When you have found the villa, lot or condo, which you want to buy, there are a series of choices that you have to make. The purpose of this list is to mention various decisions you should make as you go through the process.
1. You have found the property and now you are ready to make the offer. Someone will need to write the contract. It can be your agent, the buyer or seller or an attorney whom you hire. There are no standardized contracts and they will vary in content and completeness. An offer to purchase can be a two-tired affair. There can be an "agreement to agree", followed by a binding agreement of sale. Some sources say that with proper wording, only one step is required and one purchase agreement. To be binding, the sales contract must have the signatures of the buyer and seller witnessed and the contract must be signed before a notary. The offer should be in Spanish with a courtesy English translation.
2. You are going to buy the property in a bank trust in this area (if you are a foreigner) or a Mexican corporation. (for non-residential investment real estate). The first option will be the most common. You have a choice of paying for a new trust, or in some cases assuming the existing one of the seller.
3. The custom in the states of Nayarit and Jalisco is for the buyer to deposit 10% when there is an executed agreement. There is a wide variance here of how the deposit is handled. There are title companies from the states that are licensed to receive escrow deposits on Mexican property. The title companies may require that you take out title insurance and there is a fee to have the escrow account. In some cases, the deposit is in the form a cashier's check held by notary. The notary is not required to act as an escrow agent. As a courtesy, he may agree to hold funds. The notary may release the funds to one of the parties, without being in default. You should not assume that the notary serves the same function as a title company or escrow officer in another country. There are also Mexican banks with charters allowing them to establish escrow accounts. The funds are held in US dollars for the purpose of the sale. The use of escrow as we know it, has not been a common practice in Mexico .
4. Your contract needs to list the other items you want checked or provided before you close. An example is in the case of a condominium sale. If you want the administrator of the condominium association to write a letter that explains what the fees include, whether there is a reserve, what capital improvements are anticipated, the income and expenses of the building, whether there are any pending lawsuits, etc., this all needs to be written into the contract.
5. If you want a new survey of the land, you need to require it and expect to pay for it. Otherwise, the survey and legal description may be copied from the prior escritura, and may be wrong.
6. You, as a buyer, have the choice of what notary to use. A notary is a specialized attorney, appointed by the state to transfer real property. The notary in Mexico does more than an American notary who notarizes signatures. Ask around to decide which notary you want to use. Most notary offices have a bi-lingual contact person on staff. If you want this additional aid, then find an office that offers this service. You don't have to be in the dark and unable to communicate about the serious business of buying real estate.
7. The notary does a number of jobs in regard to the transfer of property. He does not do everything that you want or think important. Ask questions about what the notary job covers and does not cover in the transfer of property. "Assuming" will get you in trouble. You will need to provide the notary with the information he requires to start the permit and closing process. You will need to pay him a deposit, usually half of the estimated cost, to start the process.
8 . The notary has to apply to Mexico City to the Foreign Affairs Department for a permit to establish a trust in a restricted zone. A bank in Mexico will be named as the trustee of your property. The notary can give you recommendations of who is doing a good job and what the first year's trust fee charges will be. You, the buyer are the primary beneficiary to the trust. You will also need to give the notary names of your substitute beneficiaries in case of your death, as this instrument becomes your will in the disposition of this real estate.
9 . The notary's office will notify the parties when you are ready to close. You will need to pay at closing the balance of the closing costs due the notary. The total closing costs can be 5-10% of the purchase price, depending on the prices of the government fees and the amount of the transfer tax. You will be working off of an estimated closing cost statement until you receive the final one, which should be current as of the day of closing. You should receive a formal receipt of payment from the notary for these expenses.
10 . The seller will owe fees such as commissions, bank trust cancellation fees, and capital gains, if due. If someone is on their toes, they will check to be sure that the seller is current with ALL UTILITY payments. If you have negotiated that the phone line in your purchase price, the seller will need to give you certain documentation to present to Telmex in order to get the line transferred. The notary in Jalisco is required to verify that the water bill and property taxes have been paid. A no-gravamen certificate should be provided which states there are no liens of record on the property. This certificate is good for only a short period of time, and can expire if the closing takes too long to be completed. A new one will need to be issued. The appraisal for tax purposes is good for a certain period of time only before it needs to be re-ordered.
11 . At closing, the seller or his representative should sign the escritura in front of the notary, thereby transferring the property. There should be present a translator (provided by the notary) to explain in English, or the primary language of the principals, what the escritura says. The buyer is not always required to be present or to sign at closing. Until the bank trustees sign the escritura, the transfer is not complete and cannot be recorded. The seller expects the balance of his net proceeds to be given to him on closing. The disbursement letter is actually a consolidation of the buyer's money and the seller's expenses paid from these funds. The net amount is what the seller should receive. As a buyer, you can request the notary to hold the escritura until the seller confirms the funds, which you have sent to him.
12 . You or your representative will receive a copy of the new escritura at the notary's office at closing. The completed, recorded escritura will take weeks or months to be returned, with the additional back pages of seals and signatures from the government authorities. Remember that the copy you receive from the notary's office at the signing is not the complete escritura. The notary will hold the original deed at his office until you or someone authorized by you in writing, receives the document. You should keep the original escritura in a safe place. You can have certified copies made to use when you have to conduct business that requires proof your Mexican residence.
13 . If you own property in Mexico , an FM3 visa will establish the property as your declared residence. To meet the requirements for avoidance of capital gains when selling, you must have an FM3 or FM2 with the address of your residence, listed as your Mexican residence.
14 . Be sure you pay your taxes every January and your banks trust fee the month it becomes due. The date on the escritura establishes the date when the yearly fee is due and payable. Don't expect to receive a bill in the mail to remind you to pay either of these fees. It is your responsibility to go to the tax office or bank and make your payment.
15 . Renew your FM-3 every year in order to keep your permanent residency rights.
16 . Enjoy your purchase.
Harriet Murray, Broker, COCHRAN REAL ESTATE