Mexico Property Laws, Taxes, Title & More

Video Transcript - (with Alex & Chris)

 Alex:

That's probably one of the biggest misconceptions that's out there. And it's so funny when I'm out and about and somebody says, "Oh, what do you do?" And I tell them that I have an opportunity to work with incredible people at MoXi. And even just a one-liner, I tell them we make mortgages to foreigners in Latin America. That's their immediate response. "Oh, isn't it a 99-year land lease? You can't really actually own anything in Mexico." And it's like at some point that must have been true because so many people believe it's the case. But no, that's not true. A Fideicomisso is really like a trust, right? So it is full ownership.

Chris:

Absolutely.

Hey, how you doing everybody? Alex, good to see you. I'm Chris Childress with MoXi. I run the sales division over here at MoXi and I'm with Alex Koper, our CEO and President of MoXi. And we're here today to talk about starting off 2025 with growth and new opportunities here with MoXi in Mexico. How are you doing today, Alex?

Alex:

Hey Chris, I'm great. How are you doing? Thanks so much for having me, and it's fun to think about what we have ahead in 2025 and really appreciate you having me here today.

Chris:

Absolutely. I always get excited for these sessions to learn new things and explore what MoXi's up to. So let's dive in.

Alex:

All right, sounds great. Let's do it.

Chris:

We're talking about barriers to entry, things that are uncomfortable in conversations higher than what you're used to in the United States, cost, potential for exposure of these kinds of things. I mean, these are all scary things and reasons that you might pause a little bit, but let's not forget the real value in the beauty of investing in Mexico. Obviously, I live here full time. I've been down in the Cabo San Lucas area for many years now. I think we just celebrated eight years down here. I'm pretty excited about that.

Alex:

Congrats, man. That's awesome.

Chris:

Aside from the lifestyle difference in the beautiful weather where today is the 7th of January and on the news last night, I'm watching snow and blizzards and all that stuff and I'm bundled up with 51 degree nighttime temperatures over here. So not looking for sympathy, but the point is, aside from that, another benefit is the carrying cost in Mexico. Once you pass that point of entry, once you've acquired the property, then maintaining is fractional relative to what it is in the United States from a tax perspective, so forth and so on. I'm from Texas, I don't know how it is where you're at in California, but the taxes in Texas are two and a half, three and half percent depending on the age of the utility district, so forth and so on. Very, very expensive property taxes where I come from, and Mexico is just a fraction of the majority of the United States. Would you agree?

Alex:

Yeah, totally. California is statutorily 1% I think, and then there's local additions and add-ons, so it's usually one and a quarter percent is a good number to estimate with in California, generally speaking. In most of Mexico, I think we're seeing somewhere in the neighborhood of 30 basis points, so 0.3% and obviously might vary a tiny bit based on the market. And these tax rates can change, but we have yet to see that occur. We're seeing property tax rates in the 20, 30, 40 basis point area, 0.2, 0.3, 0.4%.

Chris:

A couple of million dollar property is a couple of thousand dollars a year for taxes on the high side, which is wonderful with regard to long-term carrying costs.

Alex:

Yeah, no, a hundred percent. There's so many besides the capital appreciation, the gain on sale, if you will, that we've seen just in the last few years. I think the cost of ownership is lower, generally speaking. Gosh, in California we have a hard time getting hazard insurance, right?

Chris:

Especially now.

Alex:

Yeah, right. Yeah. Insurers are pulling out of the markets. It's very, very expensive if you can get it. They're not admitted carriers and so on and so forth. We don't see the same issues in Mexico. A lot lower premiums. The hazard insurance policies that we see most of the time also include extra coverage like hydro meteorological coverage. If you have storm shutters, great. If you get policy from one carrier, if you don't get it from a different carrier, lots of different options, great pricing kind of across the board, so yeah.

