Category Archives: legal

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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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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The Bank Trust (Fideicomiso) Explained

THE BANK TRUST FOR OWNERSHIP OF REAL PROPERTY IN MEXICO

 

THE FIDEICOMISO

 

Article 27 of the Constitution of the Republic of Mexico prohibits foreign ownership of real property located within 30 miles of any coastline or 60 miles of either border. This is referred to as the restricted  zone.

 

In 1973, recognizing that many Americans would enjoy the rights of ownership, and bring needed dollars to the country, President Echeverria approved the bank trust, fideicomiso, form of ownership which is available to non-Mexicans.  This regulation was further expanded in the Foreign Investment Law of 1989.

 

Properties located within the prohibited zone, which includes the entire Baja Peninsula, may be acquired by a foreigner through a Mexican bank trust naming the buyer of the property as the beneficiary of the trust.  Naked title is placed in the name of the bank selected by the buyer, as his trustee.  The bank administers the property according to the instructions of the buyer/beneficiary.  The buyer/beneficiary has full ownership rights: he may build on the property, tear down existing buildings, modify them, rent, lease or sell at anytime conforming only to the general laws of the country established for all persons.

 

The term of the trust is fifty years and can be renewed for additional fifty year periods, after which it must be transferred to “one entitled to hold property” in Mexico. In other words, title to the property may rest in one beneficiary indefinitely, provided that it is renewed within the terms established by the law.

 

The procedure for establishing the fideicomiso, the bank trust, is as follows: a permit must be obtained from the Secretary of Foreign Relations which includes a description of the property to be placed in trust, the use for which it is intended, and personal data on each of the beneficiaries.  Once granted the bank draws up the trust document which is recorded in the municipality where the property is located.

 

The costs for the permit to establish and register the bank trust are currently about $1,500. US and annual administration fees are generally $350.00 to $500.00 per annum.  There are additional closing costs, however, and it is wise to request a written estimate prior to beginning the transfer process.

 

copyright, 2003,-2014, Consultores Phoenix, S.C. Reproduction prohibited without permission.

 

 

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Mexican Company? or Mexican Bank Trust?

A Mexican company?        Or FIDEICOMISO, the Mexican bank trust?

 

Which Works Best for  Buying Mexican property? 

                                                                                                  

                                                                                                   By Linda Jones Neil

 

 

Article 27 of the Mexican constitution requires that any foreigner buying residential property in the restricted zone (an area 50 kilometers wide along the coastlines and 100 kilometers along the borders) must acquire the rights in the property through a Mexican bank trust, known as a fideicomiso.

 

Pursuant to the Foreign Investment Law of 1994, any company established in Mexico ; is considered as Mexican even if all the shareholders are foreigners.    This applies to corporations, limited liability companies and partnerships..

 

Thus, many think that by establishing the Mexican company, a Mexican bank trust (fideicomiso) can be avoided.   It can be, but it is important to consider other aspects before making a final decision as to how to title your Mexican property.

 

The Mexican corporation, limited liability company, or partnership, should be established if the primary objective is business; whether it is to open and run a business, to hold properties for rental, or to achieve another type of money making goal.

 

The fiscal responsibility for the Mexican company involves filing monthly and annual tax declarations.   Also an annual report must be filed with the Secretary of the Economy if any foreigners are shareholders or partners in the company.

 

The benefits:   the administrator of the company may be able to obtain permission from the Immigration Department to work in the business activities of the company

 

The negatives:  the Mexican company will cost $2,000. to $3,000. USD to establish and to register in the public records..   Any properties which will be held by the company require a permit from the foreign relations department and must be necessary to the operation of the company.

 

Once established, the cost to maintain the company can be $100. USD, or more, per month to pay an accountant for handling the books and filing the declarations.   There will also be additional charges for the annual declaration before tax authorities and before the Secretary of the Economy.

 

If the business activities and projected income will support this type of expense then a Mexican company makes sense.

 

If however, the goal is to acquire and enjoy a vacation or retirement home, renting it occasionally when the owner is not using it, it may be far simpler to place the property title in trust (fideicomiso).

 

If the property being purchased is for personal use, if it is residential property, then it must be held in the Mexican bank trust (the fideicomiso).   Not only will it be less expensive in the long run but also it may also be simpler to sell should the owner wish to do so.   Bank fees range from 350. to 550.USD per year, far less than the operations and maintenance expenses of a Mexican company.   Should you choose to rent your property when you are not using it, this too is permitted and can be simpler than the mandatory monthly declaration required for the Mexican company.

