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MARGARITA MIND: HOW TO AVOID IT
A guide to buying Mexico real estate, safely and
sanely
Susan Fogel
Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Margarita Mind
Disclaimer
The author and the publisher of this e-book and any of the additional
materials and forms have been researched and used their genuine
and best efforts in presenting the following information. Further, the
author and publisher make no warranties as to the accuracy,
thoroughness, applicability of the content of the e-book. The author
and publisher disclaim any implied or express warranties for any
particular purpose. Users of this book assume all the risk of reading,
using, or relying on this information.
Applicable and competent tax and legal counsel should be sought.
Klindienst Fogel
~1~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Table of Contents
About the Author….............................................................................................3
Dedication……………………………………………………………………….4
Introduction………………………………………..…….……………………..5
Chapter 1 — Margarita Mind Defined…………….……................................6
Chapter 2 — The Basics……………………………………………………….8
Chapter 3 — The Players in the Field……………..…………………………23
Chapter 4 — Choosing a Realtor……….……………………………………32
Chapter 5 — Mortgages in Mexico..…………………………………………43
Chapter 6 — The Contract…………………………………………………...45
Chapter7 — The Process………………………...……………………………49
Closing Words………………………………..…………..................................54
Mexican Info Websites……….…………………….……................................55
Klindienst Fogel
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
About Susan Fogel: I march to a different drummer.
That is why I live in Mexico. And that is why, during
my career as a mortgage broker in “money-running-inthe-streets” Silicon Valley, I offered loans to single
women head-of-households, immigrants, same-sex
couples, and other square pegs.
I wrote consumer advocacy columns for Metro and
contributed to the San Jose Mercury News Virtual Real
Estate Forum. I wrote and appeared in my own real
estate segment on BAY/TV in San Francisco. Since moving to Mexico, I have
written articles for the Gringo Gazette, the English language newspaper of
Southern Baja, International Living, and Mexico Insider, and I presently write
columns and articles for The Baja Citizen, the English-language newspaper, in La
Paz.
I have talked about writing a book for years. Finally, in the past few months I
have pulled it together and written my first book about buying real estate in
Mexico. I did it for you. And I hope it has the information you are looking for and
need. I wish I had a book like this when I bought my first house in Mexico. This
is the first book in a series I am planning and they will help you, the foreign
consumer seeking to make a new life or just take extended vacations in Mexico.
After more than a decade and a half living in La Paz, Baja California Sur, I can
truly say this is my home. I spent years ranting and raving about the
inefficiencies, garbage, stray dogs, and cars and ATVs on the beaches. I still miss
PBS, bookstores, libraries, and Nordstrom. I still yell about driving on the beach.
We have many friends, mostly Mexicans. My husband and I are invited to
important family occasions; we entertain often, and are entertained. Some days I
just collect shells and float in the warm water of the Gulf of California. I have
sold real estate and been a consultant to the international mortgage industry.
The most satisfying, and surprising thing for me is that my Mexican friends ask
me for referrals for attorneys, doctors, and for help with real estate and financial
issues.
And I sell real estate. You can visit my website www.prestigepropertylapaz.com
Klindienst Fogel
~3~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
This book is dedicated to my husband Ira, my biggest fan, my harshest critic,
talented editor, and best friend.
And to my daughter, Melissa, who worked side-by-side with me in our
mortgage company for years and who is always there for technical support.
And to my darling grandson, Thomas Fogel who lost his valiant battle with
cancer on April 14, 2011; he was 8 years old. And to his older brother
Patrick who always makes me smile.
Klindienst Fogel
~4~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
A Special Message from Lic. Denisse Lopez
When I heard that the Sales manager and closing expert for a major loan company from
the U.S. was based in La Paz and that she was a “gringo,” the first thoughts that came to
my mind were that either that company was just playing at business in Mexico or that
they didn’t know anything about how hard it can be to learn and deal with the Mexican
bureaucracy. However, when I met Susan Fogel at her gorgeous beach house in El
Comitan, I knew that my two ideas were wrong. That company was serious about business
and for that reason they were careful enough to hire a business savvy and very welleducated person on Mexican procedures to be in charge, Ms. Susan Fogel.
In my practice as an attorney, devoted almost exclusively to assisting foreigners to resolve
their problems in Mexico, I learned that most of the problems that my clients had to face
were because they always responded to Mexican issues by using American logic, which
usually makes people believe that things are simpler than they really are. However, Ms.
Fogel was very well informed, knew most of the government offices, and the
headquarters of each one of them. She knew the time frames, the political impact of some
decisions. To make it short, she knew how to handle things in Mexico. And best of all is
that she was always able to communicate efficiently to her fellow Americans in a way that
everybody could understand and achieve more progress in less time.
From the day I met Ms. Fogel to the present, I have learned many things from her. As a
Mexican attorney working with foreigners, she helped me understand better the
“American way,” which has been an asset to me and my law firm. I am proud to count her
among my friends; she makes that list shine.
I recommend to anyone coming to Mexico to buy property or begin a new business to get
in touch with Ms. Fogel. I am sure she will have more than one smart piece of advice to
give.
Sincerely,
Denisse López
Founder and Partner
López & González, Asociados
Klindienst Fogel
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Margarita Mind: Please leave home without it! What is Margarita Mind and why
do you have to be inoculated, prepared, and ready to resist it?
Chapter 1―Margarita Mind Defined
Let me relate a conversation with a friend of mine, an insurance broker and
Realtor that has lived in Mexico for over 20 years.
“I have a great idea for a business: I am going to set up a locker system at the
border crossing in Tijuana. You know like they have at bus stations and train
stations? Well, my lockers will be small, about the size of a melon, a cantaloupe,
or honeydew. Foreigners coming down to buy real estate can check their brains
and then go happily south and muck around, listening to every Juan, Jose, and
Maria about the "way around" the rules of buying property. When they have
parted from their money and signed away their rights, if they can find the locker
key, they can retrieve their brains just before returning to the US or Canada.”
“What a great idea,” I said. “Those people can wander around in a daze, and since
there are no brain waves and no lights on upstairs, we can identify them as fools
and work with only those with their brains intact.”
That’s Margarita Mind―doing things in a foreign country you would never do at
home. Buying a house- when all indicators say it is a bad deal because you love it.
Last I checked, you can’t bank love.
It makes me crazy!
People spend more time choosing a toaster or microwave, doing the research, and
comparing prices than they spend on a property purchase of hundreds of
thousands of dollars in Mexico. And then, when they are on the verge of losing
their money or already have, they come to me or my friend or others like us and
ask for help. For free, of course!
This is not going to happen to you!
Klindienst Fogel
~6~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
You are smart, savvy, and after reading this book, well prepared to buy property
in Mexico.
No matter what the guy on the next bar stool or the sweet woman in the tropical
print dress and straw hat tells you, there is only one way to buy real estate in
Mexico, the right way.
So fasten your seat belts, we are on a ride. I am going to tell you how to do it,
who to avoid, and what keywords should be warnings to run the other way.
Just remember, buying property in Mexico is safe and legal for foreigners to own
their dream property on the beach, as long as they do it right. And of course, since
you are reading this book, you can do it right.
Klindienst Fogel
~7~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Chapter 2—Some Basics
Let's start by understanding the fideicomiso.
Then I will back up and walk you through the process.
In most of the areas you will be looking for property (coastal areas), there is only
one legal way for foreigners to hold title, which is through the fideicomiso (“feeday-co-mee-so”). The fideicomiso is a legal instrument used by agencies and
individuals to hold assets in a secure trust.
In 1973, to protect and reassure foreign buyers of Mexican real estate, the
Mexican government changed the constitution to allow foreigners to buy
properties using the fideicomiso. In 1994, the life of the trust was increased to 50
years with a 50-year renewal. Holders of older fideicomisos are allowed to apply
to the office of the Secretary of Foreign Affairs to have their trust extended to the
50-year term with 50-year renewal. Actually, the fideicomiso may be renewed in
50-year chunks ad infinitum.
The areas that are within 31 miles of a coastline or 62 miles of an international
border are called the restricted zone. The majority of Realtors selling property in
Mexico are selling property in the restricted zone. The entire Baja Peninsula is in
the restricted zone. In the old days, and the practice still persists today (illegal
though it is), you would hire a presta nombre, a Mexican citizen that you trust
who would "own" your property. I really should not put “own” in quotes because,
in fact, they do own the property. So in the old days, you would identify the
property, find a trustworthy Mexican, pay the seller her price and the new title
would be drawn up in your presta nombre's name. You would then execute a
contract with the presta nombre stating that you were in fact the owner. Since the
contract is based on an illegal action, it has no validity. Nowhere in the eyes of
Mexican law are you listed as the owner. And Mexican law is the only law that
applies to your Mexican property. Uncle Sam cannot help you.
Would you do anything like this in the USA? Never! Why would you knowingly
break the law in a foreign country when your government cannot help you? But
people do this. Lots of good, hard-working people like you. You know why?
Because their agent told them: "That's the way we do it here." Or: "It will cost you
Klindienst Fogel
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
a lot of money to get a fideicomiso. You know what I say to that? Pay me now or
pay me BIG TIME later!
So what is a fideicomiso?
Well, as I said, it is an instrument that is used by Mexicans like a trust. In the case
of foreigners, when buying in the restricted zone, it is the only legal way you can
own property.
The fideicomiso names you as the beneficiary and you can name heirs or
substitute beneficiaries. The trust is held by a bank and the trustee is called a
fiduciaria. Scotiabank is a major Mexican bank that offers very nice rates and
good service on a fideicomiso. As stated earlier, the fideicomiso runs for 50 years
and can be renewed in chunks of 50 years. During that time, you have these
rights:
• You may improve the property
• Sell the property
• Mortgage the property
• Bequeath the property, and
• No probate
Let me explain "no probate." Since the fideicomiso is like a trust, when you die;
your heirs (substitute beneficiaries) receive ownership immediately. And all of the
rights of the trust go to them.
There is a one-time setup fee of US$400–600 and an annual renewal fee of the
same amount. The fiduciaria does not send you a notice to pay; you must
remember to renew it each year. The upfront costs of a fideicomiso are very small
and the annual renewal is the cost of having the privilege of owning your dream
home in paradise.