Chris:

That's an interesting fact. Talking about homeowners insurance down here, we were in a team meeting back in early December here in Los Cabos with the MoXi team, and we had the pleasure of having one of our insurance partners join us. And she made a comment that, I mean, I guess it's one of those blinding glimpses of the obvious, right? But she basically said, "Whenever we insure properties over here in Mexico, we're insuring the contents in the windows," because the structure itself, unless you have an earthquake or something like that, that's going to bring down the structure. I mean, the majority of the homes over here are built out of eight inch thick cinder block walls and that kind of stuff. So insurance is not quite as expensive as what it might be in the United States because your exposure to loss is less. I found that interesting that she called that out during our gathering.

Alex:

Yeah, for sure. No, that was fascinating. Just hearing from her talk about all of the various different specifics, and you can tell she loves what she does and she's so good at it. This, by the way, one of the insurance brokers that's a preferred provider, I think her contact information is on our hazard insurance disclosure.

Chris:

It is.

Alex:

And that we don't have a business relationship with her whatsoever, but we provide the names of really good insurance agents to MoXi clients to the extent they want to contact them for a quote or for policies. So yeah, that was a really fascinating conversation.

Chris:

It was interesting to-

Alex:

We also had a great presentation from Armour Secure who does title insurance. They also do escrow, but they do title insurance across Mexico. I think they're one of the only people that write policy, so they're obviously a very close partner of ours. But just hearing them talk about all of their work and research around the underlying land for all of these developments in various different areas is fascinating. The claims, some people watching this might not even know what that is. It's a big deal.

Chris:

It's a big deal, yeah.

Alex:

It's critically important that you have a competent counsel or you're working with a competent partner like MoXi when you're buying real estate in a foreign country, please, because you could end up, what you don't know can hurt you. I think maybe that's a better way of saying it.

Chris:

Absolutely.

Alex:

If you end up buying something that looks really pretty and beautiful and you're excited to move in and either A, you don't actually own it when you're done or B, there's a claim to the underlying land that the condo building sits on or the house sits on. Someone could kick you out in pretty short order. So really important to make sure that you're doing your due diligence, especially if you're a foreigner and especially if you're transacting in a foreign country.

Chris:

Absolutely. And Alex, you brought up a couple of hot topics just in that one line there. We could spend all day visiting. Let's touch on a couple of those. Let's first talk about you brought up Armour Secure and the fact that they are, for all intents and purposes, the only title insurer in all of Mexico for residential real estate. There used to be a couple of big names down here. Another big provider-

Alex:

Stuart Title I think still writes some occasionally they're sort of in and out, Stuart Title, but...

Chris:

Right, right.

Alex:

You're right.

Chris:

I understood they shifted towards a commercial, the big master policies, I guess is what it's called with the writing the master policies. And in some cases will, by exception, write a residential policy that's protected by their master policy kind of thing. That's what I've heard. But it's an interesting topic because of the fact that in markets where it's available, we do require, our investors do require title insurance. It's necessary. There's only, for all intents and purposes, one provider for what we do, which is Armour.

And part of the title insurance process is the title search process, researching the information on the title. And for those who don't know a quick summary of this, but when you get title insurance there's multiple steps to get there. First, you gather the property documents, you open title, you begin the title search. Once we get the title search, that information, all that data and history is then reviewed and researched by a legal team. That legal team will then issue what's called a legal title opinion or their opinion of the data that's in that. They provide that to the title insurer and then the title insurer based on that legal title opinion, will then decide whether or not they're going to bind and insure that policy. Is that correct?

Alex:

Yeah. So yeah, we're ordering the title search, the title searcher, which is a different vendor based on the market who has certification or approval from the title insurance company from Armour or from Stuart in the case ... Actually, Stuart's procedure is different. We could nerd out on title insurance.

Chris:

I know we can go all day on this topic alone.

