Real Estate Closing Guide

Everything you need to know about acquiring property in Mexico, from the initial offer to the final closing.

This closing guide will take you through every step of the closing process, from preparing an offer to purchase, effectively utilizing an escrow account, the due diligence process, and signing the final closing documents. We’ve answered the most frequently asked questions to give you a better understanding of how to acquire property in Mexico and feel more in control during the closing process.

Step 1 – Conduct Due Diligence

The most important part of your closing process is the initial due diligence or title search. This is where we request, investigate, and review all the necessary documents from the seller to ensure your chosen property is in good standing and ready to legally transfer the title without any issues. An exhaustive search is conducted during the closing process to ensure that all records related to the property and debts guaranteed by the property have been properly prepared, satisfied, and recorded. Our team will prepare a detailed report for you to outline the resulting findings.

Step 2 – Prepare the Escrow & Purchase Agreements

Once the property due diligence is complete and satisfactory, we begin drafting and reviewing purchase and escrow documents. Depending on your purchase scenario, we either draft, prepare, review, and adjust the promissory agreements for all parties to review and sign. At this moment, your offer goes firm, and we begin the next steps to finalize your purchase. The Escrow account is very important to protect you and your investment, and we always recommend utilizing escrow services for your purchase. We coordinate with the escrow service company and ensure all the necessary documents are correctly prepared for signature.

Step 3 – Establish the Fideicomiso (Trust) to Acquire your Property

As a foreigner to Mexico, you have two options: to acquire property within 50 km of the coastline or 100 km from the border (the restricted zone), a fidecomiso (trust), or to establish a Mexican Corporation. For the vast majority of buyers, the best option will be a bank trust where a Mexican Banking Institution acquires the property on your behalf, with you as the sole beneficiary. We coordinate with the Ministry of Foreign Affairs and the trustee bank to ensure your trust is established before your closing date with the Notary. We can provide guidance during our introductory meeting as to which option best suits your needs.

Step 4 – Coordinate with Notary Public and Trustee Bank

Once your Fideicomiso (Trust) is prepared, it is time to prepare the final closing documents with the notary. To transfer the property title in Mexico by law, a government-appointed notary must formalize the deed and prepare the final closing documents. We work closely alongside the notary to ensure your documents are drafted correctly and in accordance with the established terms of your promissory agreement.

Step 5 – Final Closing

Once your Fideicomiso (Trust) is prepared, it is time to prepare the final closing documents with the notary. By law, in order to transfer the title of the property in Mexico, a government-appointed notary must formalize the deed and prepare the final closing documents. We work closely alongside the notary to ensure your documents are drafted correctly and in accordance with the established terms of your promissory agreement.

Frequently Asked Questions

What is a Fideicomiso?

For national security purposes, the Mexican federal constitution prohibits non-Mexican persons from owning real property within 30 miles of Mexico’s coastline, referred to as the “restricted zone.” The entire Riviera Maya, including Playa del Carmen, Tulum, and other desirable coastal lands where foreigners most want to purchase property, are within the restricted zone. In the early 1970s, Mexico’s government wanted to encourage foreign investment and began allowing foreigners to purchase coastal property through a “fideicomiso,” or trust agreement. The coastal property is held in trust by a Mexican bank. The bank acts on behalf of the foreign buyer, taking title to the real property. The bank then has a fiduciary obligation to follow instructions given by the foreign buyer. Contrary to a land lease, as the trust beneficiary, the foreign buyer enjoys all the rights of fee simple ownership and may sell, gift, lease, add construction, improve existing buildings, mortgage, and encumber the property. The fideicomiso technically satisfies the prohibitions in the Mexican federal constitution against foreign ownership of restricted-zone property. Foreigners have bought, owned, and sold Mexican coastal property through fideicomisos for nearly fifty years.

Do I need to be a resident to purchase property in Mexico?

No, you do not need to be a resident to purchase property in Mexico. Utilizing the fideicomiso, the fideicomiso beneficiary can be the same as any entity holding property in the US, such as any other non-resident individuals, couples, groups of individuals, or through a US-based corporation (LLC).

Is it better to purchase property with a fideicomiso or a Mexican corporation?

