FAQ’s from our Coldwell Banker Riveras Agents, PART II
We asked our agents what were the most frequently asked questions they got from buyers, and these are some of their answers:
Q= I am going to be buying more than one property with intentions to sell them in the future, maybe even build some homes to sell. Should I start a Mexican Corporation? I hear it is much less hassle than multiple Fideicomisos.
A= I highly recommend all of your land purchases be made through a Fideicomiso. The tax burden on a Corporation is much higher than a Fideicomiso. You will also need to obtain an accountant to file your taxes monthly, have employees under the guidelines of a corporation and have much more stringent requirements for deductions when you build to sell. A corporation is a mechanism to run a business not to acquire and sell land.
Q= If the trust holds title, do we own the property?
A= In 1994, amendments to the Constitution permitted foreigners to purchase and own real estate in Mexico located within the “restricted zone” which is all land within 60 miles of a national border and within 30 miles of the Mexican Coast. This Law permitted ownership through a land trust or “Fideicomiso”. A “Fideicomiso” is a Mexican Living Trust. The way it works is the Mexican Government issues a permit to a Mexican Bank of your choice, allowing the bank to act as purchaser for the property. The bank acts as the “Trustee” for the Trust and you are the “Beneficiary” of the Trust. The “Beneficiary” rights are very similar to Living Wills or Estate Trusts in the U.S. The law authorizes Mexican banking institutions to act as trustees. A trustee takes instructions only from the beneficiary of the trust (the foreign purchaser). The beneficiary has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The beneficiary may also sell the rights and instruct the trustee to transfer title to a qualified owner. Many people refer to the trust arrangement in Mexico as a lease agreement… this is not true. The home or property that you buy will be put into a trust with you named as the beneficiary of the trust – you are not a lessee. You have all the rights that an owner of property in the U.S. or Canada has, including the right to enjoy the property, sell the property, rent the property, improve the property, etc. The initial term of the trust is 50 years. An investor can renew the trust for an additional period of 50 years within the last year of each 50-year period, and this process can be continued indefinitely, providing for long-term control of the asset.
Q= Can a foreigner buy under its own (national/mexican) Company’s name and use Infonavit Credit?
A= He/She cannot use Infonavit if buying under its own Mexican company’s name. A foreigner can only use the Infonavit credit if they have Mexican citizenship and it cannot be used under Fideicomiso.
Q= What do I need to know about Title Insurance?
A= There are several title companies in Southern Baja that will insure your property, namely: Stewart, Fidelity, First American. The first and most critical aspect of obtaining title insurance and buying a property is to obtain a title report. Be sure to hire a person that is designated by the title insurance company to write the title report. The cost for a title report is $550USD and upward depending on the property. It can take approximately 1 month to obtain the title report.
The title report covers:
- The history of the land going back as far as 3 transfers (3 links in the chain of title). Including any sub-divisions, donations, easements etc.
- Legal description
- Verifies if there are any current claims or liens against the property
- Verifies if the land originated from an ejido.
- If the land originates from an ejido then the title report will determine if the agrarian laws were upheld on the first sale
o Derecho Al Tanto (First Right of Refusal) was obtained from the Ejido Assembly
o Bank Appraisal done at time of 1st sale
o Derecho de Preferencia (Preference Right)
- The title report will state what is outstanding or required in order to obtain title insurance. This information is critical to determine if your property is insurable/marketable or not. Be sure to have complete understanding of what is required to obtain the title insurance and if the outstanding items can be obtained in order to insure your property.
When interviewing which title insurance company you would like to work with be sure to ask the following questions of the title company:
1. What are your exclusions? Insurance companies have many exclusions of coverage. Make sure you have a full understanding of what is covered and what is not covered. Does the insurance company cover agrarian claims (ejido), claims relating to metes and bounds?
2. What is the one time insurance fee? Generally the minimum fee is $1,500USD
3. Does the title insurance cover any claims prior to time of closing?
4. What is the process for making a claim?
The one time insurance premium insures your property for as long as you own it.
For more information about Coldwell Banker Riveras Real Estate Services and Baja California Sur news, call us to + 52 (624) 143.1342 or send us an email to firstname.lastname@example.org