A Step by Step Guide to the Purchase Process In Coastal Mexico

This article ran in the February, 2013 PV Property Journal.

 

 

A STEP BY STEP GUIDE TO THE PURCHASE AND CLOSING PROCESS  FOR FOREIGNERS IN COASTAL MEXICO.

by

Robert Foster

You've been thinking for years about buying something here for investment and retirement. Dreaming about the good life is fun...and it's how all of us expatriates started our journeys that eventually brought us here.

But all such dreams eventually reach a tipping point; a point where they either become reality or not; where you either summon your courage and leap off the high board into the pool and actually, (oh my God!) make a purchase, or walk back to the ladder, climb down from the high-board, and stay away from the water.

The reason some people never take the plunge usually comes down to simple fear and anxiety. More specifically, fear of making a huge mistake, a financial and lifestyle belly-flop, and being laughed at by friends and family back home.

I made my first home purchase here almost 17 years ago, and I went through that insecurity phase. And sure enough, once I was under contract, well-meaning friends and family hit me with things like, "You did what? For heaven's sake Robert, why would you do that?"  Then they'd give me that sad, skeptical look and they'd say, "Well...I sure hope it works out. But I don't know...purchasing property in Mexico? That's downright morbid..."

Later on, visiting me in my Mexican home, sitting on my rooftop terrace, gazing at the mountains and the ocean, cold margarita in hand, they all had, shall we say...a slow but inevitable enlightenment. "You know, this really is nice. I have to admit it. I haven't felt this good in years! And how much did you say your property taxes are? What? That's all? You can't be serious!"

The best way to get control of your anxiety in any situation is through knowledge. If you're at that tipping point, and wanting to make an offer on a property, but just can't quite summon the courage, it might be helpful to know how the process will unfold. (All the following steps assume you're working with a professional, knowledgeable AMPI agency. AMPI stands for, in English, the Association of Mexican Real Estate Professionals. AMPI has stringent ethical and professional requirements, including ongoing annual education.)

Step 1. Negotiating the Purchase offer Agreement.

Your agent will submit your offer to the seller's agent, and there will usually be the standard negotiating phase, with offers and counter offers. In my office we prefer to use formal contracts for all phases, but some agencies just use informal "letters of intent." (We prefer to avoid that informal approach, as it allows either side to temporarily "fish for agreement" without being legally committed.)

In any case, once you reach agreement on price and details, you will then have a detailed, signed-around (fully executed) purchase offer contract, normally in both English and Spanish, stating precisely what is and is not included in the sale; precisely what the terms, if any, are; what international escrow company will be used; how much the deposit will be and when it must be in escrow; what the penalties to both sides are for non-compliance; what Notary will be used; and what the scheduled closing date is. FYI: The Spanish side of the contract takes legal precedence over the English side. The English side is there as a courtesy translation.

Step 2: Opening Escrow/Earnest Money Deposit

The contract will typically stipulate that you have, for example, 5 business days from date of seller's acceptance of your offer to open an international escrow account, and fund it by wire transfer with a 10% earnest money deposit. (The 5 business days and the 10% are negotiable, but are used in most cases.)

Your agent should immediately fill out the Escrow Agreement forms  (we use Fidelity), and send them to you to review and sign. The agent will send those forms along with a copy of the purchase offer contract and the IDs of buyer and seller to the escrow company. The escrow account number will then be issued and you will wire the deposit plus the escrow fee into the account. (Fidelity's escrow fee is $650 USD). So, if you purchased a $400,000 property, you would be wiring for example $40,000 USD deposit plus the escrow fee, or $40,650 USD. 

Step 3. Closing Costs Deposit

Concurrent with opening and funding escrow, or immediately after, your agent should obtain an itemized closing costs estimate from the Notario that will be handling your closing, and explain it to you point by point. Depending on the value of the transaction (the price you have agreed to pay for the property), your total closing costs including Notary's legal fees, trust permit, appraisals, 2% property transfer tax, and public registry fee, etc., should average around 5% of the purchase price. (You can save a bit if you elect to assume an existing trust rather than start with a new trust. A qualified agent should be able to explain the pros and cons of this option.)

For a million dollar plus home, the total closing costs will fall, as a percentage, and may be closer to 4%. On the other hand, for a very inexpensive property, such as a studio or a small lot, the closing costs can be, as a percentage of the price, more in the 6% or even 7% range.