Keep in mind that your property taxes are very low, so this fee is small, as well.
The fideicomiso is like your deed. Former owners and beneficiaries are listed, as
are the metes and bounds of the land itself, and the price you paid for the
property. You can have the purchase price of your home listed in dollars. This is
the best practice.
When it comes time to sell, the notaria must calculate capital gains tax. The value
of the peso will have changed; these are time-consuming calculations. If the value
Klindienst Fogel
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of the peso is low at purchase and then increases, you can be in for a capital gains
tax. Since the dollar is stable, the value at any given time does not become an
issue.
There are some Realtors that will tell you not to have a fideicomiso, but to engage
in one of the following risky and highly questionable (and in some cases,
downright illegal) things:
• Set up a Mexican corporation
• Get a land lease
• Use a presta nombre (already discussed)
• Buy ejido land
Let's take these one at a time:
Mexican corporation:
Just like in the US, you need a complete board of directors, annual meetings, and
you must file taxes for the corporation. There are costs to set up a corporation.
And if you put your vacation or primary home in a corporation, in one case you
are breaking the law and in the other you have some onerous reporting just to save
US$400–600 per year!
Let's examine the previous statement.
In the case of breaking the law: Remember when I started, I said that the only
legal way for foreigners to own property in the restricted zone (coastal) is with a
fideicomiso? Well, a corporation is NOT a fideicomiso, so you cannot own a
primary residence in a corporation. If you do this and are not caught, count
yourself lucky. If you do this and sell, you will have a very high capital gains tax.
Capital gains exemptions are only granted to homeowners, not corporations. I will
tell you all about capital gains tax in a coming chapter.
If you have a vacation home that you keep for your personal use, it is treated as a
primary residence and can only be owned in a fideicomiso. If you have a vacation
home that you keep for yourself and also rent, then you have a business and may
have it in a corporation.
Klindienst Fogel
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
However, you must pay the corporation the going rate for the time you use your
vacation home, and you must report income monthly. And when you sell, you will
have capital gains―about 25% of the profit that you make. So if your La Paz
home fetches $2500 a week in high season and you use it during that time, you
need to show that you paid $2500 to the corporation for that use. And guess what?
You also have to declare that income on your taxes, and pay income tax. In the
US and Mexico!
Here is a real life story. This happened to one of my loan clients. A couple of
dentists bought a condo in Cancún and they held it in a corporation. They decided
they wanted to refinance it to buy another property. Changing the ownership from
a corporation to a fideicomiso, which the bank required, constituted a sale because
ownership was changing from the legal person (the corporation) to the dentists.
Banks will not make home loans to corporations, only to people. So the dentists
paid a lot of money in capital gains, as well as the fees to extinguish the
corporation and the fees to setup the new fideicomiso and pay the loan fees. They
were not happy campers.
They did all of this and paid BIG TIME because they thought they were
circumventing the system by not paying a little extra up front. Does this make any
sense to you? To have the responsibility to report income on your dream home
monthly, have a board of directors, and be required to pay capital gains tax—all to
save $500 a year? There is no such thing as a free enchilada!
And hear my refrain: There is only one legal way to own property (primary
residence or vacation home) in the restricted zone of Mexico―with a fideicomiso.
Land Lease:
Illegal. Against the law! Dangerous! Don't do it!
Answer this question: Would you pay $100,000 for a right to lease some
beachfront land for 10 years? Keep in mind, there are still places in Mexico where
you can BUY a beachfront lot for less than a $100,000. Would you then spend
another couple hundred thousand dollars building a house on the leased land? And
would you do this in a foreign country? Before I get to the true life horror story
that had 200 families evicted at night from their beachfront homes, let me ask you
again: Would you pay someone upfront $100,000 for a lease of land for 10 years
Klindienst Fogel
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
with no proof that that person owns the land or has any right to lease it? Would
you then proceed to build your dream home and spend your hard-earned life
savings on it? Remember, you would be building your dream home on land you
do not own! Would you do this? And would you do it in a foreign country? If you
say yes, I've got a bridge to sell you.
Right now you are most likely shaking your head and saying, “Of course not,
never!” Yet, many people did it. And the people that did this were good, hardworking people. They did charity work in their community and helped young
mothers and children with food, clothing, and school supplies. They even built a
library and a church in their neighborhood, and, with a few exceptions, all of the
properties were on leased land, even the church. The area is called Punta Banda. It
is south of Ensenada on a beautiful sand-spit. What a gorgeous area―long, flat
beaches on the Pacific. The climate is the same wonderful climate enjoyed in San
Diego. Ensenada is only a one-hour drive for the great shopping mall in the sky:
the USA. This area has much to recommend it, including the Guadalupe Valley,
with its rich wine culture. You would not be wrong if you called Ensenada "God's
Country." You can easily understand why people let Margarita Mind lead them
into the nightmare of their lives. And you know what is worse? Most of these
people were retired. They dumped their life savings and money from the sale of
their homes in the US into these leases and the homes they built.
They fell in love with a dream, and they stopped using critical judgment. Almost
ten years after the mass evictions, these people are still smarting and many have
not recovered and some died, a few died of heart attacks that very night. And this
did not have to happen. I will relate a cautionary tale in a minute. I am not trying
to scare you out of buying property in Mexico, I am trying to educate you and
scare you to DO IT RIGHT.
As you travel through Mexico and visit resorts, developments, and Realtors,
please remain detached, look at every property with a close eye. Use my checklist
at the end of the book. It has questions to ask and the answers you should expect.
If you don't get those answers, walk away from the property. I don't care how
pretty the view, how perfect the layout, how wonderful you feel. If there are
impediments to owning it the right way (with a fideicomiso), walk away from the
property. Your peace of mind and your pocket book demand it.
Klindienst Fogel
~ 12 ~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Now Punta Banda:
A little history: This land was once owned by sheep herders that had moved away
because the land was not arable. Opportunistic developers, swindlers, and
schmoozers, Mexican and foreign, started to develop camps or small areas, and
sell long-term renewable leases. To Americans, especially those from California,
the dream of owning a beachfront home was out of their reach north of the border.
This was just wonderful. They were retired, so 30-year leases seemed safe. And as
I said, they sunk big bucks into large, fancy homes on land they did not own.
As time went on and a real community developed and bigger and more elaborate
homes were built, the sheep herders took notice. Now their valueless land that
produced no fodder for their sheep had value, and they wanted their land and the
improvements. They went to court and won an eviction order. The homeowners
held a demonstration and blocked the road. The police were called. The
homeowners were given a year to appeal the court's decision. Somehow, it was
not communicated to them that they had only won a stay of execution. They
thought they were free. Then in the wee hours of a morning in October 2000, the
military arrived, busloads of armed troopers. The first group of homeowners
called the others. Some had time to gather belongings and be ready when the
troops arrived. Others were not. These poor folks were dragged from their beds,
ordered out of their homes at gunpoint, and were left shivering in the cold. One
person died that night of a heart attack. My friend calculates that $90 million
worth of real estate was lost that night.
This did not have to happen!
This should never have happened. No one should have signed leases and built
elaborate homes on land they did not own. They had been warned, they had been
given a year to appeal. They lost everything. This is not the fault of the Mexican
Government; this is not Mexico's fault at all. These people were unwitting
participants in their own evictions. They were infected with Margarita Mind, and
spent money building homes on land they did not own. Fideicomisos were
available, but not in that area. They wanted to be part of a thriving gringo
community and they built their dream home. The risk never entered their
consciousness. They followed the herd, signed leases, and built homes.
Klindienst Fogel
~ 13 ~
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To this day, titles on land in this area are clouded (meaning they have problems). I
recently spoke to the head fiduciaria for a large bank in Tijuana. He said he has
never seen a clean deed on property in this area.
And what is worse, people are still leasing land and agents are still “selling” it. In
July 2009, I called an agent about a property at Estero Beach in Ensenada. It
seemed too good to be true―2 bedrooms, right on the beach with all the
furnishings, a boat, car, and kayak included―for $50,000. I figured it would
make a good rental. I was unaware at the time that Estero Beach was part of Punta
Banda. "What's wrong with this property?" I asked the agent. She answered that it
was a land lease. I said, “They're not legal,” I replied. She responded, “Well, the
seller has lived there for 20 years.” “Yes,” I said again, “leases are not legal.” She
hung up on me! So another rule to live by is: If it seems too good to be true, it
probably is.
This Won't Happen to You!
This won't happen to you. Read this book, take notes, and take my Homebuyer's
Checklist, HOA Checklist, and New Construction Checklist with you to every
property you view. If someone says, “This is the way we do it in Mexico,” walk
away from the agent and that property and keep looking. Do this and you will be
safe and you will really have your dream home in paradise—safely and sanely.
Way down here at the end of the Baja Peninsula in La Paz where I live, we heard
about Punta Banda. We were here only a few months when we heard of the mass
evictions. We had done our homework before coming here. We walked away
from a gorgeous home near Puerto Vallarta because there were no fideicomiso
available in the entire village. We took a very smug and hard line, congratulating
ourselves for doing it right. We said these folks deserved what they got, building
fancy homes on someone else’s land, yada yada. Well, after I read Baja Diaries,
Chronicles of Paradise Lost, I understood the heartache, heartbreak, and financial
loss of these people. They were misled, they were lied to, and they lost everything
in one night. Use the information and tools in this book so you can rest easy all of
your days in paradise.
Klindienst Fogel
~ 14 ~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Ejido Land:
Ejidos are agrarian collectives, where local farmers, ejiditarios, were granted an
undivided portion of land. This was done after the Mexican Revolution, returning
lands to local Mexicans.
In theory, these collectives were a great idea. In practice, well, you know what
happens with committee work! Nothing gets done. And in many areas, the land is
not arable, meaning it cannot be used to grow crops. Beachfront land lay fallow.
Locals enjoyed beach access, but really did nothing with it. Then came foreign
investors. They could see the potential of the beach front and imagined pink
condos and cute boutiques or get-away-from-it-all houses. The ejiditarios were
poor and not educated, often living at a subsistence level. The thought of selling
some land and buying a pickup truck was enticing. And foreigners were lining up
with cash to snap up these lands.