 

Mexico is an incredible land and rich in many aspects.    It does make sense to keep life simple and enjoy the properties acquired, not to become entangled in compliance with tax laws.

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

 

about the author

LINDA NEIL  is  the founder of The Settlement Company®, which has many years of experience in real estate transfers and escrows, and specializes in the Virtual Closing®. Licensed as a California real estate broker, Ms. Neil has pursued her profession in Mexico for more than 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 The Mexican Association of Real Estate Professionals (AMPI) and has served as AMPI Coordinator for the state  of Baja California Sur.  Additionally she is a co-founder of Global Mexico Real Estate Institute, dedicated to providing professional education for real estate agents.

            For reprints or further information, please contact

The Settlement Company®: in Mexico:

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

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The Mexican Corporation, How it Works and Why

THE MEXICAN CORPORATION –

THE VEHICLE FOR BUSINESS DEALINGS IN MEXICO

 

“XYZ Company, S.A. de C.V.” – What does all THAT mean?

 

by Linda Jones Neil

 

The Sociedad Anonima de Capital Variable, translated literally is an anonymous society of variable capital.  This is equivalent to the U.S. corporation in which there are stockholders.  In Mexico it is governed by the Mercantile Law.  More and more, foreigners are forming Mexican corporations which end with the initials, “S.A. de C.V.”, to do business and to achieve their financial goals in Mexico.  The SA de CV is similar to the “Inc.” of  the United States and Canada.

Another version of a corporate entity is the Limited Liability Company which has become more common in recent years.  The Mexican counterpart is the SRLde CV, the Limited Responsibility company with variable capital.

            While there are differences between the S.A. de C.V. and the S.R. L. de C.V., for our purposes here, both are included under the term “corporation” in this article.

As of December 1993, the corporation formed in Mexico is considered as “Mexican” even though all shareholders may be foreign persons.

 

When should a corporation be formed?  It will make sense if the shareholders wish to perform services or sell goods for profit, build a hotel, or if they wish to develop a property for resale in lots or condominiums.  The corporate entity permits the principals to obtain working papers and to obtain working papers for other foreigners who provide services not easily obtained in the local job market.  Care must be taken, however, to set up the financial reporting system, to obtain invoices for all pre-operating expenses and to have an accountant who is knowledgeable to make the required filings in SAT or Hacienda, México’s version of Uncle Sam or Revenue Canada.

The minimum capital investment in a Mexican corporation is $50,000.00 Mexican pesos  Evidence of this capital contribution must be in cash or in assets which equal the total amount of the start up capital.  It is important to make the declaration of all assets which are to be included from the start up of the corporation.  Do not select the minimum amount just because it is the minimum.  If you do it may later be difficult to establish the true amount of initial capital invested. Once the initial capital is established, additional investment may be added by making a declaration before a Notary Public, without requesting permission to do so from the government.  This is the Variable Capital portion of the equation.

 

It is important to include in the corporate charter a statement of purpose (objecto social) that is very general.  It should mention all activities that may be of interest to the shareholders; better to have an ample charter, permitting many business activities, rather than to have it limited to one activity.  It is also a good idea to include export and import of all types of merchandise and technology in the charter.  This makes bringing equipment and or supplies in from another country simpler.

A minimum of two shareholders is required to form a corporation.  These shareholders will be required to sign the corporate charter before a Mexican Notary Public.  If they come into Mexico as tourists to sign the documents they should obtain a Business Visa at their local Mexican Consulate prior to coming so they may perform a business activity (signing the document) in a legal manner.  Once the corporation has been formed it is necessary to obtain a federal tax registration number for the corporation and the administrator or board of directors must obtain the proper visas to work in the activities of the corporation.

 

If the corporation includes or is composed of foreign stockholders it will include a clause in which the foreigners promise to be considered as Mexicans in the eyes of the law and not to invoke the aid of their government in the event of a dispute.

Administration of matters of the corporation may be either through a sole administrator (administrador unico) or through a board of directors.  A Comisario must be appointed.  This is the person responsible for the accounts and tax payments and should be a Mexican accountant.  The comisario does not need to be a shareholder.  The duties of the administrators, whether sole administrator or board of directors need to be clearly defined.  Will they be able to enter into lawsuits?  Obligate the corporation for loans?  Hire and fire personnel?

 

Generally it is wise to provide a list of five names, in order of preference, for the corporation for submission for the permit for incorporation. The first name which has not been used previously by another company will be designated.  Upon confirmation of the name, the corporate documents must be prepared and signed before a Notary Public within ninety days or the authorized name will become invalid and the process must be begun again.  Together with the name request, permission to incorporate, where foreigners are involved, must be obtained from SECOFI, the Secretary of Industry and Commerce.