Alex:

Stuart will actually order the search if they're going to provide the title insurance policy. They'll contract directly with the searcher, whereas Armour Secure requires, in our case, MoXi to order the search from approved vendor list. That search and that report is then submitted to the title insurance company for a title commitment. But anyway, depending on the market, there are title searchers in every market across Mexico. In some cases, these records are not electronic, so they're actually going to the Registro Publico office to the public registry office, and they're ordering copies, paper copies of land records, and they're searching back to the very beginning of that particular parcel or the parcels that your condo unit development building, PUD unit, single family residence, whatever it is, sits on. And they're going and they're looking at every single transfer that was done as far back as the records will go and documenting to make sure that each and every one of those transfers was done legally and where nobody maybe in two or three, four transfers ago would have a legal stake to that land.

And it's really important to talk about the land because it's not necessarily the house, it's what the house is sitting on or what the highest and best use of that land changes over time. So maybe it was, and when we talk about ejido ejidoris, originally that was land given to farmers by the Mexican government generations ago. And so some of that land still exists, and if it wasn't transferred from the ejidoristo the developer who's now building single-family residences on that land, for example, if it wasn't done properly, or maybe there were 10 different parties in the 10 different ejidorisand only nine signed off that won their descendants 2, 3, 4 generations-

Chris:

Could stake claim.

Alex:

... legal state to can stake a claim to that land. And so anyway, the title search process is really important and varying degrees of difficulty and complexity. Los Cabos tends to be a quicker process. A lot of the records are digitized and/or there aren't a lot of land transfers that occurred. We see parts of Quintana Roo where these title searches take a little bit longer because those paper records are required and they have to be ordered. So anyway, that's sort of the starting point, the result, that report comes out and then we take that report, review it, and our underwriting team reviews it, and then it goes to the title insurance company for the commitment.

Chris:

It's important to note, and this is a subject that comes up quite often with talking with customers and even real estate agents and whatnot, but it's important to note that the cost associated with each of the pieces of the process, but for the sake of this conversation, the title search and the research, the cost associated with that is directly associated with the complexity of the project itself and how deep it is. We generally collect a few hundred dollars for our title search based off our general standard fee disclosure. But if you look at that fee disclosure, it says title search is a pretty broad range. I think it's 500 to $5,000, something significant. And you're kind of thinking, how could it possibly be arranged like that? And what we've learned over the years is that's directly associated with the complexity of the project itself and the amount of research to be done.

As you mentioned, Los Cabos is information is much more readily accessible. It's kind of in the new age with digital access and whatnot, but you get into some areas in Baja Norte or even Loreto and just different areas where they haven't advanced that much and it becomes much more complicated. We had a situation yesterday, we're talking with a borrower where our vendor came back and said, "Hey Title, there's a deep web here. We've got to research. This is what it's going to cost to move forward with this search." So that's something that we experience and just want to make people aware of.

Alex:

Yep. And I think the real estate professional community's come a long way, but I think, so it's a bit of a construct of the past where agents were telling clients, "Oh no, don't worry. You don't need to get a title search. The notary does it. It's part of what the notary does." And the notary does check usually a couple of deeds. They'll just look back to make sure that the seller that is selling right now in this current transaction has the legal right to do that, but they're not doing a full title search. They're not going back.

They're not looking at did that group of ejidorisdid the underlying land, which was 10 different sellers that came together and sold to one development company who sold it again and then subdivided and sold it again. They're not going back. They're not going that deep. And so a title search is really, really important. And in an area like Los Cabos where that might be five or $600 is probably the best money you could ever spend. It's certainly a requirement for MoXi financing. But even the folks that are watching this that are intending to pay cash, please order a title search.

Chris:

Absolutely. Yeah. Remember the notario is researching and reviewing to make sure they can legally transfer from this seller to this buyer. They're not underwriting to issue a title insurance policy to protect against stakeholders, previous stakeholders trying to stake claim on the property. So very, very important topic there. We also brought this up and it comes up quite often, not as often as it used to, and largely in part due to MoXi and the educational resources we've distributed online. But let me ask you, Alex, is fideicommissum a 99-year lease? Do I really own the property?

