The following is an excerpt by David William Connell, a licensed Mexican attorney and managing partner of Connell & Associates with offices in Mexico City, Ixtapa-Zihuatanejo and Puerto Vallarta. This information is to be considered a guideline for a property owner's responsibilities once they have closed on their property.
For a foreigner, buying property in Mexico is a new and different experience. Most foreigners spend time researching the procedure of buying property, setting up a trust or a corporation and becoming familiar with the different permits and costs required to close on a property transaction in Mexico. A lot of effort is put into becoming familiar with the "closing procedure" yet very little time is spend on understanding what ongoing obligations exist after the property has been purchased. Furthermore, there is very little information on what these ongoing obligations are. The article will act as a general checklist for the types of obligations that any foreigner should observe after purchasing property in Mexico.
1. Trustee Fees
If you bought your property through a trust, your trustee (bank) will charge you an annual administration fee to hold your trust. This fee needs to be paid to the bank every year. Some banks use the anniversary of the trust closing date as the date when this fee is due while others prorate the first year fee and start the second year on January 1st. Ask your bank or property manager to verify this date.
When your trust is set up your bank/trustee designates a "trust account number" for the trust. Please understand that this number is not in your deed and is a number that the bank generates to keep track of your trust. You need to get a copy of this trust account number because it is the file number the bank uses to keep track of the status of your trust and payments that are due.
Branch offices of the same bank as your trustee do not usually have your "trust account number" on record but if you have the trust account number they locate your via a central office and accept the annual payments you owe.
Most banks charge late fees for not paying on time so timely payment is recommended. Furthermore, most banks do not send you a notification of when these fees are due so it is your responsibility to make sure you know when payment is due and make the corresponding payment. You can either pay these fees yourself or hire a property administration service to pay them for you.
Again, in most cases foreigners do not want to spend part of their vacation dealing with bank managers trying to get these fees paid. However, if you do want to do it yourself and save some money, you will need the trust account number in order to make the deposit. When you pay the bank this fee, make sure you get a copy of the receipt. Banks are famous for not recording annual trust payments and have been known to try and double and triple charge. Your receipts will confirm your payment.
2. Property Taxes
Property taxes will need to be paid on your property yearly. These taxes are paid at the municipal offices that correspond to the location of the property. Property tax is called "impuesto predial". Your property has a Property Tax Account number, which is called your "Cuenta Catastral". This is the number you need to provide to the municipal property tax authority in order to get your yearly Property Tax Assessment.
Do not wait for the municipality to send you a bill or reminder, it is your obligation to go and pay this tax. Most municipalities will give you a discount for paying during January, February and March and start with late penalities in April.
You can either pay your property taxes yourself or hire a property management service to do it for you. Most people find that when they come to Mexico, the last thing they want to do is spend a morning or day at the municipal offices trying to figure out how to pay these taxes. This is the principal reason why foreigners hire property manager to take care of the property tax payments..If you do have a property manager make these payments for you (or for that matter any payment), have them fax you a copy of the paid property tax bill as soon as it is paid in order to confirm 1) the amount you paid and 2) that it was paid.
The calculation of property tax varies for municipality to municipality and from state to state. Your property tax is calculated based on the "Valor Catastral" of Property Tax Value of your property. Most municipalities (but by no means all of them) charge 2% of the land value and 1.2% - 2% of the construction value. In most municipalities these "Catastro" values are very low and therefore your taxes are low.
- When you pay your property tax and get your receipt we recommend that you:
- Make sure what you paid is stated on the receipt (less the property managers fees)
- Verify that the information on the receipt is correct including: Location of property, Property Tax Account Number - "Cuenta Catastral". Make sure it is the right account number. If you have a doubt, check your deed for the number.
- Check that the calculation of how they arrived at your tax is understandable. I like to take the calculation of land and construction and work it backwards in order to understand the exact percentages charge to me. I have found many, many errors in these calculations.
- Make sure the receipt has a name, signature (or stamp) and date of payment. Payments should be made to the municipal treasurer or "Tesoreria Municipal".
