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RULES FOR A SUCCESSFUL REAL ESTATE PURCHASE IN MEXICO

BUYING REAL ESTATE IN MEXICO

 

Mexico is a wonderful and very beautiful country.  If you  enjoy your visit you may begin to think about acquiring a bit of our paradise.  We have mountains, lakes, rivers, forests, deserts and seashore in Mexico.  We also have history, ancient cultures, handcrafts, folklore and many other wonderful things to share.

 

Buying property in ANY country can be stressful.  A property purchase in Mexico can be just as safe and secure as in the U.S. or Canada… IF it is done correctly!

 

Here are some guidelines for success in a real estate acquisition in Mexico:

 

  1. Be sure the agent you select to represent you is a member of AMPI, the Mexican National Real Estate Association. Ask for references, check them out. Be satisfied the person representing you is experienced in Mexican transactions.

 

  1. Insist that the person representing you, represent ONLY you, the buyer, and not also the seller unless you understand, agree to and sign an agency disclosure agreement.

 

  1. Consider only the purchase of PRIVATE property. Ejidal property is often offered at a far lower price but it cannot legally be sold or promised to be sold until it becomes private property.

 

  1. Be certain that you and your agent are dealing ONLY with the owner of record or his or her legitimate power of attorney. Insist upon receiving a copy of the seller’s deed as a condition of your offer.  If you  and /or your agent don’t understand Spanish, get it translated.

 

  1. . Avoid costly and time consuming litigation, insist upon including a binding arbitration  clause in your contracts with the seller and other parties involved.

 

  1. Get a title investigation and buy title insurance for the full amount of your purchase price. While the initial search may seem expensive for some areas, the title policy transfers risk to the insurance company, and minimizes yours as the buyer.

 

  1. Think carefully about how you acquire title in order to avoid or minimize probate and transfer costs in the future.
  2. Closing costs may run from 13% to 20% of the cost of a $50,000. dll. property! The multimillion dollar property will be about 3.5% of purchase price.  Certain costs are fixed regardless of value.  Be sure to budget for closing costs and get a full estimate in writing from the company supervising your transfer.

 

  1. The major portion of your payment for the property should be withheld or held in escrow until the deed has been signed by the seller and, if applicable, the bank trustee (if a fideicomiso).

 

  1. INSIST upon receiving a registered title document for your property. If the seller is financing the property, sign a document protecting his interests in the event of your default.  Be SURE you know the amount which is declared in your deed and understand the tax implications of same.

 

  1. Use an experienced neutral third party to supervise the transfer of title to you. 

                     

Rules2.articles. Copyright2003 2015. All rights reserved by Consultores Phoenix, S.C., and The Settlement Companyâ

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Arbitration and Mediation

RESOLVING REAL ESTATE PROBLEMS IN MEXICOTHROUGH MEDIATION AND ARBITRATION

 

Lawsuits, courts and attorneys cause headaches in any country.  Mexico is no different.  INEGI, the National Statistics Institute, says that there are 33,000 persons in Mexico City for each judge.  It isn’t really any better in other parts of the country.  We simply do not have enough courts and judges to listen to every complaint, legitimate or not, within a reasonable time.  The result is that reasonable claims may take years to be heard and then additional years to be resolved.  After that there is an appeal period that adds to the delay. Thus it is not unusual to hear of a civil complaint to force a seller to honor a real estate contract taking five, ten or even fifteen years to resolve.

 

Once resolved, attorney fees may take 30% to 50% of the award, in addition to the costs that have already been paid by the plaintiff.

 

Instituting a lawsuit can be a lose-lose proposition for everyone.

 

The good news is that we now have an alternative method of resolving disputes and enforcing them in Mexico.  Due to provisions in NAFTA, Mexico has modified its laws to permit Alternative Dispute Resolution and has provided for enforcement of arbitration awards in the courts.  Articles 1415 to 1463 of the Mexican Commercial Code provide the guidelines for resolving problems outside the courts and eliminating much of the delay and expense of a lawsuit.  The court authorities in Mexico now realize that all matters cannot always be resolved by government and they now realize and accept that the most economical and efficient resolutions may be obtained in a resolution arrived at outside of a court of law.

 

Alternative Dispute Resolution (ADR) has been practiced in the United States and Canada for many years and has become a highly successful and preferred method for settling conflicts by many.  The process is now receiving the approval and encouragement of the highest courts in Mexico which have set up separate departments to study and implement mediation and arbitration sections in the federal, state and local courts.

 

Instead of being forced into a lose-win situation, as is the case in a lawsuit which is confrontational by nature, in mediation, the parties may find areas of mutual interest and amicably settle their differences in a cost-effective and timely manner.   In addition to commercial and trade disputes, ADR has been highly successful in family and divorce matters and, even more, in real estate related matters.

 

Some basic elements:

 

MUTUAL CONSENT is a requirement.  In order for a problem to be submitted for resolution through mediation or arbitration, it is necessary that both the complaining party and the defending party agree to submit to arbitration.  This is often accomplished by inserting a special clause in the contract of purchase/sale or the deed before the notary public when real property is involved.  In this manner both parties have agreed prior to a conflict arising and do not have to argue about this point when the problem comes up.