Alex:

That's probably one of the biggest misconceptions that's out there. And it's so funny when I'm out and about and somebody says, "Oh, what do you do?" And I tell them that I have an opportunity to work with incredible people at MoXi and even just a one-liner I tell them, "We make mortgages to foreigners in Latin America." People that's their immediate response, "Oh, isn't it a 99-year land lease? You can't really actually own anything in Mexico." And it's like at some point that must have been true because so many people believe it's the case. But no, that's not true. fideicommissum is really like a trust. So it is full ownership.

Chris:

Absolutely.

Alex:

You can profit from the sale, you can improve the property, you can do whatever you want. It's just like owning it. The Bank Trust is the one that is the recorded legal owner, and they have a fiduciary responsibility to abide by the terms of the trust. The trust is effectively that becomes the deed, and that's how MoXi records its lien in the case of a mortgage. And when you pay off the mortgage, we release our position. MoXi is first place beneficiary under the trust. The buyer or buyers or their entity, their trust, their LLC, their corporation or their individual names as foreigners are in second place beneficiary. And then when the loan is paid off, MoXi relinquishes its first place beneficiary position and the trust remains.

So the other kind of cool thing about the fideicommissum is there are 50-year terms that can be renewed, no issue, and you don't lose the property at the end of the 50 years, by the way. In many instances where MoXi is making a loan for somebody doing a purchase transaction on a resale, the fideicommissum already exists. Instead of canceling that and starting a new one, we can just do what's called a fiduciary substitution and then a transfer from sort of just substituting out. You're substituting out the fiduciary bank, but you're also removing the current owners that are in the fideicommissum and replacing it with the new owners. And that can save our clients the SRE permit, the Secretary of Foreign Affairs permit fee, and also make things a little bit faster. There's so many different intricacies and interdependencies, and that's what our legal team is so great at doing every day. But nevertheless, it's kind of a cool little trick, tip that can save some folks some money and not compromise the safety or security of the transaction.

Chris:

And there's a lot of cool features of the fideicommissum that people don't really consider when they're figuring it. Okay, it's an ownership vehicle, so forth and so on. But they don't figure, I think about a lot of the built-in features like the probate avoidance through substitute beneficiary assignment and that type of stuff that's built into the contract or built into the deed itself.

Alex:

Yeah, yep, absolutely. No, good point.

Chris:

Cool. And then also we had talked about the ejido property and the 99-year lease, and I think that's where a lot of that comes into play because what a lot of these, the owners of these ejido properties have done over the years is rather than transfer them back to sellable parcels of land, they will carve out lots and whatnot, and then they'll do long-term leases on the real estate itself, on the real property itself, up to 99 year leases I've heard. And then they will allow people to go in and construct their own homes and whatnot on that property, which seems wonderful. You've got a lot lease, and then you build your own structure.

But if they decide not to renew that lease, which they have every right to do, then any improvements on that real property belong to the owner of that real property. So when people ask us about the 99-year lease and that kind of thing, that is very different than the fideicommissum and what we're able to work within. And for the record, MoXi obviously can't work with leased real property. We only finance wholly owned property here in Mexico.

Alex:

Yep. Which is very easy to do.

Chris:

Absolutely.

Alex:

Yeah.

Chris:

Absolutely.

Alex:

We don't lend on 99 year land leases because it's not very common. So no issues.

Chris:

Well, we've got just a couple of minutes here. Do we want to dare, dare I poke the bear on some forward-thinking stuff? I know that you as our trusted leader are out doing what CEOs do, which is CEOs and mortgage companies, which is finding additional funding so we can build our product offering and expand on what we're able to do. And I think that we've got hopefully some stuff coming down line. We talked about our loan to value enhancement program to support in closing costs. We talked about the fact that our guidelines allow for seller concessions. Right now, we lend only on completed real estate ready for legal transfer here in Mexico. So that means that we don't have anything for raw land or construction loans or anything along those lines today. What do we think that looks like going forward?