One little touchy issue: It is illegal to market, sell, or buy ejido lands. Many of the
ejidos have voted to “regularize” their holdings, meaning they applied for titulos
or escrituras so that they would have individual ownership and the rights to sell
the land.
There are still large areas, some near large resorts that are not yet regularized. I
once looked at a lovely home not far from Puerto Vallarta. It was advertised as
“ready for bank trust,” meaning that it was in the process of being regularized.
The owner had lived in the house for many years, using a presta nombre for legal
ownership and was attempting to get a title and fideicomiso. At the time we
looked at the house, we were assured it was only months away. We had a very
good real estate consultant that we met through our travel agent. He advised
against us buying this home without a title. Oh, we loved it. It had a gorgeous
view, it was well built, had many green principles, many tropical fruit trees,
parrots roosting in the trees, a gorgeous terrace with room for hammocks. It was a
tropical paradise and even had a complete 2-bedroom apartment for use as a
rental. We were assured that the presta nombre was a sincere, honest man. We
were tempted, but we saw the look on our advisor's face. We did not buy. And
now more than 10 years later, that home does not have a fideicomiso. The owner
did sell the house, and it sold one more time. The presta nombre is as advertised,
sincere and honest, but if he dies, his heirs would own the home.
Klindienst Fogel
~ 15 ~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Calvo Clause:
This is in all fideicomisos. It is important you understand what it is. Some of
those poor souls that were evicted from their homes called their US senators and
were shocked, and angered that the staffers told them there was nothing their
elected representatives could do for them. Some of them felt let down and
betrayed by their government. If they had a fideicomiso, and been properly
represented by an ethical Realtor, they would have known about the Calvo
Clause. The Calvo clause is used in international investments, and is used in the
US as well.
Situation: You are buying a home in a foreign country, a
beautiful, safe, friendly country that has changed their
constitution to allow you to safely own your dream home in
paradise.
The Calvo Clause simply states, that in regard to your property and any disputes
or issues that come up, you are treated as a Mexican national. You cannot expect
your government to intercede. This is why my continuing refrain is: "Do it the
right way at the start, and sleep easy the rest of your days."
Here is the definition of the Calvo Clause taken from the online Business Law
dictionary: www.businessdictionary.com
Legal principle, applicable in international disputes, that aliens have no more
rights than the citizens of a sovereign state. Therefore, such disputes lie within the
purview of the domestic laws and only the courts in the host country have the
jurisdiction to hear the case. This doctrine is an integral part of many national
constitutions and treaties (specially in Latin America) and forms the basis of the
Calvo clause. Named after the Argentine diplomat and historian Carlos Calvo
(1824–1906) who propounded it in his 1868 book.
Wikipedia has this note about Carlos Calvo www.wikipedia.com:
In 1860 he was sent by the Paraguayan government on a special mission to
London and Paris. Remaining in France, he published in 1863 his Derecho
internacional teórico y práctico de Europa y America, in two volumes, and at the
Klindienst Fogel
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same time brought out a French version. The book contained the essence of
what has come to be known as the Calvo Doctrine. The book immediately took
rank as one of the highest modern authorities on the subject, and by 1887 the
first French edition had become enlarged to six volumes.
An impressive man indeed. Now you know a lot more than many experienced
Realtors and other practitioners. They may know what the Calvo Clause is, but
they most likely do not know really what it does, and who wrote it and why. The
Calvo clause really means: take your time, do your homework. Don't let
Margarita Mind cause you to take shortcuts. And you will be safe.
Just a little nugget of info for you. As my mother always said "knowledge is
power." I know someone else coined the phrase, but she drummed it into us.
And I am beating the same drum for you.
Federal Zone: What it is? What it means to YOU.
We have talked about the Restricted Zone, which is 31 miles form a coastline and
62 miles from a border.
Now we discuss the Federal Zone. This is an area that is:
•
•
•
•
20 meters above the mean high tide line on a beach, or
20 meters from a river's or lake's edge
The entire surface of reefs and cays
In the case of a rocky or cliffside property near the water, the 20 meters
will be an arbitrary line
This area belongs to the Mexican government for the people. Here are the
restrictions:
•
•
•
Must have foot access to the water
Cannot be built on
Cannot be sold
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Then there are the exceptions! If you have vacationed in Cabo San Lucas,
Cancun, Puerto Vallarta, or other resorts you have most likely enjoyed a frosty
Margarita or crackling cold beer under a palapa or on hotel terrace smack dab on
the beach.
Are you scratching your head? How can the hotel have a bar on the beach? Easy?
Well, easier than you think. In the case of a commercial enterprise, if building a
bar or terrace on the beach means jobs, and money rolling into the economy, then
a developer or hotelier can apply for a federal concession with rights to use the
federal zone for commercial purposes. This concession costs money, and requires
surveys, lots of paperwork, and a promise to maintain the beach and be
responsible for the activities occurring on the concession land.
So why do you care? Well, if you are like the vast majority of homebuyers in
Mexico, you are looking for a beachfront home. There are many things you must
know, and questions you must ask.
1.
2.
3.
4.
5.
Is the house built outside of the Federal Zone?
Is there a concession in place?
What is the duration of that concession?
Can the concession be renewed?
Is the concession owned by the seller, the developer, or someone else?
You may, as a private person purchase a beach concession. And if you are buying
a beachfront property, you should buy the concession.
For these reasons:
1. It makes your property more valuable.
2. It protects your view.
3. It ensures that a taco stand or an ATV rental will not appear in front of
your home.
Your closing agent and notaria can help with this process. It is time consuming. It
must be applied for locally first. Surveys must be done, and the fiduciary for your
bank will also have to sign the paperwork. The papers are then sent to
SEMARNAT (Secretary of the Environment and Natural Resources) in Mexico
City, where it will be read and approved. There is a fee attached to the concession.
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You will have the responsibility of keeping the beach clean, but you would pick
up garbage on the beach in front of your house anyway, wouldn't you?
Concessions are usually granted for 20 year periods and are renewable and can be
transferred with the property. Let's look at the five questions I listed above:
1. Is the house built outside of the Federal Zone?
This is the first question you should ask. And you should ask to see the
survey of the property that is part of the existing fideicomiso. If the house
was built within the federal zone, and this happens, you would have to
apply for the concession and pay a fee and "buy" back the part of the
property that is in the federal zone. Should you buy this property? Only if
you can get the concession and are willing to pay the price. If you are
applying for a mortgage, you will not be able to buy this house. It is all
about risk for lenders, and a concession is not something they can
foreclose on. So no, no mortgage.
Another story for you:
I had a client in the Riviera Maya (Cancun area) with a very nice sale
proceeding with a mortgage. The buyers were approved for their loan, and
now it was time for the appraisal and new survey to be done. It was a
gorgeous, beach front home. Exactly what the new buyer dreamt of. They
were anxious to close, and begin enjoying vacations there with their
family and friends. They could taste the garlic shrimp. And feel the sway
of the hammock.
And then, the survey came back. The Federal Zone high tide line ran right
through the living room of the house. This does not mean that the high tide
ever reached that high. It meant that the virtual line went through the
home. Well, the deal was dead. The buyer was out several hundred
dollars, close to a thousand in upfront fees.
This could have been avoided if the buyer had my Buyer Checklist in the
back of this book, or if their agent had done her job, and collected the
original documents from the seller and actually read them.
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Lesson: Do your own homework, ask the tough questions, and demand to
see the papers. If the seller won't provide them, or your agent tells you that
you do not need to see them, run in the other direction.
2. Is there a concession in place?
Even if you are buying directly from a developer, you want to be sure that
the beach in front of you will remain open. So ask this question, and ask to
see the concession.
The first rule of doing business in Mexico is: "Paper Talks" so make sure
you see the documents. If there is a concession in place, find out if it
transfers with the property, how much the fees are, and how much time is
remaining.
3. What is the duration of the concession?
See above. Ask to see it; ask to see how many years remain.
4. Can the concession be renewed?
This is an important question. And remember; get it in writing, and that
"Paper Talks."
5. Is the concession owned by the developer, seller, or someone else?
This seems obvious, but you never know. If you are buying from a developer, and
they have the concession, that is good. But it will remain your responsibility, or
that of the homeowners association to ensure that the concession is kept current.
Look at the names on the concession. In the case of an individual, it will have the
name of the fiduciary bank (the bank that holds the fideicomiso). If in doubt, take
the documents to the notaria or your closing agent; they will read them and tell
you what they say.
Don't be overwhelmed or overly worried, just be vigilant. And follow these rules
of the road:
1. Ask the right questions, as outlined in the Buyer Checklist at the back of
the book.
2. Get it in writing.
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3.
4.
5.
6.
Paper talks.
Ask your closing agent for help.
If the answers are not the right ones, find another property.
Do it the right way now, and sleep well for the rest of your days
If you wouldn't do it in the old country where you know the rules,
the language, and the system, why would you ever do it in a
foreign country? If it feels wrong, it probably is!
Condo Regime:
Otherwise known as a regimo de condominio, this document is required by the
government of all developers whether they are stacked condos or detached homes.
As long as they are in a development with common areas,a condo regime must be
done.
This is the single most annoying piece of documentation in the purchase process.
More often than no,t they are not complete when you are ready to buy, sometimes
the developer has not even started the process. It takes about 6 months for the
various agencies to review, approve, and release the documents. Without this
document, you cannot get title insurance. Without this document, you cannot get a
loan.
And without this document, you face the risk of buying a property that may never
get approval and you may never get a final fideicomiso.
There are all kinds of developers in Mexico, some are huge, building condo
towers all over the nation, some are regional, some are local, and some build a
few small projects at a time.
Believe it or not, the big guys cause us the most trouble. They rely on their big
gun status and their fancy towers to sway you into buying, and don't always
follow the rules.
With the advent of long-term US dollar financing, and thus the requirement of
title insurance, escrow, and a complete condo regime, many of the builders are
falling into line and complying.