Regardless, you will be instructed by your agent to make an immediate deposit of usually half the the closing costs to the Notario or attorney handling your closing. (Sometimes the closing costs deposit requested is less than half, but should never be more than half.) This deposit will typically be done by another wire transfer, into the specified closing costs account. Your agent will provide you with wire transfer instructions in all cases. Common sense dictates that you should always obtain a wire transfer receipt from your bank for any wire you send.

Step 4. Providing Documents to the Notary and the Bank.

On behalf of the Notary and the fiduciary trustee (the Mexican bank that will hold your trust),  your agent will begin asking you to provide scans of various documents needed for closing. You will need to provide a scan of a recent utility bill with your current name and address in Canada or the USA. You will also fill out substitute beneficiary forms indicating who will inherit the property in the event of your demise. Your agent will explain to you the various options for structuring this, but usually, your children will receive equal undivided interests in the property only upon the demise of all primary beneficiaries (you and your spouse in most cases).

There are some exceptions to this structure. If a husband and wife are making the purchase as co-primary beneficiaries but each have children by previous marriages, it can be set up to accommodate that situation. You will discuss this with your agent and the Notary and decide on the structure most suited to your situation. Regardless, the beauty is that having sub beneficiaries already written into your trust deed negates the need to draw up a Mexican will. It negates the need for Mexican probate.

You will also be providing Know Your Client forms, among others, to the fiduciary bank. Your agent will explain how these are to be filled out and signed. In some cases these can be signed at closing.

Step 5. Preliminary Disbursement Form/Closing.

Most closings occur about 6 weeks after the purchase offer contract has been signed-around. About a week before closing date, your agent should create an itemized, detailed preliminary version of the Escrow Disbursement Form. This will show every disbursement of funds related to the closing, and the net proceeds to the seller. This is circulated among all parties a week or so ahead of closing so that everyone can check it.

In almost all closings here, the seller pays the commissions. Those commissions will usually appear on the Disbursement Form, but are simply taken from the net proceeds to the seller. So they are as a practical matter paid by the seller, not by you, the buyer.

At the actual closing, a final version of the Disbursement Form is circulated for all to recheck and sign. Immediately after closing has taken place, meaning after the title has been properly transferred to you (as beneficiary) with no liens or encumbrances, this signed final Disbursement Form, plus a no lien certificate and a preliminary version of your new deed, are sent to the Escrow company for review, and only then are your funds disbursed to the seller and all involved.

The balance due on your closing costs (remember that you paid a deposit on the closing costs to get started) is collected at closing. You can pay it with cash, a personal check in CAD or USD, or from extra funds you previously had wired to the escrow account. If the latter option, it will of course appear as one of the items on the Disbursement Form.

Step 6. You Are Handed the Keys at Closing, and a Preliminary Copy of your Trust Deed. Go to Your New Place, Have a Margarita!

It would be nice to end this article on that upbeat note, but, unfortunately, there's a bit more work to be done.

Step 7.  Changing Utilities Into Your Name

Over the next few days, your agent will accompany you to the various utility companies (water, electric, phone, internet, cable or satellite TV, etc.) to assist you in getting the needed changes made.

FYI. It often happens that buyers cannot attend the closing, or cannot stay for a few days after closing to change utilties. If planned in advance, there are ways to deal with these situations.

If you are getting a new trust, the fiduciary bank signs for you. You don't have to attend. But it is still best if you can, to do a final walk through of the property, etc.

If you are saving a bit in closing costs by assuming the seller's existing trust, you either must attend the closing, or grant a Mexican limited power of attorney to your agent (or whomever you wish) to sign in your behalf. That power of attorney can in most cases also be used by your agent to change utilities into your name.

With several weeks advance notice, a Mexican limited power of attorney can be granted by you while you are in the USA or Canada. Your agent should be able to explain the different procedures for this, which vary depending upon whether you are Canadian or American.

Step 8. Your Final, Registered Trust Deed

At closing you will receive a preliminary copy of your trust deed. But the sale still has to be registered in the property tax office (catastro) and the public registry (Registro Publico). Due to the backlog of documents, this process takes on average from four to six months. When done, the Notary will notify you (or your agent in some cases if you so request) that your final, bound deed is ready. You can pick it up from the Notary the next time you visit this area, or (recommended) ask them to send it directly to you by FedEx, UPS or DHL.

No two deals are exactly alike, but the above steps are typical of the vast majority of transactions here on the coast, in which the purchaser is not a Mexican.


Robert Foster
Robert Foster y Asociados
163 Lazaro Cardenas, Bucerias, Nayarit
329 298 3314
Toll free from Canada or USA 01 866 210 1324
website: rfasoc.com
office blog: http://robertfosterasociados.blogspot.mx/