More San Diegans are interested in purchasing real estate in Mexico. And the questions they’re asking are: how to buy safely; how to avoid making mistakes that will lead to losing the purchased property; and what are the going prices in Baja California.

The first thing a prospective buyer needs to understand is how the Mexican property ownership system works.

Mexican real property ownership laws for non-Mexican citizens are specific. A Mexican citizen can purchase land, with or without improvements, and obtain fee simple title anywhere in Mexico. For a foreigner, location of the property being purchased will determine whether fee simple title can be obtained or whether the purchase will be limited to the right to use the property for a maximum number of years.

No foreign individual can obtain fee simple title in what is designated the “Restricted Area,” a zone defined as being 100 kilometers (about 62 miles) from Mexico’s northern or southern borders and 50 kilometers (about 31 miles) from all seashores. Anywhere outside the restricted zone foreigners can obtain fee simple title to real property. For San Diegans eyeing Baja California, it is all effectively within the restricted zone.

Exceptions are foreign-owned Mexican corporations that buy property for the purpose of developing tourist resorts, housing, industrial or commercial property. In such cases a Mexican corporation is the “citizen” although the stock may be 100 percent owned by foreigners. But the purchase of an individual home would not qualify for incorporating in Mexico.

In the restricted zone, foreigners can acquire the right to the use of real property through a real estate trust known in Spanish as “Fideicomiso.” They also need a permit (more a registry for the Mexican government to know how many foreigners own real estate in Mexico) from the Secretaria de Relaciones Exteriores (Secretariat of Foreign Relations). A Mexican bank acts as the trustee. The property seller transfers to the bank (trustee) the ownership of the property, naming the buyer (the foreign purchaser) as the beneficiary of the trust. Thus, title is in the hands of the bank under a trust allowing foreigners the use of the property. The beneficiary can build, add or remove portions of the building by obtaining the proper permits.

The trust is good for 50 years, renewable for an additional 50 years. The beneficiary has the right to sell at any time, for whatever price can be obtained, to a Mexican national or another foreigner who would then create a new trust. The trust also can be willed to heirs, who, if they are foreigners, can establish their own 50-year renewable trust or sell.

Simple as the rules sound, the best advice is to use a qualified Mexican attorney when purchasing property. It’s best to have the attorney in place before you start looking. The U.S. Consulate in Tijuana cannot make individual recommendations, but does have a list of qualified attorneys. A San Diego attorney also may be able to recommend a lawyer in Mexico.

An indispensable player in purchasing property is the “Notario.” This is a Mexican attorney who has legal authority to lawfully authenticate legal acts and public facts. A non-Notario attorney may be contracted to do the negotiations and research the property ownership, but only a Notario can authenticate the attorney’s research, record the deed and register it in the Public Registry of Property. Without the Notario’s work on a given property, a Mexican bank will not create the trust.

The selling and buying of real estate in Mexico creates a tax liability to the seller and the buyer. The seller incurs an income liability which is estimated by the Notario or bank and withheld from the purchase funds. The buyer will pay the transfer of title tax. Depending on the site, the tax can range from 2 percent to 5 percent of the selling price or appraised value, whichever is higher.

Mexico has legal procedures to protect the parties in real estate transactions. The bank chosen as trustee can also act as the “escrow” service. When agreeing to the purchase of the property, a conditional deposit form is signed. Monies are deposited with the bank that will make the distribution of such funds once all the conditions are met, most importantly when title to the property is in possession of the bank trust. If the title has not been issued or received by the bank within the specified time in the agreement, the bank refunds the buyer (trust beneficiary) the deposit, canceling the transaction.

In future issues this column will discuss other elements of real estate development, construction and ownership in Mexico.

Patrick Osio Jr. can be reached at posiojr@sandiegometro.com. The veteran consultant also has issued The Mexican Perspective, an intensive primer on business culture and protocol. Copies are available at http://www.hispanicvista.com/sales/book_sale.htm.