Alex:

Yeah. I will be careful with my words because there's so much still in development, but we've been heads down very, very hard at work the last few months in particular. And really this comes from listening to our clients. So we want to make sure that we're getting the very best possible rate that's available from a capital market perspective for our customers. And we have brought rates down considerably. Interest rates are increasing, but MoXi's spread to those rates has consistently decreased, which is great. So we're focused on continuing to bring the most value we possibly can for our customers. And we're also listening to clients and we often think about, it's sort of an odd way of saying it, but it's like, who do we have to say no to a lot? Who are we saying no to every day? We're saying yes to a lot of folks, of course, within our credit policy, but who are we saying no to that we'd like to say yes to?

Our mission is to democratize access to global homeownership. So who are we not able to help today and how can we better align and better position our credit policy in order to be able to do that? And that's really the impetus or the focus that's set us off on this body of work in particular in the last couple of months. So we've heard feedback from the real estate community and from our customers and potential customers. They want higher maximum loan sizes today, that's two and a half million with an aggregate cap of 5 million US dollars. They want an interest only loan option. They want higher LTVs, meaning lower down payments and a bigger opportunity to leverage more. Clients have told us they want to get financing to purchase a lot or pull cash out of a lot that they already own in order to help them build. Clients want shorter-term and or adjustable rate loan financing.

Today, all of our loans are no prepayment penalty, fixed interest rate 25, 30 year. We do 15, 20, 25 and thirty-year, but the most common is 25. Some people need shorter-term financing, particularly in the high-net-worth and ultra-high-net-worth space. So those are a few of the things. The other is one very exciting thing that we'll announce soon, I'm going to be careful what I say here until it's really ready, is we really wanted to have an opportunity to, earlier in this conversation we were talking about pretty significant fixed costs, right? Notary fee, title search, commercial appraisal, title insurance, trust fees, set up for fideicommissum, so on and so forth. All of those are really, really critically important. In the lower purchase price segments, which is a good portion of Mexico, there's still a lot of value when you think about you can go to an area like Playa del Carmen or Tulum for example, and you can still get a condo for 250, $300,000, sometimes even less within spitting distance of a beach, which is pretty incredible.

And when you think about making the small dollar loan sizes and you add up all of those costs, it's a pretty significant amount. And sometimes you're better off not getting financing when you're only borrowing a hundred thousand dollars, but there's $20,000 in costs associated with doing that closing legally. And that can be significant. So we're hard at work. We have been for some time, but we're hard at work on a program to serve those markets better and serve those clients better and give them access to capital quickly that enables them to maybe buy pre-construction and they need cash to get started with a unit or a development that won't be ready for two years. And they're looking for some help along those lines. So we're hard at work on that program. More to come in the future. But suffice it to say, I think if you looked at our executive leadership team's project list for the last four and a half months, it is the longest it's ever been, the most complex it's ever been, but the most exciting for sure.

We're listening to our clients, we're listening to real estate partners. We're thinking about which new markets we can introduce to MoXi, which new eligible borrower citizenships we can introduce to MoXi. We're talking about some really exciting things on the horizon with respect to MoXi-approved developments, which is a really important aspect to what we do giving buyers that confidence that, gosh, this collateral has been diligenced. So we were talking about the issues and land title transfers and some of those things. And when you don't know what you don't know, and you walk into a development and it looks really nice and you're talking to the salesperson and you're like, "Oh, I just have to sign here and put 40% down and then pay the rest over three years," it seems really great having that MoXi stamp of approval knowing we've already diligenced the underlying land.

We maybe even have done a master appraisal on the development. We've already looked, so we're hard at work on the partnership side of the business as well thinking about how we can make things safer, more secure for our customers and potential customers as well as for our development partners. So, so much exciting stuff to come-

Chris:

Very exciting.

Alex:

... announced. Unfortunately, I'm not in a position to share all the specifics now, but hopefully that's a good preview.

Chris:

More to come, more to come. Well, it's certainly obvious that those who are interested could close with confidence in Mexico with MoXi and understanding the value that we bring from a legal perspective to make sure that they're protected and safe, but also from access to capital to do so, get the thing to the table. So very exciting. Alex, it's been so much fun. Every time I get together with you, I feel like I learn something new every time, even though it's stuff we've been developing for a while and the future is certainly bright.