The Purchase Process
Find out how the property purchase process works in Mexico and what to expect after making an offer and signing a contract...
The process of purchasing a property in Mexico is complex and often lengthy. Newcomers may be used to thinking about this process as a relatively straightforward and impersonal business transaction, and may not appreciate the extent to which non-business considerations come into play in the Mexican content. Complications, such a difficulty obtaining financing or required documentation, can arise at any stage of the process and can significantly extend the agreed upon timeline.
Once a property has been found, an informal offer is made to the seller. This is often done in writing, but may be done verbally. The offer must include the offered price, and the details of payment, in particular the deposit or down-payment to be paid at the signing of the contrato de promesa de compraventa (agreement or “promise” to sell and purchase – this is distinct from the contrato de compraventa). This preliminary offer is not binding, and even if a seller accepts the offer, either party may withdraw at any time. Offers may also specify certain repairs to be undertaken by the owner, although the norm is that property is sold “as is.” Owners will often – but not always – accept an offer that involves financing of the purchase price.
Once an offer is accepted, the price is considered to have been established, and if the buyer discovers a defect in the property, owners are just as likely to call off the agreement as they are to negotiate a reduced price. Prospective buyers should consider bringing architects or engineers with them to evaluate the state of the property before an offer is made.
If the offer is accepted, the parties sign a purchase agreement (contrato de promesa de compraventa). This document is an agreement to sell/purchase the property at an agreed upon price. Prices may be agreed to in foreign currency, but must be paid in Mexican pesos when the actual purchase agreement (contrato de compraventa) is signed. The agreement also specifies a closing date that could be several months in the future if financing is required. At this time, the deposit is paid to the owner according to the terms laid out in the offer.
The contrato de promesa de compraventa does not complete the transfer of property, and should be understood simply as a mutual commitment to do so, and is binding. If either party decides not to proceed with the purchase, they should expect to pay a penalty of a certain percentage of the deposit – this amount is negotiable, and should be explicitly stated in the contrato de promesa de compraventa. If financing is required for the purchase, buyers should also seek to include a clause that waives or reduces the penalty if buyers are not able to secure a mortgage. Similarly, a clause should be included that commits the parties to renegotiate a closing date if financing is delayed or if the notary has not yet completed the necessary paperwork by the original closing date. In some deals, the parties may agree to skip this step and go directly to the notary public for the signing of the deed.
Agents function as mediators in the transaction, bringing the parties together. With the signing of the contract, the agent’s job is done, although individual agents may continue to support their clients through the remainder of the process. Agents’ fees are payable by the seller at this point.
Regulations governing both contracts (the contrato de promesa de compraventa and the contrato de compraventa) are found in each state’s civil code, and may vary. However, in general the obligations regarding the contrato de compraventa for each party are as follows:
The seller is obliged to:
- Surrender the property to the buyer on the day and under the conditions specified in the contract
- Guarantee that the property is kept in a good condition until it is surrendered to the buyer
- Pay all taxes and contributions, and surrender the property free of debts
The buyer is obliged to:
- Pay the price settled in the contract plus the fees for the notary
- Pay taxes and contributions associated with the purchase
Examples of contracts in Spanish can be found online, but it is advisable to have a lawyer review any contract before signing. The contrato de compraventa may be signed in front of a notary public, but this is not compulsory.
Financing a Purchase
Some financial institutions may be willing to provide prospective buyers with a pre-approved mortgage, reducing the time period from offer to transfer of property. However, mortgages are generally sought after a contrato de promesa de compraventa has been signed and the bank has received details of the property.
Mortgages are a secure way to finance a property purchase and the contract between the borrower and the financial institution is certified by a notary public and registered in the Public Registry of Property. Cash may be used to purchase property, but transactions of more than $500,000 M.N. must be reported to the tax authorities (Sistema de Administración Tributaria - SAT) as a measure to prevent money-laundering. This is generally done by the notary public and other parties involved in the transaction.
Mortgage contracts are regulated by the Civil Code of the state in which the contract is signed, as well as by the Central Bank of Mexico.
- Find out more about Central Bank regulations (in Spanish)
- Find mortage providers in Mexico City in the Business Directory
Article 27 of the Mexican constitution states that only Mexicans may own property, so foreigners must obtain a permit (convenio) from the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores - SRE) that grants them permission. Buyers make this application after signing the purchase agreement; details about the property to be purchased must be included in the application process.
At the core of the permit is the Calvo Clause (Cláusula Calvo), a clause whereby foreigners waive the right to invoke the protection of their home government in the event of a property dispute between the foreign owner and the government of Mexico.
Applicants must appear in person, or through a legal representative, at the Legal Affairs Directory of the Ministry of Foreign Affairs to provide basic information about themselves, their legal representative if applicable, and the property. A fee must also be paid at that time. The approval process takes between two and five business days.
- Find information about the convenio and the application requirements, on the SRE website (in Spanish). Links to application forms in Word format can be found under Requisitos, numbered S1 and S2.
Contact information for the SRE in the Distrito Federal:
- At: Plaza Juárez 20, Col. Centro, Mexico DF.
Tel: (55) 3886 5100
Open: Monday to Friday 09:00–18:00; official ID is required for entrance
- Find contact details (in Spanish) for Delegation and State offices of the SRE
More information about regulations and procedures can be obtained by telephone on (55) 3686 5100 extensions 6419 and 641.
Establishing a Fideicomiso
In addition to the convenio, foreigners purchasing ejido land or property within 100 Km of a border or 50 Km of a coastline must establish a fideicomiso, or bank trusteeship. This involves a contract between a Mexican bank and a non-Mexican individual (or company) where the bank, as trustee, becomes the legal owner of the property.
Although the bank holds the deed to the property in trust for the purchaser – referred to as the beneficiary of the trust – the purchaser is given the exclusive right to use and control the property. This includes the right to build on the property, to profit by selling it, to borrow money against it, or to designate/will it to other beneficiaries. The beneficiary is also entitled to claim the property as an asset for accounting purposes. The fideicomiso expires after 50 years, but may be renewed.
The process of establishing a fideicomiso begins after an offer has been accepted.
There are fees associated with establishing the fideicomiso and yearly fees to maintain it. It is usually drafted by the financial institution, which uses its own notaries.
The process of buying and selling any type of property or land is regulated at a state level in Mexico. While some procedures in the property purchase process may be identical in all states, others may differ. This section aims to give an overview of what is involved in buying a property in Mexico, prepared by a real estate expert in the Mexico City property market. It should be noted that for particular practices and requirements in areas other than Mexico City, advice should be sought from a professional familiar with the property market in that state.