 

MEDIATION first, then ARBITRATION:  Most clauses which provide the mutual consent will specify that a good faith attempt be made to settle the matter in an informal setting.  Agreements made through mediation are not binding upon the parties.  If the parties cannot reach a mutually agreeable solution, the matter goes to arbitration in a more formal setting.  The parties have the opportunity to approve or disapprove of the arbitrators and, generally, one to three arbitrators are called to hear the case, depending upon the wishes of the parties and the severity of the matter to be decided.  The decisions handed down by the Arbitrators are binding upon the parties and, should it become necessary, the courts will be called upon to enforce the judgments.

 

MEDIATORS and ARBITRATORS are generally professional people with legal background and/or expertise in the subject matter under consideration.

 

COSTS FOR MEDIATION, ARBITRATION are generally minimal in comparison with those involved in a lawsuit.  Normal charges will involve processing fees, hearing room rentals, hourly fees for the arbitrators and travel expenses as required as well as charges, as necessary for translators, copies, courier services and expert witnesses.

 

TIME CONCERNS  Since the arbitration and mediation services are private and run by business people, economy of effort and time is seen as an important portion of the equation for the success of the company supervising the arbitration and mediation services.  While a track record has yet to be established, it is anticipated that most mediation/arbitration services will be completed within a few months of filing the complaint.

 

Unquestionably, the number of conflicts and disagreements that are resolved through Alternative Dispute Resolution will increase considerably over the next few years.  Since it is will be far less expensive and quicker to solve problems in this manner, it may make sense to begin to include an arbitration clause in all of your real estate contracts now.

 

ABOUT THE AUTHOR:

            Linda Neil founded The Settlement Company® in 1991.  It is the original escrow company in Mexico and has successfully processed thousands of trusts and title transfers of Mexican real estate.  Mrs. Neil, a real estate broker licensed in California, has spent more than thirty-five years in Mexico in the development of real estate and related activities.  She frequently presents seminars on both sides of the border on the subject of real estate ownership in Mexico and is a member of AMPI, NAR and FIABCI.  She holds PROFECO Certificate 00065/96, The Settlement Company® handles transfers of properties and provides title insurance for properties located throughout Mexico. It specializes in the Virtual Closing®

 

Articles/arbitration and mediation  Copyright, 2003, 2005, 2008 2012- 2014  Consultores Phoenix, S.C. Reproduction prohibited without permission.

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Active Living, Assisted Living in Mexico

ACTIVE LIVING……ASSISTED LIVING

 

Is this a niche market that can help the Mexican real estate market come back?

 

By Linda Jones Neil

 

 

With millions of baby boomers reaching retirement age every day, the market for a lovely place to live with the security and services required is growing exponentially.

 

Many baby boomers no longer want the five bedroom home and quarter to half acre home in the suburbs.   Nor does the luxurious and prestigious home on the beach seem as attractive as it once was.  Too much work!   Too much upkeep! And too much money!  Today’s couple reaching retirement age is looking for an interesting and inviting place to live that promises outstanding value and something different!

 

Many are coming to recognize that Mexico with its lower cost of living, culture and tradition for caring, with outstanding medical services, may be the new place for Americans and Canadians looking for retirement.   Perhaps Mexico will no longer be just a vacation in an exotic place!

 

When the crisis really hit the U.S., many of the buyers of Mexican vacation properties left the market.   Their investment funds came from the stock market, 401 Ks and home equity.   These sources obviously dried up and the resort and vacation market hit bottom.    Prices, however, have not necessarily come down in the resort areas since many sellers do not have bank loans on their properties and are in a position to hold on to their properties until that market returns.

 

These properties may not sell soon, however.   There seems to be a feeling among those who suffered reverses in their portfolios that this time they will look for quality, value and security rather than plunk down money on an emotional and perhaps exotic purchase.

 

There is a delayed demand – many of those who left the property market in 2007 and 2008 did so because they were suffering devastating losses in U.S. investments.  Now that those markets are beginning to recuperate, it seems that the home or condominium for vacations, rentals, active retirement will be more attractive if of high quality, easily accessible and not exceed 200,000. to 300,000. USD in price. Also very desirable is the development that integrates the Mexican culture into its overall concept. The home away from home of yesteryear, insulated from the Mexican culture, may not be quite as attractive as it used to be.

 

What may be sought after in this new market is the development that offers Active Living and Aging in Place.   In other words, independent living modules, either separate homes or condominiums within a secure community with many activities available either on site or in the community: such as biking, hiking, fitness, swimming, crafts classes, music activities.  These activities are geared to the mature active adult who has always wanted time to do these things and can live independently.   Within the same community, however, are medical facilities, and increased services available such as the preparation of meals, home visits and so forth.   Different packages of services are available to fit the variouef levels and requirements and can be purchased from a hospitality company operating the development.

 

These independent living units can either be purchased or leased.   The move to assisted living will focus on  a more institutional environment which features everything from meal preparation to intensive care.

 

Under consideration at present in the U.S. government, is an initiative to permit Medicare benefits to extend to care received in Mexico.   Since health care costs are substantially less in Mexico for the same level of care, both the U.S. government and the patients will benefit.

 

In all cases, the successful Active Living to Assisted Care development will require excellent access to health facilities, airports for quick access by loved ones, and outstanding communications systems in the community.   There are perhaps a dozen cities in interior Mexico which may fit the bill for this new focus on sales to the foreign market.

