bank of the sale and the name will be changed that also includes your beneficiaries. Your Real Estate broker should assist in making g this name change after the closing has occurred.
If you sell your Trust Rights to a Mexican National, he has the option to take title in his name in the Trust or remove the property from the Trust and take title in "Escritura" (Mexican National form of Ownership). Sometimes the Mexican National will opt to pay the annual Trust fee and stay within the Master Trust, especially, if his most likely buyer would be another foreigner. Once he removes the property from the Master Trust, it is more expensive for the property to be placed in a New Trust for the buyer.
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The Mexican Corporation
In the last several years, this form has become popular, speacially with American attorneys. With this figure, you create a mexican corporation, which may be owned 100% by foreigners (you and your spouse, for example) and then the mexican corporation will own it 100%, in a fee simple deed, without the need of a Bank Trust
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The Mexican Land Lease
Nearly every day clients ask, "Can I get a 99 year land lease?" A land lease for more than 10 years is not legal and never has been. Not the 10 + 10 + 10 year arrangement, either.
If you enter into a 10 + 10 + 10 agreement with a Mexican landowner and at the end of the first 10 years the landowner decides he does not want to recognize that second 10-year lease you thought you had, he does not have to do so. You have no recourse, because you entered into that agreement which was designed to circumvent Mexican Law, thereby giving you no legal status to use the Mexican Court System.
If you lease land, the lease should be 9 years and 11 months to stay within the lease land laws. It is possible and perfectly legal for the Mexican land owner to give you a new 9 year 11 month lease at the end of your first 9 year 11 months and so on.
I only suggest Lease Land arrangement if you are:
Just be sure the total investment you are willing to pay for the structure on lease land is an amount you can average over a 10-year period and be willing to "walk away" from at the end of your first lease period of 9 years 11 months. That may not be the case, but know it could be the case given the property values rising in this area at such a rapid rate, especially large parcels.
Lease Land Fees
Land lease rents run about $150.00 to as much as $600.00 per month. Most leases have a "cost of living" adjustment at the end of your lease for the next lease term. Usually there's a 10% fee when you sell your structure that goes to the landowner and your buyer will probably have a nominal increase in the rent as well. Usually a 10% increase.
Federal Zone Concession
No one, including Mexican Nationals can own property in the Federal Zone, which applies to only beachfront property within 20 meters (about 66 feet) from the mean high tide line. This property is owned by the Mexican Federal Government under the Federal Maritime Land Zone Law. It is possible for foreigners and Mexicans to obtain use of the beach land for a reasonable fee under a concession granted from the Federal Government. This concession grants temporary use and, at the option of the Government, these concessions may be renewed for specific periods of time.
These fees very depending upon the use of that portion of the property, for instance, if you garden and landscape that part of the property, there could be no fee. If you have a deck, pool or patio in the Federal Zone the fee could be $50.00 a month. If all are part of your home are in the Federal Zone, the fee will be appropriately higher.
I personally do not recommend a 100% Federal Zone situation. If you have even 20% of your home under a Bank Trust and the balance in the Federal Zone with a concession, then you're covered. These concessions give you the right to enjoy the land and no one can come and build anything in front of you.
The Reason the Bank Trust Was Created
The Mexican Constitution does not allow foreign ownership in the Prohibited Zone because of the old fear of invasion by sea or by horse. Of course, invasions are not conducted that way today, so the Bank Trust was created as a vehicle to allow this ownership method without changes to the Constitution.
Tourism is the third largest industry for México. This law has been in effect now for 29 years with amendments to make your confidence more secure for your investment in order to continue attracting the tourism dollars.