This will depend on the individual and their desired use for their property. A fideicomiso is the best and simplest option for most foreign buyers. Certain factors will determine which vehicle is most suitable, such as if your property will be used to generate income, whether you plan to obtain residency in Mexico, and if you plan to purchase more than one property. Owning a Mexican corporation requires more reporting obligations than a fideicomiso and a minimum of two shareholders are required to form the corporation. Our team can model the right structure for your purchase depending on your objectives.

How is the Notary Public (Notario Publico) involved in the purchase process of property in Mexico?

A notary public in the US plays a significantly different role than a notary in Mexico regarding real estate transactions. Notario publicos in Mexico are attorneys with at least five years of experience who have passed two rigorous examinations. They are appointed by the Governor of the State and by the Executive branch of the federal government and, as such, represent the governor in all real estate transactions. In Mexico, a number of legal documents—wills, deeds, powers of attorney, forming corporations, establishing trusts, and most importantly, real estate transactions – must be formalized before a notario publico to be valid. Once the promissory purchase sale or trust has been prepared, the buyer has the right to choose a notario publico to close the transaction. In some planned communities or developments, the buyer may want to consider using the seller’s notario because the notario will be familiar with many aspects of the transaction from experience with other properties in the development. There are a number of documents that must be prepared to bring to the notario publico. Proof of full names, places of birth and a passport; and, the ability to prove legal presence in Mexico, (VISA), if in Mexico to execute the closing documents oneself. The seller will also have to provide documents for examination and verification by the notario publico: the deed to the property and items such as up-to-date receipts for taxes, subdivision fees, water, and any other public utilities. When everything is in order, the notario publico prepares the deed of conveyance subject to the terms of the promissory agreement. It is important to note that even though the buyer selects the notario publico, it does not mean that the notario publico “works for the buyer.” The notario is an unbiased party in the real estate transaction, legally responsible for ensuring that all essential legal formalities are followed. These include identifying the property, the names of the buyers and sellers, and the capacity in which any signatory acts and incorporates this information into the public deed.

Why do I need a closing services firm or lawyer during my real estate transaction?

When you select to use a closing services firm such as Guardian, you can confidently purchase real estate in Mexico, knowing that at least one individual/firm is on your side. Many real estate agents in Mexico are not licensed or regulated and do not have the disclosure responsibilities or the responsibilities under “the law of agency” that real estate agents in the US & Canada have. The seller and their associated parties only have the seller’s interest to look out for. The notary’s role is to be a neutral party in the real estate transaction and process all documentation in accordance with the laws and regulations of the Mexican government. Having an attorney legally responsible for protecting the Buyer’s best interests is well worth the cost.

Do I need to obtain title insurance?

No, you do not need to acquire title insurance if you hire a competent lawyer to represent you during your purchase, execute a thorough due diligence, and ensure the transfer of rightful ownership of the property.

Title insurance currently does not exist in Quintana Roo, where Playa del Carmen, Tulum, Cancun, etc, are located.

Should I use an escrow account for my purchase?

In most cases, we strongly recommend using escrow services to secure your earnest money, deposits, or payments. Unlike in the US and Canada, real estate agents and lawyers in Mexico cannot legally hold funds in trust. The best and most favorable manner to handle earnest money, deposits, and payments involving Mexican real estate transactions is with a neutral third-party escrow services company that has a legal and fiduciary obligation and responsibility as the escrow agent. As your closing services coordinator, we oversee the proper preparation and filing of all paperwork necessary to open the escrow account that will be used to hold the funds for your transaction. We work closely with the escrow agent to ensure the funds are disbursed in accordance with the terms and conditions of the escrow agreement.

What are the average closing costs when purchasing a property in Mexico?

Many US and Canadian buyers are surprised by the closing costs of acquiring real estate in Mexico. There are fees associated with closing a transaction in Mexico that are not part of a real estate transaction in the US, such as acquisition tax, notary fee, registration fee, and the fee for the fideicomiso. For most properties, total closing costs range from 5% to 9% of property value. It is important to remember that while closing costs are higher than their US equivalent, property taxes are much lower, with an average of 0.3% of the property’s value.

Can I purchase property through a US-based LLC?

Yes, you can purchase property through a US-based LLC. The LLC can be a shareholder in the Mexican Corporation or the beneficiary of the fideicomiso.

If you have any questions that aren’t answered here, please contact us directly, and we’d be happy to answer them.