 

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Active Living, 2009-2014 Copyright Consultores Phoenix, S.C. Reproduction prohibited without permission

 

 

ABOUT THE AUTHOR:

            Linda Neil, CIPS, SRES, RSPS, TRC, PIC, ePRO, is the founder of the settlement company â.  It is the first company in Mexico dedicated to counseling buyers and sellers and to supervising the closings and registrations of real estate for non-Mexicans.  The company supervises the transfer of titles, provides due diligence and legal services for buyers and sellers, as required, for properties and corporations holding real estate located anywhere in Mexico. The Settlement Company specializes in the Virtual Closing®     

 

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Agency and the Real Estate Agent

AGENCY and The Real Estate Agent –

            duties, obligations and professionalism in the performance of services.

 

by Linda Jones Neil

 

In real estate the party that represents a buyer and or a seller in the purchase or sale of a property, is called an agent.  In Mexico as in other countries of the world, the agent has a duty to treat his principal in an ethical and professional manner.  The obligation to represent the interests of his principal makes it very difficult for the conscientious agent to represent BOTH buyer and seller since the buyer wants to buy the property for the lowest price possible and the seller is looking for the greatest amount of money he can get for his property.

 

With this in mind, how can the conscientious agent honestly represent both parties?  Almost anyone will agree; there is a conflict of interest when anyone tries to fairly represent both sides of a transaction.

 

No matter how much we need or want the money that will come from a FULL commission, better to call in a colleague to represent one side or the other.  That way both share in the commission, both principals are honestly and fairly served and the agent will have clients who will recommend his or her services to other friends and acquaintances

 

It ends up being win-win for everyone!

 

To reinforce the relationship with buyer or seller clients it is important to understand and discuss this with the client; outline the responsibilities of the buyer’s agent, the obligations of the seller’s agent and how to handle the important issues such as money where price is being negotiated.  A confirmation of the relationship should be signed with the buyer or seller client.

 

Not only does this confirm the essentials of the fiduciary relationship, but also the clients, knowing that an agent is working EXCLUSIVELY for them, and not the other side, will be much more likely to remain loyal to his/her agent.

 

And what are the obligations and responsibilities?  Simply put, the SELLER’S AGENT has the obligation to counsel his seller as to fair and reasonable selling price, as to the importance of disclosure of defects in the property, as well as to offer the property to the widest audience possible.  The purpose of this, of course, is to obtain the highest price possible for the property.

 

The BUYER’S AGENT should assist the client in locating the best property possible which will meet buyer’s requirements.  Once located, the property should be inspected as to suitability for the purpose intended and the most attractive price and terms possible negotiated for the acquisition of the property.

 

In all cases, the agent must treat all parties with honesty and fairness.

 

Forms confirming agency relationships are available by contacting the author at the address below.

 

PROFESSIONALISM…………..everybody talks about it.

 

What really makes a PROFESSIONAL agent?  What are the elements that contribute to professionalism in an agent’s relationships with his or her clients?

 

KNOWLEDGE and EXPERIENCE:  The true professional has absolute knowledge of the subject he or she is discussing.  How do we obtain absolute knowledge?

 

Education is a good beginning.  We must be like a sieve; absorbing everything available on real estate, on law, on construction, on land use. It is always a good idea to have a greater knowledge and understanding than is required for any specific case.

 

Experience picked up in a transaction is valuable, not just for the current sale, but for the future; it must be stored in the memory bank for the next transaction; or maybe ten transactions down the line.

 

For the new agent who may lack practical experience, it is wise to never lie or guess the answer to a client’s question.   It is perfectly all right to admit you don’t know and add that you will find out,…and then do it   What you learn from the investigation is valuable information for the experience bank, for the next time the same or a similar subject comes up!.

 

PUNCTUALITY is a sign of professionalism and a super important quality of the successful real estate agent.  Not only should the agent always be on time but he or she should always be prepared. Does the car need gasoline? Does a contract need to be picked up or filled out? Is there an answer promised?  Compliance with promises and obligations helps create respect.  Delays, waiting at a notary office, having to repeat a document – all these are necessary from time to time, but should be avoided if at all possible.

 

COMMITMENT  Listen, really listen, to the needs and dreams of the client, be it a buyer or a seller.  If the needs and requirements are reasonable,  make a COMMITMENT to help the client achieve his or her objective.  If the desires are not reasonable, explain and demonstrate why they are not realistic and assist in seeking more reasonable goals.

 

LOOK AHEAD at the CONSEQUENCES;  Through experience, one learns what to reasonably expect.  Review all aspects of the transaction as it is planned.  Will it all fit together?  Will it work?  If not, why not?  What are the problems to solve? Resolve them before they get out of hand.  Be creative!

 

HONESTY:  Don’t ever try to disguise or deceive. A smart buyer or seller will suspect a problem.  It is far better to tell the truth about a situation.  The buyer or seller who wants to will often come up with a far better solution than the agent, and will talk everyone into accepting it!

 

ETHICS:  The really successful real estate agent is ethical.  Those who cut corners do not last.  The simplest way to be ethical is to ask oneself:  How would I want to be treated under the same circumstances?  This is another way to say, “Treat others as you would like to be treated”.  Following this adage it is virtually impossible to stray.  This same philosophy is expressed in the Code of Ethics of the Mexican Association of Real Estate Professionals (AMPI) and the National Association of Realtors ®(NAR).

