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If you're considering investing in land or a pre-built home on Cozumel, there are some things you should know. Because Mexican real estate transactions work on a different set of rules than you are probably used to.
One of the major differences, according to Dennis Peyton of Peyton and Associates, a US firm specializing in Mexican foreign investment, is that real estate transactions here are largely unregulated.
There is, for example, no Real Estate Commisioner, Department of Real Estate or the like. Nor are there any special requirements or brokerage licenses to obtain. So, basically, all a wanna-be realtor has to do to hang out a shingle is establish a Mexican corporation and, if they're a foreigner, obtain a work visa.
For this reason, we can't stress strongly enough how important it is to retain a reputable Mexican lawyer to guard your interests in any real estate transaction.
The up-side is that Mexican lawyers are much more reasonably priced than their counterparts in the US. We believe you will be pleasantly surprised.
Another thing that's very different about purchasing property in Mexico applies specifically to Cozumel because the entire island is inside what is known as "the restricted zone."
Background Info
In 1917 Mexican Constitution placed into effect a law designed to put a stop to past problems with the French, Spanish and Americans controlling Mexico's land and waterways. Now Mexicans only could own land.
Times changed and, in 1973, along came a constitutional amendment called the Foreign Investment Law. This amendment allowed foreigners to purchase property anywhere in Mexico -- except in what has come to be known as the "restricted zone."
The restricted zone is defined as within 32 miles of the coast during high tide and 64 miles from any border. So Cozumel, which is only about 12 miles wide is entirely in the restricted zone.
The following year, when NAFTA went into effect, Mexico passed another amendent to the constitution that allowed foreigners to own property in the restricted zone. But it had to be through a bank trust known in Spanish as a fideicomiso (fee DAY ee coh MEE so). This trust system was an end run around the constitution's restrictions on foreign property ownership. It allowed allowed foreigners to legally own land near the coastline or border without actually having to change the basic Mexican Constitution.
On Cozumel today the vast majority of foreign home owners own their property through a fideicomisco bank trust.
About Fideicomiscos
Here's how they work: When you're ready to buy land or a lot, you choose a Mexican bank to be your "trustee". The bank holds the trust deed for you, the buyer, who is known as the trust beneficiary. It should be made clear that your new property is not part of the bank’s assets and cannot be subject to any lien or attachment for any bank obligations. As the beneficiary of your bank trust, you have all ownership rights to the property and may sell, lease, mortgage or pass it on to your heirs.
A bank trust is not a lease.You really do own the property. But the bank is supposed to be there to protect your interests and, as we said, circumvent the Mexican constitution which they don't feel like changing just yet.
Trusts are usually granted for 50 year periods. When the trust period ends, you have an additional 10 years to renew it for yet another 50-year period and on and on until you or your heirs decide to sell the property. At which time your trust is dissolved and a new one established for the new property owner.
There's an initial fee for setting up your trust which your lawyer can handle for you . The fees can range from a low of around $350 US to over $1000. There is also a yearly fee you must pay to the bank which seems to bear some relationship to the size of the property. But generally it will be between $250 and $400 US/year. TIP: Have your lawyer help you shop all the banks before signing up for your trust.
How the Buying Process Works
Your bi-lingual lawyer will take you through all this step-by-step . Which is another good reason to hire one because the process is a mite confusing if you haven't done it before.
Here's a general overview of the process, however. Just so you know what's involved. Because, again, it works differently than it does in the US. The biggest difference is that in Mexico there is an intermediary between you and your lawyer and the seller. This person is a special type of Mexican lawyer known as a Notario.
The notary is a government appointed official who is also an attorney who has taken special instruction in real estate law. It is his legal responsibility to oversee all real estate transactions and to be unbiased and responsible to both the buyer and the seller. He is the government's representative and, if he doesn't make sure things are done legally and properly for all parties concerned, he can lose his government appointment.
You have a choice of notarios. Choose your lawyer carefully and he or she will recommend the best notario in the area based on past experience with them. Some are faster and less expensive than others.
The Closing Process
The closing process generally takes between 30 to 45 days. In the interim, the bank you and your lawyer have chosen to hold your trust sets up your escrow account. Meanwhile, the notary prepares your legal deed and closing papers and checks if there are any liens or problems with the title of the property.
The buyer pays closing costs which are usually about 6%-8% of the purchase price and include a 2% sales tax to the Mexican government and around 4-6% to other closing costs, such as title search, attorneys fees, filing of all legal documents and closing deal.
The seller is responsible for their own capital gains taxes, of course. And they also must cover any real estate fees owed on the property at the time of sale.
You don't have to be present at the time of sale, but a limited power of attorney will need to be given to your lawyer to execute the closing process for you in your absence.
Other Information You May Want to Know
Property Tax
Known as the predial and currently assessed a 1% of the assessed value determined at the time of sale. The Predial on Cozumel has gone up in recent years. But you can still expect to pay somewhere in the neighborhood of $500 US/year on a spacious 3 bedroom house with pool in a nice neighborhood.
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