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The condo regime spells out all of the common areas, the responsibilities of the
developer, and sets up the homeowner's association. This is a very brief
description. What you need to know and ask is: What is the status of the condo
regime? The best person to answer this question is your closing officer at the
title/escrow company. It has become common place for builders to have a master
title policy on their project. The closing agent at the title company will have
intimate knowledge of the status of all permits, and condo docs. Trust them to
give you accurate information. It is their job, and most of them do it well. Your
agent or loan officer can also get this information for you.
If you have ever purchased a condo or other property in a development in the US
or Canada, part of your buyer's package was the condo documents and articles of
incorporation for the homeowner's association. You probably did not read them.
And there really was no need. Your lender and title officer read and reviewed
them. And if they were familiar with the property, they did not read them every
time a transaction came through.
A good number of Mexican developers are having their properties insured with a
master title policy; this means that all of the condo documents have been
reviewed.
Remember, Buying in Mexico is SAFE! The process looks similar to the US
and Canada, but it is different. And timelines are fluid. Get it in writing, use
your checklist!
Chapter Recap
1. There is only one way to own property in the restricted zone: with a
fideicomiso.
2. The cost of a fideicomiso is small and even trivial when weighed against the
risks of not having one.
3. Walk away from real estate agents and developers that say you do not need a
fideicomiso.
4. Walk away from land or houses that cannot be covered by a fideicomiso.
5. Remember the Calvo Clause.
6. Ask about the status of the condo regime.
7. Listen to your brain, not your heart, when buying property.
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Chapter 3―The Players in the Field
In this chapter you will learn about who does what and why.
YOU, THE SANE BUYER is looking for a dream property to vacation in the
sun or for retirement. You are the hero; you are bringing the money to the deal.
But you are not the conquering hero. Make a fair offer and be fair with your
demands. However, don't be blinded by “house love” and forget the rules.
SELLER: This can be an individual selling her home without an agent or using a
Realtor. This is a safe transaction, but fraught with emotion and sometimes
unrealistic expectations by the seller. If the seller is a foreigner, then the going can
be easier. They understand “escrow” and “earnest money.” However, if they have
lived in Mexico any length of time, they may have their own nutty ideas of “How
things are done here.” Don't let them bully you into forgetting your Seller Q&A
form. Always treat them as you would like to be treated, be fair, and you will end
up with your dream home.
REALTOR, DEVELOPER, and BUILDER: All of these people can represent a
seller.
Often the big developers have their own on-site sales staff, as well as allowing
outside Realtors to earn a commission by selling you one of their houses or
condos. If you look at a property owned by a developer with a sales staff, mention
the minute you walk in the door that you are working with a Realtor and you
would like them to be involved in the sale. If they say they do not work with
Realtors (and many don't), give them your Realtor's card anyway and then doublecheck with your Realtor. Just in case.
Builders often construct small projects of about 12 homes with a gate. These are
called privadas. They often deal directly with buyers. Developers and builders
usually have a notaria and trustee bank arranged and have a special price, but
more importantly, the bank and the notaria have all of the required paperwork
that should save time or money.
Realtors are more flexible and this is where you can make your own choices. In
the case of a resale home, there is a fideicomiso in place (remember you do not
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consider homes without them), unless it is a Mexican owner. In which case, they
will have a title and you will need to establish a new fideicomiso. You can choose
the trustee bank, or you can assume the existing fideicomiso on the house you are
buying. Realtors have relationships with title companies and closing companies
and may steer you to them, but you are paying the bill. You can choose your own
title company and closing company, if you like.
Notaria Publico
As I said earlier, the notario publica in Mexico is nothing like a notary public in
the US. The Notario is a contract attorney. She does not go to court and sue
people.
She is not simply someone that certifies signatures. Her job is to handle all kinds
of legal documents, including marriage contracts, adoption papers, wills, and
fideicomisos. All real estate transactions must be executed in front of the notario.
This applies to Mexicans and foreigners equally.
The notarios of Mexico are appointed for life; they are lawyers and have passed a
state exam. They are then appointed by the governor. They are rich! They are
given a number and as you drive around you will see their offices with big signs,
such as "Notaria Publica 13". Sometimes their names are on the signs, but they
become known by their number.
And their sons and daughters can inherit the business as long as they are a lawyer
and have taken and passed the exam. Notarios work at the state level and do not
cross state lines to do their work.
There is a touch of ceremony left in the process. The last thing you or your
representative will do is sign the notario's book, a huge leather-bound volume that
looks like something the scribes wrote before there were printing presses.
Over the years, I have met many notaries. There are wonderful, gracious, and
helpful notarios who speak English, and others that sit on their high thrones in
their ivory towers. You've heard me say it before, with the advent of US
mortgages, the face of real estate in Mexico has changed. It has become smoother
and safer. And the smart, customer-oriented notarios have made themselves
accessible to their clients, the lenders, and others. There was a time when making
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any kind of appointment with a notario was shooting at a moving target. Now
they are happy to meet you. And more than one has invited me to lunch to discuss
doing business with me as a closing director.
Usually, the developer has chosen a notario and that notario has all of the
documents and everything in place for your closing. In the case of a purchase
from an individual, you may choose your own notario. However, a notario is a
neutral party and does not represent you specifically.
The notario will prepare your fideicomiso, ensure that all documents are correct
and in the file, figure your costs, and the seller's capital gains tax. At the time of
the closing, you will sign in front of her, she will later register your fideicomiso
and make sure that you have a properly registered copy.
If you cannot be here to sign, your closing agent can sign for you. This is a safe
procedure, and actually preferable. Because there are so many government
agencies and so many forms, there are delays. You may take time off from work,
pay for a hotel and airfare, and spend a week waiting to sign, and things will not
come together. You might leave Mexico without signing.
The notario will prepare a power of attorney form for you, and the closing agent
will help you to have it handled in the US and then the closing agent can sign on
your behalf. The notario's fee is usually US$2500–$3000. It can be higher for
more expensive properties or more complicated transactions.
Check with your US or Canadian accountant, these fees may be tax deductible.
The Secretary of State of Texas has an entertaining and informative page about
Notarios. Here is their URL:
http://www.sos.state.tx.us/statdoc/notariopublicoarticle.shtml
Closing agent
This is usually another attorney or someone very experienced with the Mexican
closing process. They order all of your permits, help you fill out the fideicomiso
application form, coordinate the appraisals, surveys, and the fideicomiso. They
have relationships with administrators within the various agencies and help grease
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the wheels of the bureaucracy. They coordinate activities between the fiduciarias
at the new bank and old bank and with the notaria and escrow company branch
where your funds will be held. If you cannot be at the notaria’s office to sign on
closing day, the closing agent can sign for you. This is a safe and common
practice. Closings of real estate transactions in Mexico are not as smooth as in the
USA and it is rare that a signing appointment can be set in advance with any
certainty of all the papers being at the notaria's office. The closing agent charges
a fee for her services, as well as a fee to sign for you.
Escrow and title
Escrow as we know it in the US or Canada does not exist in Mexico. The logical
person to hold buyer and seller funds would be the notario. However, the banking
system in Mexico makes the US system look warm and fuzzy. So escrow, as a
neutral place to hold funds, does not exist here.
However, Stewart Title in Houston, Stewart Title Latin America, and First
American Title companies have escrow services for you with banks in the US.
Once you have an accepted offer, your agent will open escrow. If you are buying
from a developer they already have an account with one of the companies. In
either case, you will complete a detailed form with a request and application for
title insurance.
Then you will wire the Good Faith deposit and certain closing costs to escrow. I
usually suggest that you wire the full amount of closing costs to escrow. That
way, your closing agent can proceed with her work, and not have to hunt you
down looking for another couple of hundred dollars. And you will not have to
take time from your day to wire funds.
You will also sign a disbursement agreement. One to allow transfer of the closing
costs to the closing agent and other appropriate parties, like a deposit to the
notario and one just prior to closing that instructs the escrow officer how to
distribute all of the remaining funds.
Remember that escrow acts as a neutral third party that holds and distributes
funds by instruction of buyer and seller. This part of the transaction is conducted
in the US, but has its Mexican twist on it:
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•
•
•
Paying closing costs upfront
An escrow officer that does not handle the closing process
Title insurance written in Mexico
No one gets their hands on your money without your express permission.
And the escrow officer needs to see the first three and last two pages of your
fideicomiso, the certificate of no liens”” and the SRE permit” to release funds.
(I'll describe these documents later. For now, just know that they are a required
step in the process and of course they have a fee attached).
These pages are the ones with the crucial information. Certified copies of the
entire document are sent to the escrow and title company and lender when it is
finally registered. (You get the original.) The first pages have everyone's names
and the property description and the last pages have everyone's signature and the
notario's stamp.
Escrow fees run about $550–$750. The closing agent will also charge a fee.
If there are documents that need to be translated, or the closer must travel to
collect notarios or fiduciarios signatures, they will charge a fee. There is a sample
closing cost estimate at the end of this book.
Please read this three times out loud, and have your buying partner do the same:
All money goes into escrow. No money goes to the seller directly.
There are exceptions to this rule. If you are buying a lot and a home to be
constructed or a condo, you may make periodic course-of-construction payments
to the builder. If you have a construction loan, the lender will inspect at every
phase and only release the funds when the work is done to their requirements.
Title insurance:
Stewart Title Latin America has offices all over Mexico. Their staff is local, bilingual, and know the notarios, fiduciarios, developers, appraisers, and staff at the
various government agencies. They have built relationships with the people on the
ground in the market where your new home is. More than once, it has been their
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relationship with one of the other players that has moved a transaction forward.
Their closing agents are attorneys.
Stewart Title (Houston) is a separate entity. Their people are professional and
helpful as well. And there is First American Title based in Miami, also very
helpful and professional.
All three companies provide title insurance. When there is no loan in place, there
are no requirements to have title insurance. But I highly recommend it. I call it
"sleep-at-night insurance". It is important to know that certain issues with your
property are covered by title insurance. Title insurance premiums are more
expensive here, about $3.50–$5.00 / thousand so on a $400,000 home the
premium would be $1,400 at the low end and $2000 at the high end. This is a onetime charge that is good for as long as you own the property. If you are paying
cash for the property, you can choose to buy a policy in any amount up to the
purchase price. So to save some money, you could insure that same $400k home
for $200,000 and pay only $700–$1,000 in premiums.