 

THE ETIQUETTE OF COOPERATION:  With the advent of buyer’s agents and seller’s agents, everyone will benefit economically by working together.  Communication is essential and has never been easier.  The Multiple Listing systems are wonderful tools, designed to help seller’s agents promote listed properties, and buyer’s agents locate ideal properties.  Good humor and patience will go much further than anger or frustration.  Each area has its own rules of cooperation and commission sharing.  The following is a guideline:

 

  1. Buyer and buyer’s agent select the company to hold funds and supervise the transfer.

 

  1. Commissions are paid to the company where the agent works, never directly to the agent.

 

  1. Sales commissions are usually agreed upon with the Seller as a percentage of the purchase price negotiated, plus the added value tax. An invoice for services performed must always be presented to the party paying the commission, usually the seller.

 

  1. Company representing the Buyer and company representing the Seller generally split the total commission generated from the sale, 50-50.

 

  1. Referral fees – in which an agent sends a potential client to another agent, often from one area to another, will generally earn a portion of the Buyer’s or Seller’s portion of the commission. This needs to be negotiated and agreed upon between the agents and their brokers.

 

In Mexico, the law of agency is contained in Articles 273 to 308 of the Commerce Code.  A copy of these articles is available, in English and in Spanish, upon request.

 

To conclude, it is far easier to represent one side of a transaction instead of straddling the fence and trying to counsel both buyer and seller on the same property.  Not only is it easier but also, in the long run, more profitable, as the agent is able to earn respect, referrals and provide professional services to a greater number of clients.

 

about the author:

LINDA JONES NEIL has been designated as an Accredited Buyer’s Agent (ABR) by the National Association of Realtors® (USA). She is also the founder of The Settlement Company®, which specializes in real estate transfers and escrows. Licensed as a California real estate broker, Ms. Neil has pursued her profession in Mexico for over thirty years. Her skills in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. She is also a founding partner in Global Mexico Real Estate Institute (IIGM) where she is an instructor for CIPS, ABR, SRES, RSPS and ePRO designations and courses. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and served as Presidential Liaison from NAR to Mexico, 2011-2014.

 

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Can a Real Estate Agent Represent Both Sides?

 

DUAL AGENCY and The Real Estate Agent –

           

Can it be possible?.

 

by Linda Neil

 

In real estate the party that represents a buyer and or a seller in the purchase or sale of a property, is called an agent.  In Mexico as in other countries of the world, the agent has a duty to treat his principal in an ethical and professional manner.  The Mercantile Code, Articles 273 to 308 outline the obligations involved in representing the interests of the client.      Both law and custom make it very difficult for the conscientious agent to represent BOTH buyer and seller since the buyer wants to buy the property for the lowest price possible and the seller is looking for the greatest amount of money he can get for his property.

 

With this in mind, how can the conscientious agent honestly represent both parties?  Almost anyone will agree; there is a conflict of interest when anyone tries to fairly represent both sides of a transaction.

 

No matter how much the agent needs or wants the money that will come from a FULL commission, it is better to call in a colleague to represent one side or the other.  That way both share in the commission, both principals are honestly and fairly served and the agent will have clients who will recommend his or her services to other friends and acquaintances

 

It ends up being win-win for everyone!

 

To reinforce the relationship with buyer or seller clients it is important to understand and discuss this with the client; outline the responsibilities of the buyer’s agent, the obligations of the seller’s agent and how to handle the important issues such as money where price is being negotiated.  A confirmation of the relationship should be signed with the buyer or seller client.

 

Not only does this confirm the essentials of the fiduciary relationship, but also the clients, knowing that an agent is working EXCLUSIVELY for them, and not the other side, will be much more likely to remain loyal to his/her agent.

 

And what are the obligations and responsibilities?  Simply put, the SELLER’S AGENT has the obligation to counsel his seller as to fair and reasonable selling price, as to the importance of disclosure of defects in the property, as well as to offer the property to the widest audience possible.  The purpose of this, of course, is to obtain the highest price possible for the property.

 

The BUYER’S AGENT should assist the client in locating the best property possible which will meet buyer’s requirements.  Once located, the property should be inspected as to suitability for the purpose intended and the most attractive price and terms possible negotiated for the acquisition of the property.

 

In all cases, the agent must treat all parties with honesty and fairness.

 

Forms confirming agency relationships are available by contacting the author at the address below.

Copyright,2010-2014   Consultores Phoenix, S.C. Reproduction prohibited without permission.

 

about the author:

LINDA JONES NEIL has been designated as an Accredited Buyer’s Representative (ABR) by the National Association of Realtors® (USA). She is also the founder of The Settlement Company®, which specializes in real estate transfers and escrows, specializing in the Virtual Closing®. Licensed as a California real estate broker, Ms. Neil has pursued her profession in Mexico for over thirty years. Her skills in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and served as NAR Presidential Liaison to Mexico, 2011-2014.

 

       

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Escrow in Mexico

ESCROW IN MEXICO……………..WHY?   AND HOW IT WORKS!

 

by Linda Jones Neil.

 

What is an “escrow”?

 

When used in the context of transfer of title, the escrow generally involves three parties – the buyer, the seller and an independent third party.  It often involves the deposit of monies from the buyer and documents from the seller, to be exchanged and delivered upon the execution of the instructions.  The independent third party is often called “the stakeholder”.

