It has been helpful for the National Association of Realtors to collaborate with AMPI, the national association of real estate professionals in Mexico. A course is taught by NAR to US agents to help them understand the process for their friends and clients who want to purchase real estate in Mexico.
Part of the material includes some of the following tips I believe are important for buyers to know about our Mexican real estate process:
MLS or Multiple Listing Services are cooperative ventures among our local real estate brokers. MLS is still rare in Mexico, but there are systems in Los Cabos, La Paz, and Puerto Vallarta.
The MLS groups pool their property listings of participating brokers and act as collections of property advertisements. Do not expect these MLSs to present the information on the real estate in a standardized manner or extend a blanket offer of cooperation and compensation.
Buying south of the border is not like buying property in the US or Canada. Purchasers must always remember that the process is different from purchasing another house in your neighborhood or country. It is important to take off your domestic blinders and prepare to look through a different set of glasses. More awareness, street sense and patience are usually needed.
If you as a foreigner buyer want your agent in your home country to receive a referral fee, they need to make some initial contacts and do some screening for you of agencies and areas. Your agent from home may even come down with you to view areas and be with you when you interview agents.
Remember that the referral fees should be established between the real estate professionals and they will sign their own agreement. Taxes have to be addressed between the two agents, as both governments expect taxes or tax credits for professional services.
• Making an offer
Making an offer to purchase begins with an “oferta” or offer which is an initial document which sets forth the offer of price and general terms, and /or a “contrato de promesa”, a promissory agreement. These preliminary documents are followed by the more formal “convenio de compraventa” or, purchase contract, which sets forth all of the terms of the sale and must be approved or protocolized by the Notario. The “convenio” should accurately reflect all details of the transaction. It is the guide for the transfer of the property and is also the source of information for subsequent documents such as the “fideicomiso” and the “escritura” deed, as well as tax valuation. The Notaries will refer to the information in the “convenio de compraventa” in order to prepare the final deed.
The purchase contract can take the form of a real estate trust, a reserve title agreement, or an assignment of real estate trust rights.
In order for a document to be considered legal in Mexico, it must be written in Spanish. You need to be fully knowledgeable of the content of any agreements which are signed. Translations of transaction-related documents in English and other languages are available. They are not legally enforceable, but may be used as a reference. An attorney, preferably bilingual and bi-cultural, should be engaged before the buyer signs anything.
• Deposit and escrow
A deposit of earnest money is expected to accompany an offer to the seller. A deposit of five to ten percent is customary. In Puerto Vallarta and the Bay of Banderas, 10% is customary. THERE IS NO LEGAL REQUIREMENT THAT THIS DEPOSIT BE PLACED IN AN ESCROW ACCOUNT. The NAR course states that the foreign real estate professional should not expect the deposit to be deposited into an escrow account. In a number of cases, the deposit check is immediately cashed by the seller, broker or developer. Mexican brokers are not, nor should be in control of the money. Developers often lack liquidity and want control of the money up front to cover construction cost. Generally, banks are not set up to handle escrow money and may co-mingle funds. Based on harsh past experiences, some would counsel buyers that they should be prepared to lose a deposit if a deal falls through.
Escrow is developing in Puerto Vallarta and the Bay, mainly in the cases of prior owned properties. Almost no developers or builders agree for the funds to be held in a third party escrow.
A neutral third party licensed to hold funds is the only proper one to use. Not all escrow services neither are professional, reliable, nor is there any licensing required. There have been some instances of a few dishonest individuals absconding with the moneys in there care, but this is not a reflection on escrow providers or the country as a whole. You can check with PROFECO, the Mexican consumer protection agency to see if there are any reported problems with a company you are considering.
If escrow services are to be used, a separate agreement should be drawn up to cover the terms including how and when the funds will be disbursed.
• Transferability
The ownership and transferability must be determined and there are three basic factors that establish the transferability of a property:
- possession of a title in the owner’s name
- right to sell the property
- no liens
It is a mistake to assume that mere physical possession of a title equates to ownership and the right to sell. A frequent source of misunderstanding is the belief that the person who has physical possession of the title document is the rightful owner of the property; the name of the rightful owners on the title is the important fact, and not who has possession of the document.
The possession of a title and rightful ownership of the property does not necessarily mean that it can be transferred. Remember, any owner of ejido land can receive a title to his parcela, but that does not establish the right to sell it to a non-ejidatario.
Land which is owned communally or is co-propiedad runs the same risk as ejido land does of having someone appear on the new owner’s door and announce that he is the rightful owner of the land.
Condominium developments are required by federal law to have a recorded regimen de condominium. Without this required regimen, ownership of a condominium unit cannot be legally transferred. A condominium development is required to have an administrator and an executive committee as well as established procedures for meetings of unit owners. The regime must also cover the method of setting the assessments and a system of resolving conflicts between owners. Plans for subdivision, “fraccionamiento,” must be approved by local and state authorities in order to be legally conveyed: this applies to both the land and the house.
• Statement of no liens
The seller should provide the buyer with a ‘certificado de libertade de gravamen” or a statement affirming that that are no liens, unpaid taxes or other encumbrances on the property.
The information set forth in the “gravamen” includes a legal description of the property, boundaries, surface area and the owner of record. In addition to the “gravamen,” the buyer can request a ‘certificado de no aduedo” which is a statement of no tax liens from the local tax office, and a copy of the existing “escritura publica”, or public deed. It is also prudent to verify that all homeowners’ association fees, if applicable, have been paid. If the previous owners employed household staff, such as a housekeeper or gardener, they buyer should make an effort to determine if they have been properly dismissed and compensate in accordance with Mexico’s labor laws.
Harriet Cochran Murray
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.