Upon completion of the corporate document, it must be recorded in the local registry of Business and Commerce, the National Foreign Investment Registry and the business enrolled in the local Chamber of Commerce or Industry Chamber.  Monthly declarations must be filed with tax authorities. Additionally, the corporate accountant must file an annual statement with the National Foreign Investment Registry regarding the business activity for the previous year.  If the corporation is used for property development or is not active, the Mexican accountant will probably charge about $600. Dlls. per year to do the required filings.  If the corporation is active the accounting charge may be $300. to $500. Dlls. per month, or more.

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

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THE MEXICAN NOTARY PUBLIC AND THE APOSTILLE

The Mexican Notary Public and The Apostille,

 

By Linda Jones Neil

 

 

In Mexico, the ONLY authority permitted to draft a deed transferring real property (either in fee simple or in fideicomiso) is the Mexican Notary Public.  This person is different from a notary public in the United States where a simple exam, a bond, and a rubber stamp can make a notary public out of most people.  Nor is it similar to Canada’s Notary Public who must meet a few more stringent requirements to qualify.  Not so many, however as the Mexican Notary.

 

The Notary Public in Mexico must be an attorney, must have a minimum of five years of practical experience in the profession, must pass a technical examination and then be appointed as a Notary Public by the Governor of the state in which he or she is working.

 

The number of Notaries Public depends upon the number of people in the state. A new Notary is appointed only as the population grows above a certain number.

 

The Mexican Notary Public has many duties, but one of the most important is the drafting of deeds for transfer of real property.  Anytime a signature is required on a deed of transfer it must be made before the Mexican Notary Public.

 

As of now, foreigners buying and selling their rights in property in the ´”restricted” zone, through fideicomiso rights, do not always have to appear before the Mexican Notary Public in order to transfer their interest in the real estate.  These transfers in many cases may be made by having instructions signed in the buyer or seller’s place of residence and “legalized” or “authenticated” for use in Mexico.  This same process can be used for a power of attorney document in the event a buyer´s or seller’s signature is required.

 

And what is a “legalized” or “authenticated” document?

 

No matter what the document, it must be signed before a Notary Public in the place of residence; California, Arizona, Calgary, Vancouver…….or wherever.  Once signed before the Notary Public in the place of residence it must be “legalized” or “authenticated” in order to be considered as valid in Mexico.

 

This means that a designated public official performs a government act and certifies to the genuineness of the signature and the seal, and the position of the official who has executed, issued or certified a copy of a document.

 

In 1981, the Convention Abolishing the Requirement of Legalization for Foreign Public Documents entered into force in the United States.  Under the Convention (signed in the Hague, Holland) signatory countries, including both the United States and Mexico, but not Canada, agreed to mutually recognize each other’s “public documents” so long as such documents are authenticated by an apostille, a form of internationally recognized notarization.  The apostille ensures that public documents issued in one signatory country will be recognized as valid in another signatory country.

 

Thus, if the document required for a Mexican transaction has been notarized in the United States, it must then be sent to the nearest office of the Secretary of State and an “Apostille” obtained.  A search under state government in the yellow pages should reveal the telephone and location of the closest office of the Secretary of State.  The document to be authenticated through an Apostille can probably be sent through the mail and should not cost more than $25.00 U.S. dollars.  It is important to allow for extra time to accomplish this step.

 

Other countries that are signatories to the Hague Convention are, to name a few; Germany, Argentina, Australia, Austria, Bahamas, Spain, Israel, France, Greece and Norway.

 

All countries which are not signatories to the Hague Convention, such as Canada, must authenticate documents to be used in Mexico by obtaining a “legalization” or ratification of their document from the nearest Mexican Consulate.  It maintains a list of authorized Notaries with samples of their signatures and is able to ratify the authenticity of the Notary’s signature.

 

Many persons object to the time involved and the additional step required to “authenticate” a signature for legal use in Mexico.  It is less expensive and less time consuming, however, than making a special trip to Mexico in order to sign a document before a Mexican Notary.

copyright September 2004, Consultores Phoenix, S.C., reproduction prohibited without permission.