 

The Buyer/Seller disbursement instructions are prepared by the escrow company in compliance with the terms of the purchase/sale contract.  They are then signed by the buyer and the seller and authorize the independent third party to handle the details of the transfer.  The escrow company must comply with Articles 273 to 308 of the Mexican Commercial Code in its dealings with its clients.

 

Some questions and answers about escrow and related services:

 

Why is escrow important?   Why can’t the buyer just pay the seller directly?

 

Funds can be transferred directly from buyer to seller and, sometimes, they are.  When strangers are doing business, however, they often feel more comfortable doing business through an independent third party.  This is especially true when the completion of a transaction involves a lapse of time from beginning to end; such as when taxes and/or liens are to be paid from proceeds, title is to be searched and permits are to be obtained.

 

What is meant by “independent third party”?

 

The company holding the funds, the documents, executing the instructions, does not have a financial interest in the property involved in the transaction.  It is not directly affected by the potential profits or losses or consequences of the purchase/sale and therefore can be more objective, more impartial, and follow more strictly the buyer-seller instructions.

 

What are the buyer/seller instructions?  (also known as the settlement or disbursement contract)

 

It is a contract for the performance of services.  What services and how and when they are performed are drawn from the terms established by the buyer and seller in their purchase/sale negotiations.  It is a contract in which each party authorizes the release of funds and/or documents upon the occurrence of certain events or the completion of certain duties and tasks.  It outlines the general conditions under which these instructions will be carried out.

 

Who are the parties to a transaction?

 

The Buyer, the Seller, and the independent third party.  Sometimes a mortgage lender is involved.  These are the principals, the main parties to the transaction and are the ONLY persons who may amend the Instructions.  As far as the handling or disbursement of funds, an Escrow Company can ONLY disburse when the Buyer and Seller direct the Escrow Company through a written, signed instruction. The Escrow Company cannot do so without consent of the principal parties. If real estate agents represent the parties they may obtain copies of documents to the transaction, but all matters are treated as highly confidential with respect to outsiders seeking information.

 

 

What if the buyer wants the sale handled through an independent third party but the seller does not?

 

Then the Instructions prepared will be “uni-lateral”, one sided, and the escrow agent will be ethically bound to protect, first and foremost, the interests of the client, buyer or seller, who has contracted for the services.

 

Can the escrow procedure be handled by long-distance or is it necessary that the parties be present?

 

With email and efficient courier services each party may be in a different town, or even in a different country!  Because the procedures and customs for transfer title, whether fee simple title, or in a bank trust, are very similar throughout the entire country of Mexico, the independent third party may be located anywhere in Mexico and the buyer and seller do not usually need to appear before a Notary Public if they have authorized others to act in their behalf.

 

Where are funds held when they are “in escrow”?

 

Buyer seller funds must be held in a separate bank account, apart from any business operating funds..    Generally they will be held in a dollar based US account with FDIC insurance available up to the maximum of 250,000. USD per depositor.   Separate US and pesos funds may be held in a Mexican bank to permit ease of transfer for payment of Mexico based fees.

Copyright, 2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

about the author:

LINDA JONES  NEIL is the founder of The Settlement Company®, which specializes in real estate transfers and escrows. Licensed as a California real estate broker, she has pursued her profession in Mexico for over forty years. Her skills in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and has served as NAR Presidential Liaison to Mexico..E-mail info@settlement-co.com,        website: http://www.settlement-co.com

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Renting a Property in Mexico

LIVING  IN A RENTAL HOME IN MEXICO…taking the big step by small measures!

by linda jones neil

 

Oftentimes it makes sense for newcomers to an area to rent a home prior to making a purchase.   This provides an opportunity to explore, to learn the neighborhoods, and then begin to understand the personality of the city or town before making a leap to a purchase and a more permanent commitment.

 

Everyday more and more foreigners, people from the U.S., Canada, Asia and Europe, have found Mexico to be an ideal location for healthy retirement.  Others have come to Mexico as a result of job transfers.  Others still, taking advantage of electronic and wireless communications, seek out delightful areas in which to live and work from their in-home offices and studios.

 

There are many areas in Mexico that offer opportunities for rentals and for retirement or vacation living:   Mazatlan, Puerto Vallarta, Manzanillo, Zihuatanejo and La Paz, Todos Santos, Los Cabos and the East Cape on the Baja Peninsula offer wonderful options on the seashore, as do Merida and the Riviera Maya on the Yucatan Peninsula.  Ajijic, Chapala and San Miguel de Allende are well established retirement areas with many rentals available.   Morelia, capital of the state of Michoacan, with its international airport and many cultural festivals is fast gaining importance as a retirement mecca.

 

In some areas, many homes or apartments may not be available for rent.  Fewer still may be fully furnished and ready for the international visitor.. It is not always the landlord’s custom to maintain the property.  A house may require fixing up, a refrigerator, a stove, basic furniture and lots of paint.   Nonetheless this can also be a fun experience for the couple who wants to learn about the area!   Rental terms can be from a few days  to indefinite, depending upon the owners.

 

Some of the questions to ask when looking for that special rental house or condominium are:

  1. What is the length of time the property is available for rental? (Some owners wish to rent only part of the year)
  2. What utilities are included in the rent? (Electricity, water, internet, cable?)
  3. What type of air-conditioning system/heating system does the property have
  4. Is telephone service available? Is cable service available?