If you have a mortgage on the property, some lenders will require title insurance
to cover the loan amount. This protects only them. You will have to buy owners
coverage.
Regarding title insurance: If you wouldn't go without it in the old country,
why would you go without it in Mexico?
Fiduciaria
(Also called a trustee.) This is a lawyer that works for the bank that will
administer your fideicomiso or trust (we use the word interchangeably). In the
case of a new trust, they will take the information from the closing agent and
insert it in your fideicomiso. If there are any special clauses that a developer has,
they will be added. If you are assuming an existing trust, they will ensure that the
new information is inserted and that it is done properly. If you are buying an
existing home with a trust in place, and you are opting to use a different bank,
both fiduciarias have to read and approve the new trust, the old one must be
cancelled (the seller pays that fee). If you are having a closing agent or someone
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else sign for you, then a copy of the power of attorney you signed will be part of
the trust. And one more thing… You guessed it! There is a fee for this. You may
or may not meet the fiduciaria. They sometimes make their rounds of notarias and
sign where needed at their convenience. It is rare for a bank trustee to attend a
signing of the fideicomiso by the buyer.
Tax appraiser
This is an appraiser approved by the public records office (known as Catastro).
They will appraise your property for the taxing office. This is usually lower than
market value. The name of their document is an Avaluo Catastral. This is
arranged by the closing agent and the document is delivered to the notaria and
becomes part of your trust. The cost is between US$300–1500, depending on the
value of your property.
Commercial appraiser
Depending on whether it is a Mexican appraiser or an American, the name would
be market appraisal (USA) or Avaluo comparative. Commercial appraisals are
done when there is a lender involved. And yes, Virginia, there are well-priced
long-term US dollar-denominated loans available to foreigners in Mexico. Back
to the commercial appraisal. You would usually have this done if you are also
applying for a mortgage. Since the lender is a US-chartered bank partnered with a
Mexican bank, they have to comply with regulations of two countries. The cost
for this is fairly high―$1,500. But that is the cost in Mexico. The work is much
harder, there are no really efficient multiple listing services in Mexico, and their
accuracy is debatable. The commercial appraisers are experts in their fields and
know the market well. Bancomer, a Mexican bank with a US lending branch, will
use a Mexican commercial appraiser. This can sometimes be an issue because the
Mexican commercial appraisers do not always value things like views, such as a
view of the beach, as highly as American appraisers would.
The choice of an appraiser is important. Usually the closing agents have
relationships with appraisers and they can guide the appraiser regarding
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amenities, view, and other compensating factors. I had some Canadian clients
buying a house in Puerto Vallarta in a privada from a reputable developer. The
clients were also getting a mortgage. Since it was not a very expensive property
and the Texas bank had not yet decided to use the US appraiser, we were forced
to use the appraiser related to the bank that would hold the trust. The appraisal for
the mortgage came in $20,000 low.
I was just told a value, but had not seen the hard copy of the appraisal. I was
stunned. How could a reputable appraiser miss the value in a newly-built home in
a hot market? I could not believe it. It was December and the clients wanted to
close before Christmas, so they went scrounging for more money to make up the
difference in the down payment that would be required. I told them I would
review the appraisal as soon as I received it, but agreed they should prepare
themselves to pay the extra if they still wanted this house. This is where the
closing agent came into play. She hunted down the appraiser, and scanned and
emailed the appraisal to me. We were flabbergasted that he did not have an
electronic copy of the appraisal.
Since everything in the Mexican government comes to a screeching halt in midDecember until after New Year's Day, we were under pressure to close. The
builder wanted his money and the buyers wanted to be in for the holidays. The
builder was putting undue pressure on the buyers, saying they would sell the
house right out from under them. I called the builder and asked him if he had a
buyer with all permits, papers, and a trust in place to close in a week? Of course,
he didn’t.
Then the appraisal arrived. It had been done by an appraiser in Guadalajara. This
person could not possibly know the nuances of a resort market like Puerto
Vallarta. I called the bank and demanded to use a local appraiser. They agreed. I
called the builder and told him we needed to wait for a new appraisal. I called the
borrowers, who agreed because the extra cash was all they had. The new appraisal
was done and came in a few thousand higher than the purchase price. Instead of
coming up with an additional $20,000, the buyers paid only a few hundred dollars
for a second appraisal. Everyone was happy. To make this happen, the closing
agent went with the appraiser, snapped the photos, and then brought him back to
her office to type the appraisal. She glued the photos to the appraisal and copied
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and scanned it for me and the bank. The value of closing agents familiar with their
territory is invaluable. She saved the transaction by running herd on the appraiser.
Appraisers in Mexico are now trying to come up to speed in a hurry. They
literally have to work faster and meet deadlines, be more scrupulous in their work,
and understand the monetary value of location, view, and proximity to the beach.
IN CASE OF A MORTGAGE
US bank:
Underwrites and approves the loan, draws the note, and sends it to escrow for
signing. The bank funds the loan by wire transfer to escrow. They can work
directly with you or through a mortgage broker. There are several reputable
mortgage brokers working in Mexico. There is a list at the end of this book.
Mexican bank:
The counterpart of the US bank, it handles the Guarantee Fideicomiso and in
some cases, orders permits and appraisal. We did not discuss the guarantee
fideicomiso earlier. I did not want to confuse you. In case of a mortgage loan
anywhere in Mexico, even on the mainland well away from borders and
coastlines, a guarantee fideicomiso is required. This protects the lender and allows
them to foreclose in the event of a default. The guarantee trust lists the bank as the
first beneficiary of the trust, and you as the substitute beneficiary. You will still
name alternate beneficiaries that would inherit the property upon your death. In
some cases with some lenders, the alternate beneficiaries you name will have to
qualify for the loan on the property.
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Chapter 4—Choosing a Realtor
Choosing a Realtor:
Do you need a Realtor to buy or sell a home? Well, in the US maybe you can
do it yourself. It is still time consuming and can be risky, since you are not a
professional agent and don't have the experience of a professional Realtor. And in
the US or Canada, you know most of the rules, speak the language, and trust the
system to work for you. But, I still wouldn't recommend that you work without a
Realtor.
Should you buy or sell a home in Mexico without a Realtor?
Never!
And here are some reasons why:
•
•
•
You don't speak the language.
You don't have the proper forms.
It is unlikely that you will be here for 60–90 days at a time to ride herd on
all of the papers and players.
• And even after reading this book, you are just not experienced enough to
go it alone.
Back in California when I held home buyer workshops, I would always say: "I
prefer to choose your Realtor for you. That way, I can be sure you are getting
proper representation." Most of the attendees appreciated that I was concerned for
them, and that I would find them an agent that would do their best and always act
in their best interests.
I can refer you to good agents in both states of the Baja Peninsula, the Maya
Riviera, Puerto Vallarta, and Guadalajara. In the other markets, I can help you by
giving you the things to look for in choosing a Realtor. And I will immodestly
say, I am the Realtor you should choose for your La Paz real estate transaction!
In the US and Canada, because of the excellent National Association of Realtors
(NAR), the local chapters and local Multiple Lisitng Services (MLS), Realtors are
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held to a high standard and there are strict penalties, including loss of license, for
not protecting you.
In Mexico, it is a completely different story.
•
•
•
•
•
There is no licensing requirement for real estate agents.
Membership in the national association is not mandatory.
The MLS system is not completely accurate.
The local MLS is not policed for inaccurate information.
Many American and Canadians selling real estate in Mexico, have no prior
experience , This does not mean that they are dishonest, but many are not
experienced.
REMEMBER: Buying Real Estate in Mexico is SAFE, if you do it the
RIGHT way.
Don't Despair!
There are many excellent, well-trained real estate agents in Mexico and there is a
national association, the Asociacion Mexicana de Profesionales Inmobiliarios
(AMPI). It also has an agreement to work with the National Association of
Realtors in the US and Canada. In fact, in 2006, there was a historic meeting in
Mexico City of the two organizations. The presidents of AMPI and NAR and
Vicente Fox (then president of Mexico) attended for the signing of the agreement.
Members of AMPI may also use the designation of Realtor, which is trademarked
by the NAR. AMPI has a strict code of ethics and all members must pass a test
and pay dues to join. While this is not licensing, it is an indication of the
professionalism of your agent.
To be sure, there are Realtors in the US that have many professional designations,
but still do not act in your best interests and may be shady characters. The same
goes for Mexico or any other market. All of the major real estate markets in
Mexico have AMPI chapters.
If you have started to work with an agent or if you are about to start working with
one, find out if they are members of AMPI. Here is some information I have taken
directly from the AMPI website:
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AMPI is the Mexican Association of Real Estate Professionals. Formed in 1956,
it now has members in more than 22 cities, plus an international section. AMPI is
affiliated with the National Association of Realtors (U.S.A), the Canadian Real
Estate Association, FIABCI, and The International Real Estate Federation
and with the newly formed International Consortium of Real Estate
Associations (ICREA). Mexico through AMPI is represented on the five-member
Board of Directors of this new global initiative.
AMPI members are dedicated to the highest level of ethics and professionalism.
Each year AMPI members must sign a pledge agreeing to operate by the AMPI
Code of Ethics (similar to those of other national real estate associations).
Disputes with an AMPI member can be resolved through its Committee of Honor
and Justice, which functions on both local and national levels. Just as in your own
country, do not gamble by working with an agent who is not a member of a
national real estate association.
Their national website is : www.ampi.com.mx.
And a local site www.ampilapaz.com
Many of the major real estate franchises that you recognize in the US and Canada
are also doing business in Mexico. Most of the English-speaking agents gravitate
to the franchises. They feel comfortable; they know that their company name
stands for excellence and integrity. And their clients know this as well.
In most cases, this is true. However, there are many, many independent real estate
companies in the resorts of Mexico owned by Mexicans, Canadians, and
Americans and they do a very good job. And my company Prestige Property
Group La Paz is one of them! Our goal is to make your Mexican home purchase
remain a dream and not turn it into a nightmare!
Let's talk about stress for a moment! Realtors, like attorneys, make a lot of
money. They also get a lot of flack about not being worth the 6, 8, or 10%
commission they charge home sellers. I can tell you, as the former closing
director of a major mortgage company and as a Realtor in Mexico, that after
closing just one transaction, you will believe that Realtors are worth their weight
in gold. If you are buying, the selling agent pays your agent, not you.
