I continue the Mexican Real Estate 101 series with a list below of some of the essential due diligence actions that should be performed before entering into a Mexican real estate transaction.   

Investors in Mexican real estate should always consult with a licensed Mexican real estate attorney before buying any property in Mexico.

  1. Title Review.  The buyer’s Mexican counsel must review the chain of title by analyzing certified copies of the title deeds obtained from Public Registry of Property located in jurisdiction of the real estate.  Any liens and encumbrances on the property will appear in the property records obtained from the Public Registry.  The property records are kept in different books, which are page numbered and organized in volumes.  If possible, a recognized title insurance company in Mexico (such as Stewart Title, First American Title Insurance, Chicago Title, etc.) should perform a supplemental title review in addition to the review performed by local counsel.  If the title review indicates that the chain of title is unclear or interrupted, further research should be performed to determine if there is a serious title defect.  If the title defect involves corrections to the metes and bounds property description, the problem is generally solved by requesting that corrections be made at the Public Registry, provided that the modifications have been agreed to in writing by the owner of the adjacent land.  If such agreement cannot be obtained, judicial action may be necessary, which could be costly and protracted and the buyer may instead decide to terminate the transaction.
  2. Title Insurance.  If possible, the buyer should obtain a commitment for title insurance from a recognized title insurance company in Mexico.  Stewart Title and First American offer owner and mortgagee policies adapted from the American Land Title Association (ALTA) policy forms.  Policies can be issued in either U.S. Dollars or Pesos and can be written to insure any recognized land interest in Mexico, including direct ownership, leasehold, trust, or beneficial ownership.  Among the risks insured are mortgages, mechanic’s and tax liens, easements, contractual obligations restricting the use of the property, and adverse possession.  Approximate cost for title insurance is .0065% of the total transaction amount.
  3. Availability of Utilities. Buyer’s counsel should review and analyze availability of water, sewer, gas, electric and telephone services to the property provided by the applicable local authorities.  Water utilities are particularly important if the target property is located in a dry region and the proposed development includes a golf course or other feature that requires irrigation or significant water use.  Local counsel should review the arrangement between the property and the local water utility provider, which should have a National Water Commission (Comisión Nacional del Agua) concession.  Water provided under a water supply agreement with the local water utility company must derive from a federal NWC concession.  Buyer’s lawyer should confirm that the water supply agreements are in full force and effect and that they provide certainty to the buyer, both in terms of amounts of water required and for the time periods required.  If water is unavailable, other options (e.g., a well or desalination plant) should be considered.
  4. Zoning/Use Restrictions; Condominium Regulations. Buyer’s counsel should confirm that the current and intended uses of the property do not violate zoning, development, and land use (uso de suelo) laws and regulations.  Each Mexican municipality of regional importance will have an urban development plan.  Buyer’s counsel should determine whether there are any limitations on construction of the target property.  Most urban development plans contain density limitations.  If an existing condominium is to be purchased, local counsel must review the condominium regulations regarding design and architectural restrictions and any review process required.
  5. Survey/Legal Description of Property. Although surveys are not obtained in all real estate transactions in Mexico, it is strongly recommended that buyer obtain a real estate survey prepared by a qualified Mexican surveyor showing the boundaries and measurements of the property.  Surveyors in Mexico are now making use of GPS to create detailed surveys.  
  6. Certificate of Encumbrances. Buyer’s counsel should request a certificate of encumbrances (Certificado de Gravámenes) from the Public Registry of Property.  This certificate will enable the Mexican Notary Public to assess whether the property has any liens, encumbrances or claims attached.  At a minimum, this document must contain the following information: (i) the time period covered by the certificate; (ii) the surface area of the property; (iii) a metes and bounds description of the property; (iv) the name of the property owner; (v) the classification the property (urban or rural); (vi) a legal description of the ownership of the property (e.g., whether held in trust, owned by several individuals, etc.); and (vii) the name and signature of the Public Registrar and the official seal of the Public Registry of Property.
  7. Tax Certificate. Obtain a tax certificate from the Municipal Treasury Office showing that all property taxes are paid in full.  At a minimum, this certificate should contain the following information: (i) the property tax identification number (clave catastral); (ii) the tax appraisal value; (iii) the name of the owner; and (iii) the signature of the department head and seal of the Municipal Treasury Office.  It is not uncommon in Mexico for property owners to fail to pay taxes for several consecutive years.  In order to register the public deed in the Public Registry of Property after the sale has closed, the taxes must be paid in full.  In the State of Baja California and certain other Mexican states, the tax certificate must also state that there are no pending debts with local authorities such as the State Water Services Board.
  8. Environmental Laws. Buyer should confirm that the property is in compliance with all environmental laws, preferably using well-qualified Mexican environmental auditors (of which there are few; Buyer should check background and experience before hiring).  If the real estate is acquired to develop a tourist or industrial activity, an environmental impact authorization may be required from the applicable environmental authorities.  Other specific studies may be necessary depending on type of development (e.g., geological studies if buildings are to be constructed on a hillside).
  9. Appraisal. Obtain an appraisal (Avalúo) of the property from a certified appraiser.  An appraisal of the property is required in connection with any sale by Mexican real estate law.  A Mexican Notary Public will generally obtain the appraisal on behalf of the parties.
  10. Federal Maritime Zone.  Beachfront property is likely to be located in the Federal Maritime Zone, which is the area located along the full length of the Mexican coast and twenty meters inland from the mean high tide line.  Land in the Federal Maritime Zone is public property, but the Mexican Government often grants 15-year concessions to landowners for exclusive use of the property.  Buyers of coastal property should confirm (1) that the payment of dues on the concession, if any, is current, (2) if the concession is soon to expire, whether it may be renewed, and (3) whether third parties may seek or maintain rights to the concession.
  11. Labor Issues.  If the buyer seeks to acquire an existing hotel/resort development, factory, etc. that has employees, buyer’s Mexican labor and employment counsel should review all existing collective bargaining and individual labor agreements with unionized and other employees to confirm that the transaction will not violate the terms of those agreements and determine any obligations of seller or buyer in connection with the transaction (severance obligations, etc.).  A purchase of the assets of a Mexican entity invokes the concept of “employer substitution” under Mexican labor law, which renders the buyer liable jointly with the seller for all of the labor compensation and other labor obligations of the seller for six months from the date the employees or union are notified of the substitution.  After six months, only the new employer (buyer) is liable.  The buyer and the seller may agree in writing to limit such liability.