 

  1. Is the water service reliable?

 

It is always a good idea to have a rental contract, in English, if you do not understand Spanish, which outlines the term of the agreement, the security deposit and conditions of its return, amount to be paid, extras, if any, and so forth.   This contact should be prepared by a rental management company.

 

It makes sense to contact a rental agency to assist in the search and to assist you with the details.   The professional agency will know the landlord and the time available for the rental, will be able to provide a history of repairs, and potential issues with the property.  It will also be able to help you locate the RIGHT house to meet your requirements..

. Copyright, 2010-2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

 

 

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Author Linda Jones Neil is the founder of The Settlement Company®, the first escrow company in Mexico, which is dedicated to processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico. Ms. Neil is also licensed as a Real Estate Broker in California, is an Accredited Buyer Representative through NAR, and has over thirty five years of hands on experience in all aspects of Mexican real estate.  She holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96.

 E-Mail; info@settlement-co.com  and website:  http://www.settlement-co.com

 

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Tax Obligations for Foreigners in Mexico

TAX OBLIGATIONS FOR FOREIGNERS IN MEXICO

DEATH and TAXES…..both are inevitable!

By Linda Jones Neil

 

Whether a property owner or just the occasional visitor on a beautiful beach in Mexico, everyone pays taxes, natives and foreigners.   Some of the taxes are hidden and others are not.   The purpose of this article is to touch on some of the important taxes levied and paid in Mexico.

 

WHO COLLECTS TAXES:   The SAT (Servicio de Administracion Tributaria), also known as Hacienda, is the federal tax collector.   It collects all federal taxes such as the ISR (Income or Capital Gains) tax, the IVA (Added Value) tax, the IDE (Tax on Cash Deposits) and the IEPS (Special Tax on Production and Services).  Each state government has its own taxes such as the 2 to 3 percent tax on lodgings and tourism.   The municipal governments assess and levy taxes on real and personal properties.

 

IVA TAX:   This is the Value Added Tax which is charged on goods and services.   The only exemptions are medicines and food.   Often this tax is INCLUDED in the price of food served in a restaurant, legal services, and the items purchased in a department or clothing store.   The business owner and tax resident is obligated to file a monthly declaration with Hacienda and pay the tax on earnings.   Credited against this tax are IVA taxes paid on goods and services acquired.

 

There is no IVA tax on the sale of vacant land or on the sale of residential dwellings.   The tax is levied on all commercial construction when it is sold or transferred, at the rate of 16% of the value of construction.

 

IVA tax is charged on lodgings, hotel rooms and furnished homes which are rented.

 

The IVA tax is 16% throughout the entire country of Mexico.

 

IEPS TAX:  This is the Special Tax on Products and Services which was a new tax in 2010.  It will cover certain internet and cable TV services, alcohol, cigarettes, and gaming.

 

PROPERTY TAX;   This is a municipal tax with assessments on properties generally being made annually.   The tax can be paid in six installments (every two months) but probably should be paid in full within the first two months of the calendar year to obtain a discount.   Rates vary from area to area but are often far lower than U.S. or Canadian property taxes.

 

ISR TAX;   Literally the Tax on Rents has been described as both an income tax and a capital gains tax.   It is complex and a subject of confusion.

 

ON INCOME.   Any income generated from sources within Mexico, is taxable.   From business or salary, the rates are variable depending upon the amount of income received.

 

ON THE SALE OF A PRIMARY RESIDENCE    No primary residence is exempt from tax UNLESS the taxpayer has resided in the home for the previous five years.   Proof of residency is in the form of taxpayer identification number (RFC), voter’s registration with the property address, bank statements and utility bills.  Foreigners must establish permanent residency in order to obtain their RFC documents..

For those who have sold or transferred a primary residence within the past five years and have not declared an exemption previously, an exemption of up to  700 UDIs or approximately 3,500,000. Mexican pesos, is available.

This applies to nationals and to those foreigners who have established a tax residency in Mexico (obtained their tax identification numbers) and make declarations on world wide income.   They must also provide documents that the property being transferred is a primary residence.

 

ON THE SALE OF A VACATION OR SECOND HOME OR A RENTAL PROPERTY

No exemptions are permitted.

 

The tax on non-exempted transactions is 35% of the difference between the value declared in the deed and the value of the new sale, less allowable deductions or 25% of the entire amount of the transaction, whichever is less.   It is very important when acquiring property to insist upon having the full amount of the sale declared in the deed, in order to avoid overpaying taxes upon sale.

 

Enforcement on the ISR tax on transfers is the obligation of the Notary Public formalizing the transfer.  He has the obligation to enter the seller’s name and data on the internet and to check status of prior transfers.

 

ON RENTAL INCOME:   There are several ways to calculate tax on rental income:

  1. The blind deduction of 35% of total income, without deductions with tax of 35% paid on the remaining amount;
  2. A 30% tax on income, less allowable deductions which include property tax, maintenance, interest on loans for construction expenses, insurance, salaries of employees and commissions paid to rental agents and property managers..
  3. A 25% tax on the gross income, no deductions.

 

Hacienda is paying more attention to internet advertising and is beginning to inquire into the income of those who are renting their homes.   It makes sense to become legal since penalties for non-compliance can be considerable.   Methods one and two above require the RFC (taxpayer identification number) which can be challenging for a foreigner to obtain.   Method three outlined above does not require residency or official status.