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I am impressed with the work that agents do in Mexico, how they deal with the
bureaucracy, the delays, and the demands of buyers and sellers that just do not
understand why things take so long and why things do not work the way they do
in their home country. They try very hard to keep the stress away from you. They
want your transaction to be joyous, so that when you finally get the keys to your
little piece of paradise, you are excited and happy.
You have heard about some events in life that are major stressors, buying a home
is one of them. Buying a home in a foreign country is more stressful. I want you
to remember that, while Mexico is our close neighbor and we can cross the border
freely, use dollars, speak English, find many of our favorite consumer brands, and
watch American movies in English, we would buy or see in the US, it is still a
foreign country with a very different culture.
Any Realtor that has been in the industry for very long has learned to keep their
temper in check and work within the flow of the Mexican System. My dear friend,
Maria Gomez said this about life in Mexico: "They make it hard for us, too,
Susan, not just foreigners."
Now, there are Realtors that you need to stay away from. They bad mouth other
agents and even say wildly negative things about a particular developer or
development. If they are so strongly negative, why are they still in the business?
When you meet those types, steer clear. Most of them are on the fringe of the
industry, some may be top producers, but if that is the way they are talking, it is
an indicator that they will be troublesome during your transaction.
Be wary when a Realtor tries to talk you out of a property and pushes you to one
that has his sign on it. This happened to a friend of mine. She liked a beach
community that has a lovely view and many Americans and Canadians living
there. He told her it was not safe for a single woman, the bay was contaminated,
and just not a good place to live. He then used high pressure tactics and sold her
two, not one, but both properties that were his listings.
If you feel you are being pushed, take a day off from house hunting or at least a
day off from that agent; find another agent and spend a day with her and see how
she behaves.
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While Realtors are necessary to the transaction, they are also salespeople and they
will ask you to make an offer on a property, if you express interest. That's their
job. If you are not ready to write an offer, say so. If you are leaning toward the
property and think you may want to buy it, get out your buyer checklist and start
asking questions.
The agent should have the existing fideicomiso, the plans, and any surveys that
were made of the lot. Ask for these. If she does not have them, ask when they will
be available. Do not make an offer without those items. Or make the offer
contingent on seeing those items and put a time limit on this--five days should be
enough, after all, they are part of the lisitng activity. But please heed this warning:
Before agents list a property, they must see and read the title document
(fideicomiso or escritura), they must know if there are plans, and they must be
sure that the property is not encroaching or being encroached on by an adjacent
property. If an agent asks you to make a buying decision without showing you
these documents, it is time to say adios and move on to another agent or company.
Since there is an MLS in each Mexican market, it is likely that your agent may be
showing you another agent's lisitng. The Baja California Sur MLS (BCS?MLS)
is one of the most sophisticated systems in Mexico and because of that, very
successful. We work together in a friendly and professional manner. In the past
few years since the BCS/MLS started, transactions are standardized, and there
is little to no confrontational behavior. And air of cooperation and trust has
developed, and we are proud of our system.
The rules are still the same; the listing agent must provide all of the documents. If
he doesn't have them, look at other houses. If you are getting a mortgage for your
Mexican property, these items are necessary for title insurance and for the
appraiser. Even if you are paying cash, the same rules apply. In the old days, cash
was king and that led to a lot of funny dealings, which led to problems down the
line for the buyers.
Whether paying cash or getting a loan, the same rule applies, you must be
provided the full package of documents for the property you are
considering–BEFORE you make an offer.
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If you really like the house, but cannot get the documents you need to see, then
hear me: There is a problem here and the little hairs on the back of your neck
should be standing. There are other nice houses you can buy that have their
papers in order.
Here's another story that points out why you want to see those documents. It
happened in Cancun. The house was a beachfront beauty and very well-priced.
The clients made their offer, gave their earnest money, and applied for a loan. Up
until this point, no one had produced a title and the buyer was not aware that he
should have had that before proceeding. When the documents finally appeared, it
turned out that the housekeeper had entered into the sale, not the owners! The
deposit was gone. And so were the hopes and dreams of the buyers.
A few years back, I was the sales manager for the first US real estate franchise to
open its doors in La Paz. In one week, three different people came to me offering
the opportunity to list the same gorgeous piece of beachfront property! Not one of
the "owners" could produce a title. One had a lovely CD he had made and another
presented a tax bill and thought maybe I would pay the taxes for them and get part
of the sale price. Now, almost 10 years later, that property is still “for sale.”
And here is one story: Our ironworker, an artistic and intelligent man, bought a
small lot. He was so proud to have saved the money to do this. He told me all
about it. "When do you close, I asked?" "Close?" he replied. "I gave him the
money and we shook hands. We'll go to the notaria in a day or two and I'll get my
escritura." "Chuy," I said, "You shouldn't have done that! You know that in
Mexico, paper talks." He responded that this was the way it was done--with a
handshake.
Well, after searching high and low for the man, Chuy could not find him. He
glimpsed him once driving a new truck, but could never pin him down. He was
not the owner of the property, there was nothing in writing, and Chuy lost out.
Mexicans also take chances and cheat each other. Foreigners are not the only
people that are naïve about buying property in Mexico.
And then there were my friends Tom and Greta, a Canadian man married to a
Mexican woman. He was at my house telling me they had found a big lot with a
gorgeous view and they were going to buy it. Tom said he was a little nervous
because Greta wanted to do it on a handshake. When Tom had asked for a
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contract, Greta, a woman with a PhD from a Canadian university who had lived
and worked in the US and Canada, was shocked. She said it would be insulting to
the seller to ask for more than a handshake and she was going to trust him.
"Bend over," I said to Tom, "Why?" he asked. "So I can kick you in the butt! Are
you nuts? You don't buy property without a contract, you need to see the title, the
survey, and be sure all the taxes are paid," I responded. On and on I went with the
list of do's and don'ts. Tom went back to Greta and insisted that the deal be done
with the proper paperwork. And it was. But you can see that Margarita Mind is
everywhere.
As I write this, I remember one of my first mortgage jobs in California. My
clients called me and said they were having some concerns about the agent
because he had written the contract in pencil and it did not have the same terms as
when they signed. Yep, this happened in the good old USA. I was able to help
them find another agent and they safely bought the house.
Things to ask/tell your agent before you get in their car.
When interviewing an agent, tell them right up front that you will only buy using
a fideicomiso (in the restricted zone), that the full price of the property will be
listed in the fideicomiso, and you want to use escrow and buy title insurance.
Outside of the restricted zone, you will still need the guarantee trust if you are
getting a loan. If you are paying cash, you should still insist on title insurance and
escrow services. If their response is anything but complete agreement, walk the
other way.
In the old days, and still sometimes today, it has been the practice to list the
"avaluo catastral" value in the fideicomiso. Remember, the avaluo catastral is the
tax appraisal and, just like in the US or Canada, that is lower than the actual
selling price. A shifty agent will say, "Well, yes. What you want to do is the law,
but my way is the way we have always done it."
This practice is done to minimize capital gains for the seller. It also minimizes
your upfront closing costs. But it is illegal and it leaves you in a sticky position
when you go to sell. Unless you are a tax payer in Mexico and this is your
primary residence, you will have some capital gains tax. If you listed a low price
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in your fideicomiso in 2005 and then decide to sell at a profit in 2014, the
difference between the two values is taxed. It can be taxed at a rate as high as
35%. More about capital gains later. This is also why I say you should have the
value of your home listed in the fideicomiso in US dollars. The dollar is deemed
to have the same value today as it did when you purchased. Not so for the peso.
Its value changes daily. The rules about capital gains have changed and will
continue to change.
Remember, if the property is on the beach, ask about the federal zone. How close
is the house to the federal zone? If it is too close or actually has the virtual
boundary line going through it, you cannot get a mortgage. You can still buy it for
cash, but you should immediately apply for the concession. The high tide line can
be measured and changed many times in the life of a property. The seller may not
even know their property lines have been changed. While the Mexican
government wants foreign investment dollars, they are not going to grab your
house if the boundary line changes. Getting the concession protects you and
makes it a selling point in the future.
Remember: "Paper talks." Ask for proof of any promises or assurances
made to you.
To Recap:
1.
2.
3.
4.
5.
6.
Inform your agent that you will only buy with a fideicomiso.
You will only list the actual sales price in the fideicomiso.
You want your price reflected in US dollars.
You want title insurance and escrow services.
Insist on seeing the full documents for the property.
If located at the beach, ask about the Federal Zone.
If the agent is not in complete agreement with you on items 1–5, find another
agent. If she cannot answer or get you the proper information for item 6, insist
that she goes to the notaria or title company for help. If they cannot help, then go
to SEMARNAT.
Some other things to note:
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Agents will often try to reassure you about buying by telling you that you can rent
your property and cover your mortgage payment or make a profit. While there is a
demand for vacation rentals, there are strict laws regarding this.
1. You must have a residency card, your first card will be a temporary residency
card which you will get in your home country before you take up residency in
Mexico.. It looks like a US green card or passport.
2. You must be registered with the SAT (the Mexican IRS).
3. You must report your income and pay taxes on it.
While this can be fun and profitable, do not rely on the promise of future rents to
pay your mortgage or other expenses on your Mexican property. I know of many
people that took second mortgages or equity lines on their US or Canadian
property or mortgages on the Mexican property, fully expecting the flow of
vacation rental income to offset their debt. Big developers will also use this hype.
They often have a rental program you can join. But if the tourists aren't there, then
there is no income stream.
Vacation rentals are in demand, but there are a lot on the market. Do not go into
to debt to buy your property expecting renters to pay the mortgage. Consider
income from your vacation property as gravy. In most markets, the high season is
November through March, when rentals are in peak demand. There are other
months when there is no demand.
A few years ago the US press went into hysterical overdrive about the "swine flu
epidemic" in Mexico. There were no cases in all of Baja, yet people cancelled
their reservations at hotels, condos, and private rentals. The local economy was
devastated. You can make some money by renting your vacation home, but don't
depend on it being booked 52 weeks a year. Plan on the low side; it could work
for you. You might have repeat visitors and make some new friends. Renting your
vacation property can be a nice second income stream, but do it right.