 

 

This article is provided by The Settlement Company, the first escrow company in Mexico, and is dedicated to processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located anywhere in Mexico.  The company frequently sponsors seminars on the various aspects of real estate ownership in Mexico and holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96 E-Mail: info@settlement-co.com Web Site: http://www.settlement-co.com

 

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MANIFESTING YOUR CONSTRUCTION IN MEXICO

THE MANIFESTATION……….an important detail if you are building a house

by Alicia Parra

 

For those brave souls who are building their home in Mexico, an important part of the process is the Manifestation.  This is a notification made before the local property tax department.  It signals the termination of the construction and tells the world that the house is ready to be occupied.

 

All too often, this notification is not made in a timely manner and can cause problems and additional expense, especially when the house is being sold.

 

The Manifestation must be prepared on a printed format supplied by the property tax office and will require detailed information about the lot:  measurements, total surface area, etc. and detailed information about the house or other construction being manifested.  Copies of the property tax payments, construction license, plans and the deed to the property must be presented.

 

This same form will request information about the types of materials used in each room and the utility distribution.

 

The value of the construction must be stated in the manifestation.  This can either be in the form of the building permit and the “letter of termination of works” (terminacion de obra).

This document is very important as it is valid for the Notary Public to use as value of the construction and it will establish the basis for tax calculations when the property is sold.

 

The cost of manifestation is minimal if done in a timely manner.  Not only does it establish a date for calculation of capital gain taxes (ISR) upon sale, but also it lowers the property tax rate from that of a vacant lot to that of a residential dwelling which can result in lower property taxes even though the overall value of the property is higher.

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ABOUT THE AUTHOR.

.           Ms. Parra is Chief Closing Officer for The Settlement Company.  It is the first escrow company in Mexico, and is dedicated to processing the trusts and title transfers of Mexican real estate for foreign buyers and sellers for properties located ANYWHERE in Mexico.  The company frequently sponsors seminars on the various aspects of real estate ownership in Mexico and holds membership in AMPI, NAR and FIABCI and PROFECO Certificate 00063/96 E-Mail: info@settlement-co.com  Web Site: http://www.settlement-co.com

copyright September 2004-14, Consultores Phoenix, S.C., reproduction prohibited without permission.

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In a Fideicomiso, What Happens When the Primary Titleholder Dies?

THE FIDEICOMISO

WHAT HAPPENS WHEN THE PRIMARY TITLEHOLDER DIES?

by Linda Jones Neil

Article 27 of the Mexican Constitution prohibits ownership of real property by foreigners  along the borders and coastlines of the country.   This issue was resolved by implementation of the Mexican bank trust, the fideicomiso, in which a Mexican banking institution holds fee simple title for the beneficiary of the trust, the foreigner, who has all the rights of a Mexican national in terms of usage, rental, sale, modification, etc. to the property.

Many object to using the trust saying it is cumbersome and expensive.   The banks charge an annual fee of 350. to 500. USD simply for holding title.    When compared to the property taxes that one normally pays in his or her native country, however, the expense seems modest.  Besides this is the ONLY legal way to hold title to a residence in the restricted zone of Mexico.

One of the major benefits of holding title in the Mexican bank trust,  the fideicomiso, is that the owner of the property in trust has the right to name heirs and substitute beneficiaries within the corpus of the trust.    This eliminates the need for a probate proceeding in a Mexican court which can take a year and cost several thousand dollars.

Thus, Joe and Margaret Smith, as owners of the beneficial rights under the trust for their beachfront home, may then name themselves as substitutes and then their children as substitutes when Joe and Margaret pass on.    So Joe dies and Margaret obtains full ownership, then when Margaret deceases,  Johnny and Joan, their children, can come into full ownership as the owners of the beneficial rights.    All of this without a court proceeding provided it is set up correctly within the fideicomiso contract.

Procedure and costs:   When the primary beneficiary(ies) pass on, the substitutes must present  death certificate(s) for the deceased, with apostille.   This is translated and handed to the trustee bank which will then move forward to obtain a new permit from the Secretary of Foreign Relations in the name of the substitute.   An appraisal must be made which will indicate current value of the property at time of death.   This establishes the stepped up basis, the new value for tax purposes.   The beneficiary will be required to pay a one (1%) percent acquisition tax on the entire new appraised value.  No other taxes are involved since Mexico does not have an inheritance tax.

Costs for the transfer  involve a new permit, bank trustee fees, appraisal, a notary fee, registrations plus the 1% acquisition tax.   Basic fees on a 350,000. property will probably run about two (2%) percent of the newly appraised property value, plus the 1% acquisition tax, for a total of approximately 3%.    What is saved here is several thousand dollars in probate and legal fees and a year minimum in probate court.

Copyright, 2013-14, 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, 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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