 

IDE TAX   This is a Tax on Cash deposited into banks.   In the year 2009, it was applicable on any combination of deposits made in a month totaling 25,000.00 pesos, or more.   Tax was 2% of the excess.   This tax has now been eliminated but banks receiving cash deposits of over $15,000. pesos in any one month or certain credit card payments are required to report this to SAT.  This requirement is thought to discourage the informal economy (the street vendors).

 

STATE HOSPITALITY TAX.   This is charged by hotels and on furnished short-term rentals.   Money generated from this tax is used for promotion of tourism in the state and varies from state to state but is generally two to three percent of the per night cost of lodging.

 

It is important to understand the difference between Tax Resident and Non-resident for tax purposes.

 

The Tax Resident is the person, citizen or non-citizen, who has acquired his Federal Taxpayer Identification Number and who files and declares taxes in Mexico on his world-wide income.   Any party receiving income from Mexican sources, such as from rental or from the sale of real properties, or from business activities, is required to file.  No distinction is made between citizens of Mexico and non-citizens as to tax rates.

 

Tax authorities in the U.S., Canada and Mexico are working together and share information. Everyday there is more cooperation between the countries due to tax treaties. It is no longer possible to own a property in one country, enjoy income from that property, and not report it in BOTH the country where the property is located, and the country where the owner lives.  Failure to comply means the owner is subject to double taxation and heavy penalties when the omission to file and declare is discovered.

 

Now REALITY!!  DIGITAL FISCAL INVOICES.   Taxpayers must use invoices produced by Hacienda (SAT) on internet.   Hopefully this will simplify the “factura” situation which at present is challenging for the tax payer attempting to obtain receipts for deductible items. .

 

This is an overview of the tax situation in Mexico and may vary in individual cases.  For additional information and consultations, please contact the author.

Copyright 2014. Consultores Phoenix, S.C. Reproduction prohibited without permission.

 

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about the author:

LINDA NEIL is the founder of The Settlement Company, which specializes in real estate transfers, escrows,and consultations.  Just added as a new service, Settlement will now prepare monthly tax declarations on rental properties, file them and perform additional essential landlord accounting services.

 

For reprints of this article or for further information on tax paying services, please contact The Settlement Company® E-mail is info@settlement-co.com, and website: http://www.settlement-co.com

 

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Renewing the Foreign Relations Permit

The FOREIGN RELATIONS PERMIT FOR THE FIDEICOMISO……………..

            What do we do when it expires?

 

Under Mexican law, all properties acquired by foreigners must be held in a Mexican bank trust which is known as a fideicomiso (fi day co me so).     These bank trusts are established by permission and a permit from the Mexican Secretary of Foreign Relations.

 

Originally, when the law was established in 1972, the permit was given for thirty years.   At that time no one knew what would happen when the permit expired except that the law stated that “property must be transferred to one who is legally entitled to hold title”.    This left a big uncertainty for those who were investing large sums of money in Mexican properties.

 

The law was clarified in 1989 with the following in Article 20 of the Foreign Investment law which was published in the Official Diary of the Federation on May 16, 1989.

The text states: When the term expires for those trusts created under Articles 18 and 19 of the Law, the Secretary of Foreign Relations will expedite, under the terms of the same laws, new permits requested for the same properties located in the restricted zone, providing the following conditions are met:

 

1.- That the new trusts involve the same foreign investors that are named in the trusts that are expiring;

                       

2.- That the new trusts contain the same terms and conditions as those in the trusts that are expiring with regarding to purpose, usage and general characteristics.

 

3.- That the permits are requested within a time period of 180 days (minimum) and 365 days (maximum) prior to expiration of the trust.

 

4.- That the dispositions of the Law, of this Regulation and of the General Resolutions are observed.

 

This declaration gave clarity to the law.  It was established that the permits could be renewed and, in 1995, pursuant to the conditions of the NAFTA treaty,  the period for the foreign relations permit to establish a Mexican bank trust, fideicomiso, was extended to fifty years and could be renewed multiple times.    This was tantamount to ownership in perpetuity.

 

Thus for trusts established between 1972 and 1995, these are expiring between 2012 and 2025, unless the owners have taken it upon themselves to extend the term of the trust to 50 years.    This indeed was done by many who were concerned about leaving a property to heirs with a trust that is expiring.

 

What is the procedure for renewing a trust permit?     It is relatively simple;  An application must be made to the Secretary of Foreign Relations to obtain a new fifty year permit.   Upon receipt of same, the old permit extinguished by the trustee bank and the new permit formalized by the trustee bank and the notary public.    The trustee bank may be the same or a different one from the original permit.   The primary beneficiaries however must be the same as per number one in Article 20 of the Foreign Investment law (see #1 above).    To change the primary beneficiaries in this renewal action will trigger an acquisition tax which is 2% of the value of the property,  and a possible capital gain tax which is 35% of the difference between the former value and the new value.   Substitute beneficiaries may be changed however.

 

Other costs involved are the bank cancellation fees for extinguishing the old permit,  a new permit fee, registration in the Foreign Investment Registry,  a signature fee and the first annual fee for the new trust, notary, public registry fees, etc.    It is wise to consider budgeting three to four percent of property value to renew the permit and receive the new notarized deed.

 

This may seem expensive to some but it is important to remember that this is once every fifty years and the only other expense to maintain the legal status of the property is the payment of bank annual trustee fees which range from US 350.00 to US 550.00 per year.   Compare these expenses with the cost of annual property taxes on a home of comparable value in the US or Canada and it will most likely be considered a bargain!