(I will cover the subject of vacation rentals in my next book.)
What to look for in a good agent:
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Let's recap what you should look for in a good agent.
1. Get a referral. We will happily refer you to good agents outside of our
market area.
2. They should be a member of AMPI.
3. Are they in agreement with the issues outlined earlier in this book?
4. Have they any experience outside of Mexico?
5. Can they give you references?
6. Do they have a US telephone number, a website, e-mail address, and cell
phone?
Capital Gains Tax: (Impuestos Sobre la Renta or ISR)
This is a sore topic. No one likes to pay taxes and no one likes to give up profits.
Many people will tell you about the way around paying this tax when you sell.
There are all kinds of theories being proclaimed, including one that Mexicans are
not subject to a capital gains tax. NOT TRUE.
If you described yourself right now, would you say that you were a law-abiding
citizen? I am sure you would say that. But you know Margarita Mind is sneaky, it
seeps into your brain. When it comes time to sell your vacation home in Mexico,
you don't want to pay capital gains and you want a way around this tax. Please
listen to me carefully:
There is no way around paying capital gains tax on selling your vacation
property in Mexico. That is the law.
In the 11 years that I have lived in Mexico, the capital gains tax law on the sale of
your residence changed several times. And in 2007, it changed again.
But nothing has ever changed about capital gains tax on vacation rentals. This is
why it is important that the actual purchase price of your property in pesos and
dollars and the exchange rate are written into your fideicomiso. Your gain tax will
be based on the GAIN on sale, less Realtor and attorney fees and any
improvements you made to the property, providing you have official receipts for
these items. An official receipt is called a "factura."
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If you are buying the property to live in as your primary residence and have an
FM3 residency document (or better), there are tax exemptions available to you.
The law is the same for Mexicans and foreigners, there is no exemption from
capital gains tax on a vacation property.
Since this book is for buyers, I am not going into the details and formulas of how
the ISR taxes are figured. And, they will most likely change when you are ready
to sell.
Because vacation properties are never exempt from capital gains taxes,
"flipping properties" is a bad idea in Mexico.
During the last real estate boom in Mexico, people were buying properties at
"founder's prices" before the homes or condos were even built. They paid reduced
prices with the hope of reselling the properties at a huge profit when they were
complete. It sounds good, doesn't it: Buy Low; Sell High?
Several things happened:
1. The market dumped about the same time at "The Crisis" in the US.
2. Sellers were competing with the developer in the same project.
3. Sellers only had a contract, no fideicomiso. To legally sell, they would
have had to close on the property and then resell it. At that point, capital
gains taxes could eat up the profit.
A closing note: Come to Mexico, buy a lovely home or condo with a gorgeous
view or right on the beach. Invite your family and friends and rent it if you wish.
But do not buy the property to flip it. You will be buying a property that is far less
expensive than a similar property in the US or Canada. Come to enjoy a laid-back,
vacation lifestyle. And someday you might sell it at a profit. Isn't that enough?
Klindienst Fogel
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Chapter 5—Mortgages in Mexico
Mortgages in Mexico
When I first started originating loans in Mexico, I would say I had the answer to
the second most frequently asked question about Mexico properties:
What about financing?
Oh, the first question: Where's the beach?
When long-term US-dollar financing became available, I called it a gift from
heaven. I had been in Mexico a few years and wanted to continue working, but
driving around showing property was not my cup of tea. But it was the only job I
could do that used my skills from California.
I soon hooked up with one of the first cross-border mortgage companies. We
thought the pent-up demand would bring the loans in by the truckload. In fact, we
had a loading dock installed in our HQ. Well, no, we didn’t, but we thought we
just might need one. Here we are 7 years into the mortgage market in Mexico, and
the dump trucks are idling. And a lot of companies have pulled in their shingles
and lend no more.
The advent of US-style mortgages in Mexico has made the process safer for you.
One of my favorite refrains is: “Lenders have the money; they make the rules.”
And as I have said so many times in other parts of this book, accurate seller
documentation is crucial. And so it is for the lenders. The industry is
standardizing and Realtors and developers are straightening up and not seeking
shortcuts. They help solve problems with the seller’s documentation. And by their
involvement, they see the problems that have been caused by sloppy work in the
past. Delays in the loan process are usually a result of clouds on the seller's title or
other property issues that need to be resolved before the loan can go forward.
Lenders large and small started their Mexican loan programs with names that
were all kinds of variations on the Dream Home in Paradise Theme. Someone
even tried to sue us for using a beach chair in our ad. Incredibly, they thought they
had the rights to all beach chair photos! Mortgage brokers from all over the nation
got involved. Many of them opened with a bang and faded away just as quickly.
Lenders came and went, but not before spending thousands of dollars on full page
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newspaper and magazine ads. We had stated income, low doc, and no doc loans,
loans for lots and fractionals, and construction loans.
As of this update to Margarita Mind, there are no longer viable loan programs
available for foreigners. If that changes you will be the first to know.
Right now, we are handling dozens of foreclosures for for the banks that were
making loans. And the foreclosure occurred because of many of the reason I
named. Not enough rental income, loss of job in the US, divorce.
Plan on 60 to 90 days for the closing. Do not plan to be in your house for
Thanksgiving, Christmas, or your birthday. Be patient, be flexible, and make no
plans until your professional advisors (your Realtor and closing agent) tell you it's
OK. No one will commit to a date until they are sure all fees have been paid, all
permits have come in, that the fiduciaria has signed the trust, and the notaria sets a
signing appointment.
It's time to take the sanity pledge:
Raise your right hand, both of you! And say: “I will not order furniture to be
delivered, plan a wedding, invite my friends, or set a move-in date until my
professional advisors say I can and there is a signing date set with the
notaria.”
Paradise is truly to be found in Mexico. Life is easier, slower, the food is
wonderful, the shrimp huge and juicy, the sea warm, the beer cold. The people are
gentle and gracious. Your friends will be envious. So there is a little pain and
suffering to get your loan and to close the transaction, but it does end, and you
will soon be taking siestas in a hammock while friends slog through snow.
Visualize yourself in some soft linen pants, your skin bronzed from the
Mexican sun, your happy feet in comfortable flip-flops, and a Margarita in
your hand. Keep that vision as you wind your way through this process. It
will happen.
Klindienst Fogel
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Chapter 6—The Contract
The contract:
Remember one of my refrains, “Paper Talks?” Well the biggest, loudest, most
talkative paper you will sign, except for your fideicomiso or escritura is the
contract. Unlike the fideicomiso and escritura, which cannot be changed, the
purchase contract can be changed and adapted to your wishes, within reason, of
course.
To have a binding contract, you have to have two or more parties, an
agreement to perform a specific act (I sell; you buy) consideration of
something of value. In the case of your Mexican Dream Home, the
consideration is money and a specific time for completion.
All reputable real estate companies and builders have their contracts in Spanish
and English. Spanish is the legal language; English is for your convenience. It is
your opportunity and responsibility to lay out all of your issues and requirements.
I am not going to try to cover the contract line by line. Every developer, real
estate agent, and builder has a different format. It will start out with the date and
the location in Mexico where the contract is signed.
It will name the seller and, in case the seller is not in Mexico or is a Mexican
corporation, there will be a legal representative named in the contract. The
obvious items like all of the parties' names and addresses and the property address
and legal description will be in the contract.
In the case of a loan, all parties to the transaction must be named in the contract,
even if one of the parties does not have an income. If they are going to be on the
trust, then they must be on the contract. The people listed on the loan application,
the purchase contract, and the beneficiaries of the fideicomiso must all be the
same.
In the case of a cash transaction, the contract can have only one spouse or partner,
but both can be of equal status on the trust. There really is no reason not to have
everybody that will own the property listed in the contract. The notaria does not
ask to see the contract.
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Next is the purchase price. If you are buying from a developer or a foreigner, the
price will be in dollars. Most Mexicans like to receive dollars, as well, (but some
do not), so the price may also be represented in dollars. You must ensure that the
exchange rate does not affect the selling price. If the Mexican seller wants to have
the price listed in pesos, make sure that your real estate agent writes in something
like:
The price has been set in pesos and the exchange rate does not affect this price or
agreement. Or just have a clause that says the peso exchange rate will have no
bearing on the dollar amount wired by the buyer. Said dollar amount will be the
purchase price.
The reason for this is that, even though you will be paying in dollars, the currency
exchange will be made by the receiving bank and if the peso value changes, the
seller can end up with less money than they were counting on. If the price is set in
dollars and the seller wants pesos, the loss can occur. A few days before the
signing, when the seller sees that they are getting less money then they expected,
they may refuse to sign or want more money from you. Make sure that
fluctuations in the value of the peso are properly addressed.
This did happen to one of our sellers in Manzanillo. There were delays that the
seller caused, then the exchange rate changed, and the seller received less money.
Her Realtor wanted the mortgage broker to split the difference with her.
Naturally, he said no. The deal closed and the seller got her money, not quite as
much as she counted on, but it was all cash, she paid no capital gains, and she was
free of the property.
Other clauses you need to insert: Note these are common clauses that I have
seen and used on both side of the border and are sensible. I am not an attorney.
Please seek the advice of an attorney if you have questions or doubts.
1. Financing contingency: Means that the offer is dependent on you
receiving loan approval. The seller will want a set amount of days for
you to receive loan approval.
2. Property to appraise for at least the purchase price. This is a key
provision when financing is involved. If the property does not appraise,
your loan amount will be reduced, and you will have to scramble for
cash. Although in the US or Canada, the seller would have to lower their
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price to meet the appraisal or lose the sale, sellers and agents in Mexico
do not operate this way.
3. If pre-sale or new construction: The builder/developer will outline his
construction timetable and your payment schedule.
4. Penalties: If there are penalties for late payment or penalties for late
completion, they will be specified in the contract.
5. Refund of deposit: There should be a clause allowing you to receive
your money back with interest, if the builder does not perform.
6. Escrow: An escrow agent will be named in the contract. Developers
usually have chosen one already. It is perfectly fine to work with the
escrow company chosen by the developer.