Many times you will see other charges on your bill for items such as "Proeducacion" (education) or "Pro-caminos" (roads). This is normal but all of these charges should make reference to the percentage you are being charged (it is common to charge 15% of the tax amount for these items). Again make sure the calculation is correct. Put your property tax receipt in the same file with your deed. These receipts are important documents in Mexico.
3. Paying Bills
Do not expect your bills to be sent to your house on time. A lot of your bills wil not make it there at all or they will come after the due date. This can be a very frustrating experience for foreign buyers in Mexico. If you are not going to hire someone to pay your bills, you need to know when the bills are due. Water, electricity and telephone are usually due on the same day every month (or every other month". Service on electricity and telephone do get cut within days of non payment and getting you reconnected takes more time and money. When a bill is due and you not yet received it, you need to go to the compnay's office and make the payment. Make sure you take the last bill you have so that the company can easily identify your account number and tell you how much is owed. Most service providers will not accept checks or credit cards so make sure you take enough cash to pay your bill.
Telephone (Telmex) and electricity (CFE) can now be paid on line which makes things a lot easier. However, you will need to deal with their web page in Spanish and go through the learning curve of setting this up.
Water is usually local and needs to be paid, in most cases, at the corresponding office or at the bank. Gas in Mexico is not brought to your house via pipelines but is delivered in trucks. You will need to fill your own tanks or make sure that there is somone in charge of doing this. Other service providers such as cable, satellite, etc., usually will set up annual payments and/or monthly debt payments on a credit card.
If you have construction, you should insure it. We recommend using the bigger insurance companies as they seem to respond better to claims. You can contact most insurance companies on line and they will put you in contact with the local agent. There are a few things that I always recommend when you get insurance:
- Make sure you go over the amounts for each item (fire, flood, earthquake, etc.) and that you are in agreement. Note: most of the time these are expressed in pesos but not always. Make sure you know the money type. I have seen unfortunate cases where people thought they had a $500,000 dollar policy that turned out to be a $500,000 peso policy.
- Make sure that when you pay the agent you get a receipt and an original policy with the policy number at the top. Most agents are very good but there are a few that have taken clients money and not paid for the policy. The insurance companies will veryify policy numbers on line or via phone.
- Do not expect them to send you a notification that your insurance has expired. You need to put this on your calendar and get in touch with the insurance company.
- If you have a claim, make it right away and in writing. Over-the-phone claims do not count (even though they legally should). Write it down and send it in. You need to be proactive in following your claims up and always make sure the local agent and the central office are both copied on your claims.
6. Zona Federal
If you have a property that borders on the Federal Zone (beach, river, lake, lagoon, etc) you will want to consider applying for the exclusive use and enjoyment of this zone. On the beach this zone includes 20 meters inland from the "mean" or average high tide line. The federal government can grant you a concesion to use and enjoy this property for a determined amount of time and will almost always renew the concesion if you have complied with its terms.
If you acquire the concession for the Federal Zone you will need to make the corresponding yearly payment, which is based on the number square meters of Federal Zone you occupy.
Why would you want the Federal Zone Concession? There are two main reasons: 1)to increase the value of your property and 2) to keep someone from setting up a "taco stand" or other unattractive structure on this land.
A concession application can possibly take up to 3 years to be granted unless you hire somone to push it through the entire process. Note: the Federal Zone Concession is not your Federal Zone property taxes, which are figured off a percentage of the amount of property you use/own in the Federal Zone connected to your property. Federal Zone property taxes are to be paid at the same time as your regular property taxes, usually located in the same building in a separate office.
Things are different in Mexico and there are many other things that will come up after buying your property. Many companies as well as the government will not send you bills so you need to make sure you are keeping track of what needs to be paid and when. Try to find a system or someone you can work with and stick with it. Reducing your time in getting these items done will give you more time to enjoy your property. The Mexican culture is different from what you are probably used to. I recommend you enjoy learning a new (not better, not worse) way of doing things. If you have concerns, make sure you use competent and trustworthy people to help you, such as an experienced real estate agent, attorney, accountant, property manager or even another home owner who has been living in the country for a number of years. Doing it right the first time will save more than half the cost.
David W. Connell, Posted April 28, 2013