 

about the author:

LINDA JONES  NEIL is the founder of The Settlement Company®, which specializes in real estate transfers and escrows, as well as renewals of permits and other legal services for the foreign property owner. Licensed as a California real estate broker, she has pursued her profession in Mexico for over forty years. Her skills in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and has served as NAR Presidential Liaison to Mexico..E-mail info@settlement-co.com,      website: http://www.settlement-co.com

 

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Ejidos and Ejidal Properties in Mexico

EJIDAL PROPERTY…..      Is it a bargain?  Or a problem?

by Linda Jones Neil

 

EJIDAL (EEEE-heee-doll) properties were established in Article 27 of the Mexican Constitution of 1917 as an outcome of the revolution and represent probably 50% of all the land in Mexico.

 

After the revolution hundreds of millions of acres from the original Spanish land grants were expropriated by the government and classified as “ejidal” properties. The state retains ownership of these lands and the peasants, or farmers, have the right to use them, to live on and to grow their crops on them. The rights of usage pass from father to son, but ejidal properties cannot be sold as private property.

 

Per decree published on February 26, 1992 in Diario Oficial, Mexico’s Official Newspaper, certain ejidal lands can now be converted to private property through a process known, in Spanish, as the PROCEDE, (the procedure).

This is a seven step process that may take as much as five years to accomplish, and consists of the following:

  1. Resolution within the ejido. A two-thirds majority must decide to convert parcel lands to private property. This does not pertain to human settlement or communal property, also a part of ejidal land. This pertains only to the individual parcels.
  2. Mapping, allowing for streets, green areas, other donated lands, human settlements and communal lands
  3. Allotment of a parcel to each ejiditario (farmer, member of the ejido group).
  4. Application to Agrarian Reform, Mexico City
  5. Approval by the Agrarian Reform
  6. Transfer of parcels to the individual ejiditarios.

 

After this process is completed and registered with the Agrarian Reform, the ejiditario who wishes to sell to an outsider must first notify other family members, those who have worked the property for more than one year, then other ejiditarios in the group, neighbors, and the local and  ejidal governments before completing a sale to the outsider.  These parties have the right of first refusal and notifications must be made following a specific procedure. An appraisal issued and/or authorized by the national authorities must be obtained to confirm that the price of sale to an outsider is fair and legitimate.  .

 

            ONLY after all correct notifications have been made and procedures followed may the ejiditarion transfer in fee simple to third parties, nationals or foreigners.  If the property is in the restricted zone ONLY then can an ejidal property be acquired by a foreigner, PROVIDED the Secretary of Foreign Relations will grant a permit for same.

THIS IS FOR PROPERTIES WHERE THE EJIDAL group agrees in an assembly to convert its parcel property to private property.

 

What about the ejidal group who chooses NOT to convert its parcel land to private property?  Can it be used by outsiders?

 

Article 45 of the law states that ejidal properties may be the object of any type of contract in association or use contract made by the ejidal group, or by individual ejiditarios on common lands or parcel lands. Contracts made with third parties may be granted for a term up to thirty years and can be renewed.

Under the Mexican Civil Code the maximum lease for residential property is ten years. Thus it can be said that the ejidal properties have an important advantage over private RESIDENTIAL property when it comes to leasing.

There is, however, a substantial difference between OWNERSHIP and LEASING. It is important not to confuse the two.

 

OWNERSHIP, even in the prohibited zone, where ownership is a PERSONAL right of use and enjoyment, permits indefinite usage through multiple renewals (every fifty years) of trust permits, and a clear-cut right to rent those rights, to sell those rights, and to collect a profit therefore.  Annual costs under a trust (fideicomiso) are limited to bank administration fees and property taxes and the owner has full rights to all improvements on the land.

 

LEASE RIGHTS from an ejidal group can be for a maximum term of thirty years and can be renewable. The annual lease cost, however, is often a monthly or annual payment and, while it may be fixed for the first lease term, (up to thirty years) costs upon renewal are not usually negotiated for the following lease term, and may be increased to any amount that the leaseholder, the ejido, requests.  Failure to pay the amount requested by the holder of the lease means that lessee (the tenant under the lease) must vacate the property and, of course, must leave behind ALL improvements affixed to the property.

In a rental situation, the tenant never owns the improvements and the amount of the rental will probably be determined by market conditions.

Copyright, 2004-2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

 

about the author:

LINDA JONES NEIL is the founder of The Settlement Company, which specializes in real estate transfers and escrows. Licensed as a California real estate broker, she has pursued her profession in Mexico for over forty years. Her skills and experience in negotiating contracts between parties from three distinct cultures have placed her services in demand as a consultant and for speaking engagements on Mexican law and customs in Mexico, the United States and Canada. She has been widely published on the subject of real property in Mexico. Memberships; FIABCI, AMPI and NAR.  Linda  is a former  member of the National Advisory Council of AMPI and serves as Presidential Liaison for Mexico to the National Association of Realtors®.   She is also co-founder of Global Mexico Real Estate Institute (IIGM), an educational institution which provides international real estate classes and designations.

            For reprints or further information, please contact

The Settlement Company: in Mexico:

E-mail info@settlement-co.com,         website: http://www.settlement-co.com

 Copyright, 2004-2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

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