7. Personal Property: If there is any personal property being transferred
with the home, a clause referring to it should be written, something like
this would work, but please check with your closing agent for the best
language: “the property is being sold completely furnished, including
appliances, and a 1998 Jeep Cherokee and two Cobra kayaks. The
complete inventory is Addendum A.”
8. As-Is: If the seller is transferring the property in an as-is state, this
should be noted.
9. Repairs: If the seller has agreed to make certain repairs, then they
should be outlined in the contract or mentioned in a contract with a
complete list in an addendum.
10. Seller credits: If the seller is crediting any money for general repairs or
closing costs, it should be noted in the contract.
11. Closing date: A closing date will be set (remember it is a moving target)
and procedures for extending that date will be listed in the contract.
12. Upgrades: In the case of a developer, a list of upgrades will be referred
to and usually named as an addendum.
13. Garage or storage or parking place in a condo: This is very
important. If you have an option to buy a garage or storage space, you
need to decide this at the time you make your offer and before you have
applied for the fideicomiso. These items are considered real property and
must be part of your fideicomiso. If you decide to buy them later, it will
mean a new fideicomiso and the fees that go along with it for these
marginal items.
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14. Attorney: Be reasonable and listen to your real estate agent. If you do
not feel comfortable, seek advice from an attorney.
Your US, Canadian, or home country attorney does not have jurisdiction in
Mexico. They cannot write your contract. Their advice may not be accurate.
Seek the services of a Mexican attorney.
Writing the contract is a heady time; it is also a time when Margarita Mind can
slip in and dull your senses. It can make you feel that in asking for any changes
you are being selfish. It fills you with self doubt. You worry that if you ask for too
much, you run the risk of losing the house of your dreams. Be strong!
Don't let house-love get the better of you. Isn't it better to lose the house than
make a mistake you will regret for years? Most likely, most of your requests will
be accepted. Decide ahead of time what items you are willing to forego. And
remember, when you write an offer, only three things can happen.
1. The seller accepts your offer.
2. The seller counters your offer.
3. The seller rejects your offer.
No one is going to shoot you. The seller may call you names and talk about you,
but you won't be there anyway. Your agent will be presenting the offer. The same
goes for the sales agent for the developer. They will write the contract as you ask
and then present it to their boss. Once the contract is signed by all parties, big
wheels start to turn and the process begins.
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Chapter 7—The Process
Now, we pull it all together! You have completed one the most important parts of
the process, reading this book. No really! You have spent your money to buy it
and your time to read it. You have a good overview of the right way to buy
property in Mexico.
The next important step is to connect with a Realtor and find a house. For this
section of the book, let's assume you have found the house or condo of your
dreams and your offer has been accepted. Congratulations! You are on your way,
but don't order the canapés for your housewarming party just yet. There is a lot of
work ahead. But remember, your mortgage broker (if you are getting a loan) and
your agent are there to help you every step of the way.
We will also assume that your loan has been approved. You will receive an email
from the closing agent. This can be an agent at the escrow company or an
independent closing agent. In either case, they are attorneys. Several important
forms are going to arrive that you need to complete. If the closing agent has
enough information, they will complete the forms as far as they can and then ask
you to fill in the blanks. This stuff is important. Please take your time to do it
right and return the forms in a timely manner.
Here we go:
KYC form (Know-your-client form): This form asks basic questions, such as
your name, address, and occupation. It also asks for the source of the funds, such
as savings, gift, inheritance, or earnings and the purpose of the trust (it is usually
residential use).
This is also where you list yourselves as the first beneficiary of the trust and then
who will be your second beneficiaries. The second beneficiaries of the trust are
those people that will directly inherit your share when you die. If this is a second
marriage and you each have a child, you may each name them and then give the
percentage of their share of the trust, such as 50/50.
Application for the fideicomiso: Asks the same questions plus some information
about the property, the notaria, and whether you are related to a “politically
exposed person,” such as an elected official. The property metes and bounds and
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other legal description will be completed by the closing agent. If you are paying
cash and are not in the restricted zone, you will not receive this form.
Escrow agreement: There is more repetition of basic information here, but it also
establishes who will be the escrow agent, whether you will be requesting title
insurance, and it will show the amount of your initial deposit, and any initial
disbursements. It also contains the wire instructions for you to send the deposits to
escrow.
Power of Attorney (POA; in Spanish, it is called a “poder”): This gives the
closing agent or someone else that you trust to sign on your behalf. Or you may
come to the signing and hold a POA for your partner in the transaction. There will
be specific instructions on how to complete this form and have it properly handled
with an “apostille” from the Secretary of State of your state or province. Please
handle this promptly; the closing cannot proceed without it. It is safe and highly
recommended to assign a POA. It is almost impossible to set a closing date that
will coincide with your travel schedule.
Here is a concise explanation of the apostile from the website apostille.org: In
1961, many nations joined to create a simplified method of “legalizing”
documents for universal recognition. This group of nations is known as the Hague
Convention. They adopted a document referred to as an apostille that is
internationally recognized by all member nations. Documents sent to member
nations, completed with an apostille at the state level, may be submitted directly
to the member nation without further action. Documents sent to non-member
nations require a certification (vs. an apostille) of the official’s signature. This is
done at the state level and then needs to be transmitted to the U.S. Department of
State in Washington D.C. and then on to the specific embassy or consulate.
Requirements for international documents: Hague Convention Countries:
Acknowledged before a notary public.
Notary authentication by the clerk of the county in which the notary is
commissioned.
Apostiled by Secretary of State of the state in which the document is executed.
Good Faith Estimate (GFE): Now that your loan is approved and closing has
started, your mortgage broker should send you an updated estimate of costs. If
you are paying cash, the escrow agent or closing agent will send you an estimate
of costs. See the “Understanding the Good Faith Estimate” section below.
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Application for title insurance: In addition to the information all of the other
forms request, you must decide how much title insurance you want. You can
cover the entire home value or any smaller amount. If there is a loan in place, the
lender will ask for title insurance to cover the loan and protect only them. If you
would like title insurance to protect you, then you must request it. This holds true
for cash transactions, as well. You must request title insurance.
Documents you need to send to the closing agent:
1. Color copy of your passport.
2. Proof of residency in the US, such as a tax bill or mortgage statement.
3. Wire all of the closing costs to the closing agent/escrow company.
As irritating as it is to complete all of these forms and repeat the same
information, they are for your protection. Keep visualizing the new house!
Now what happens?
Once your forms are signed and emailed or faxed to the closing agent, she can get
started. You still need to FEDEX the originals to her.
When you send forms or documents, carefully scan them and check them for
legibility before you click “send”.
What the closing agent does:
1. Applies for the SRE Permit. This is obtained from the Secretary of Foreign
Affairs. It gives you permission to have a fideicomiso. This should take one week.
Once it took six weeks because the SRE moved its offices; they moved the people
and left the files behind for a week or so. It really happened! And in the middle of
our boom time! Right now it is taking about 7 to 10 days.
2. Orders the tax appraisal (Avaluo Catastral).
3. Orders the commercial appraisal.
4. Contacts the fiduciary of the seller's bank to ensure that the seller has signed
the trust cancellation letter so that the rights of the trust can be transferred to you.
Or if you are getting a new trust, just to ensure that the seller has done their part.
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5. Reviews all documents for accuracy, delivers forms to the fiduciaria and the
notaria so they can start their work.
6. Follows up with all parties to check their progress and nudge them, if
necessary, including YOU!
7. Works on obtaining title opinion. If there are any title issues, all parties will be
informed and a remedy sought.
8. Title commitment is issued and sent to lender. If a cash deal, the title
commitment is sent to you.
9. Homeowner's insurance binder is sent to lender.
10. Fiduciaria and notaria agree that all is in order and a signing date is set.
11. Lender wires loan funds to escrow.
12. Presents the certificate-of-no-liens.
13. Presents the certificate-of-no-tax-debt.
14. Presents proof of no water debt.
15. Notaria certifies that all is in order.
16. Notaria files preventive notice. This notifies all and sundry that a transaction
is in process and protects the property for 60 days, while the public records are
updated. Only a notario can issue this.
17. Notaria writes letter certifying that everyone has signed and that all papers are
in order.
18. Congratulations and welcome to paradise!
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Some key phrases that may mean trouble:
1. “That’s the way it is done here’’.
2. “There’s a way around it.”
3. “You don’t need escrow; just pay the seller in cash.”
Just remember, there is no better, easier way than the right way!
Klindienst Fogel
~ 53 ~
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Margarita Mind: How to Avoid It; A Guide to Buying Mexico Real Estate Safely & Sanely
Conclusion:
And now it's time to say goodbye…Ok, I promise I will not sing the going to bed
song from the Mickey Mouse Club. Being too young myself to have ever seen
such a show 
There is nothing Mickey Mouse about this book, nor is it silly to insist on doing
things the right way.
Be ever watchful for signs of Margarita Mind. If you feel it coming on, head for
the café have a double-shot mocha extra hot with whipped cream. By the time it
cools enough for you to take a deep drink, the worst of the fever will be passing.
Use the tools in this book to ensure a safe and sane transaction.
The stress: Well, that's what Margaritas are for; later; after you say "Adios!" for
the day to your agent.
Keep an eye on your inbox, as new rules come along, new ideas pop up, new
developments break ground, or just some interesting morsel drops into my
conscientious, I'll pass it on to you.
Thanks for listening.
Susan
www.prestigepropertygrouplapaz.com
www.mexicomusings.com ( blog)
[email protected]
877 467 1547 toll free outside Mexico
(011 52) 612 125 1894 Office
(011 52 1) 612 141 9173 Cell
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More Information about Life in Mexico!
Here are some interesting websites for you to visit with interesting information
about Mexico.
Just remember that there are a lot of people that write all kinds of things about
Mexico, and they sound very authoritative. Enjoy what you read, but always
double check your facts!
BajaCitizen
Mexonline
Mexico Insider
MexicoLiving
Mexconnect
InternationalLiving
BajaInsider
InsideMexico
MexicoMySpace
ExpatWomen
BoomersAbroad
SolutionsAbroad
Escape Artist
If any of this links are bad, please let me know. Send me an email:
[email protected]
Klindienst Fogel
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