The basic governing document of Mexico is its Constitution. It defines the types of property and establishes restricted zones such as the ejido system and the Zona Federal Maritimo Terrestre (Maritime Federal Zone). The Maritimo zone is the strip of public domain land along the coastline which extends twenty meters inland from the high-tide line.

The Foreign Investment Act is a federal statue which provides a legal framework for foreign investment and establishes rules for channeling international capital into Mexico. This act regulates the acquisition of real estate and trusts (fideicomisos) as well as foreign corporations and their investments. The Act sets forth strategic areas of land reserved for State ownership or control and economic activities exclusively reserved for Mexican nationals. The l993 reform of this Act eased restrictions on foreign ownership of real estate. For example, it made foreign ownership of agricultural land legal.

The Civil Code is the comprehensive body of law which governs real and personal property, possession, ownership, easements and statue of limitations, contracts, special obligations and their effects, leases, agency, professional services, associations and companies, mortgages, credits and the public registry of property and commerce.

The General Law of National Properties is the body of law which governs property belonging to the state.

Condominium law is the law which sets forth regulations and standards for the operation of condominiums, known as the condo regimen.

Tax laws regulate the federal income tax of a federal assets tax, a federal sales tax (value added tax), federal social security tax, and other tax areas.

The General Law of negotiable Instrument is a collection of federal statues which regulate credit instruments such as promissory notes, checks, certificates of participation, and certificates of deposit. This Law also governs credit operations such as securities, deposits, discounts, several kinds of credit operations, guaranties, and trusts including fideicomiso.

The Commercial Code regulates all commercial activity, including contracts, documents of credit institutions, land and water transportation, bankruptcy, arbitration, and procedures for commercial litigation.

The Public Registry is the public record of property deeds. Administration of the Federal Public Registry (RPdeC) is a combination of central and local offices.

The Notary Law and Federal Law of Public Brokerage regulate Notaries, and the public brokers specializing in mercantile and property law. They are entrusted by the Government with the duties of broker, appraisal expert, legal advisor arbitrator and public recorder of official documents. Persons practicing real estate are under these laws.

Agrarian law is the body of law which maintains the National Agrarian Registry which endorses the position and modification of ejido land. Once a parcel of land is totally unincorporated from agrarian control, its registry is transferred to the local Public Registry of Property.

Corporation Law regulates formation and operation of corporate business entities.

Calvo Clause is a clause which is part of the Constitution and it is very important for foreign real estate owners. The clause states that the real estate owners agree to be bound by the laws of México and to not seek recourse to law in their home countries. Foreigners must sign a Calvo Clause agreement to obtain permission for real estate ownership from Mexico’s Secretary of Foreign Affairs.

Escrow services, title insurance and mortgage insurance are essential real estate services which are currently in its infancy in Mexico, but it is developing rapidly. American and Stewart Title companies are among those offering title insurance and escrow services. US mortgage companies include GE Financial, Wachovia, and AIG United Guaranty. Mexico’s Federal Mortgage Society (SHF) is a government-backed agency seeking to promote home lending and the development of a secondary market for mortgage debut. . SHF is the only entity permitted by law to sell mortgage insurance, but with the entry of foreign financing companies, the door is opening for more development of mortgage lending and insurance.

It is important to realize that there are many foreign banks with branches operating in Mexico. Among these are Bancomer (BVVA Spain), Banamex (part-owned by CitiBank USA), Banco Santander (part-owned by Bank of America), HSBC, Barclay’s, Banque Paribas, Commerzbank, Credit Suisse, Royal Bank of Canada.

Who Buys in Mexico?

In Mexico, the majority of foreign real estate buyers are from the USA, Canada and Latin American countries. A fourth significant number of buyers are from the European Union countries.

Retirees look for the mild climate and lower cost of living. Expatriate retiree communities are well-established in Lake Chapala and Ajijic near Guadalajara. For access to medical care, many retirees prefer to be within driving distance from the border in areas such as Puerto Peñasco, south of the Arizona/México crossing. It is important to note that currently US Medicare does not reimburse expenses incurred outside of the USA. If this rule was changed, the number of expatriate retirees would increase dramatically.

Recipients of US Social Security benefits may receive their monthly checks regardless of where they live, so many US expats have their checks deposited directly into a US bank account from which can be drawn funds by transfer or ATM withdrawal.

Second and Vacation-Home Byers are predominately Pre-retirement Baby Boomers and second or vacation home buyers looking for affordability, easy access, appreciation potential and recreational enjoyment. Some may also look for current rental income. Many of these buyers are nearing or in semi-retirement who view their vacation home as their future retirement residence. People of Mexican ancestry are a large group of potential buyers, especially those with family ties, who want to return to their “roots” when they retire.

Investors look for affordability, access, appreciation potential and current rental income. They may invest in multiple properties as will as purchase land for development.

Areas Popular with Foreign Buyers currently include the following:

The Baja or Sea of Cortez includes the communities of Loreto, Los Cabos, Todos Santos, Ensenada, La Paz, San Felipe and Santa Rosalía. Commercial Cities are Tijuana and Mexicali.

The Pacific Coast includes Acapulco, Puerto Vallarta, Nuevo Vallarta, Zihuatanejo, Ixtapa, Manzanillo, Mazatlán, Guaymas, Puerto Peñasco, Barra de Navidad, Puerto Escondido, Nayarit, Puerto Libertad, Punta Delfín, Liberty Cove and Huatalco. Comercial cities are Mazatlán and Topolobampo.

The Gulf Coast includes Cancun, Playa del Carmen, Cozumel, Rivera Maya, Costa Maya, and Tulum. Commerical cities includeVeracruz, Tampico, Campeche, Mérida, Progresso, Ciudad Victoria, Matamoros, Villahermosa.

The Interior of México popular with foreign buyers includes San Miguel de Allende, Aguascalientes, Cuernavaca, Guadalajalara, Lake Chapala, Ajijic, Oaxaca, Morelia, Guanajuato, Barrancas de Cobe, and Palenque. Commerical cities inlcude Juárez, Puebla, Toluca, Hermosillo, San Luís Potosí, León, México City, Chihuahua, Reynosa, Guadalajara, Monterrey.

Fonatur is Mexico’s national trust for the promotion of tourism. Its mission is to stimulate development of tourism infrastructure and resort sites. One of its most successful developments in the past is Cancun. Prior to Fonatur selecting the site and beginning development in l970, the area was sand dunes, tropical forest and empty beaches. Five years later the resort had grown into 18,000 inhabitants with 1,500 hotel rooms and 5,000 jobs. Today, Cancun contributes one quarter of all tourism revenue to México’ GDP.

Other Fonatur developments include Nayarit to the north f Jalisco. There is a massive amount of infrastructure going into development of roads for residential and commercial development sites. Boutique hotels and marinas are among the amenities planned for this area.

It is a good idea to watch for Fonatur’s future development plans if you want to know where the next “hot” destinations are planned.

Information for this article has been furnished from the NAR (National Association of Realtors)

Harriet Cochran Murray

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.