Buying Your Mexican
Before we start, if you haven't read the first page of the series with the definitions, please do that now.
"I have lived in México for 20 years and have been in real estate for over 10 years. The horror story's I have encountered are amazing, but always have one common thread. The buyers did not get, or ignored, advice from people who have "been there and done that."
In this chapter we'll look at
General information about buying
Finding property is not much different from what we learned about finding rentals, except the internet, real estate agents and newspaper want ads may now play a much larger role.
In dealing with real estate people, keep in mind that there are no requirements for qualifications or licensing. Any one can set up shop as a real estate agent. Pick you agent as carefully as your lawyer.
Buying in a fraccionamiento needs special attention to detail and the services of a lawyer. There is no Credit Bureau where you can check on the financial strength of a developer or a condominium. You may be able to find out if there have been complaints about bad business practices by contacting the local office of PROFECO.
Zoning laws are mostly non-existent. You'll find high-value homes sitting next to very humble houses, or a store, or a mechanic's shop. After you buy your home, you have no control over what your neighbor may decide to do with his property. Or how much noise he may make -- there are almost no noise ordinances anywhere in México.
There are areas in some cities where the property values are so high that undesirable activities are not likely to occur. Of course, there are fraccionamientos which may be effective in restricting what activities can occur within their bounds.
A building inspector should always be hired to check for any defects that might influence your decision to buy an existing home, such as problems with the structure, plumbing, electrical, etc. Under Mexican law, neither the seller nor the real estate agent has any obligation to tell you about defects. The property is sold "as is." If you discover serious problems after the sale, you have no recourse against the seller unless you can prove that he misrepresented the facts -- hard to do unless his lie is in writing.
You can do a simple inspection yourself.
Remember, you are buying all the problems along with the property.
If you are buying bare land on which you plan to build, you should have an engineer do a soil test to determine if the soil is suitable for building or if special foundations will be required. This is especially important near the coast where the soil may be very sandy and, perhaps, the water table may be high. An adverse soil report could alter your plans.
The Title: Does the seller have a real title that can be conveyed? That seems like a silly question, but it is one of the most common sources of after-the-sale trouble. Consider title insurance to protect your investment.
While your Notario has the responsibility to conduct a title search, usually this search is limited to checking the current deed and any lien certificates. This limited search can result in missed problems in the history of the property. Even if you have hired an attorney to do a more diligent search, I still think it is folly to buy property without title insurance.
A Google search will turn up more names and information.
Financing for real estate purchases and building is not widely available from Mexican banks, and when it is available, the interest rates are quite high. México is still a mostly cash society. American banks and mortgage companies are beginning to enter the Mexican market, so some financing possibilities exist. These lenders will always insist upon title insurance.
Seller financing is sometimes available. This can be a very good deal for the buyer. It can also be the deal from hell. This is another place where a good attorney is vital to protect your interests. Understand that if the seller is a private party rather than a business, you cannot use the services of Profeco to assist you in a dispute. Profeco does not mediate disputes between private parties.
Escrow accounts are not widely used in México. Even some real estate agents don't know of their existence or usefulness. Some Mexican bank are beginning to offer this service. Both First American and Stewart (listed above} offer this service. Sometimes a notario will hold the funds.
Check the names on all the papers. Problems often arise because Mexicans have two "last names" and Americans don't. This can give rise to some strange contortions of your name. Mary Beth Jones can easily become Beth Jones, Mary -- Señora Beth. My name is Winston Rollins Brook, but my driver's license says Winston Brook Rollins. Yes, I failed to check the name before I left the office. I have sometimes filled out Mexican documents as Winston Rollins Brook (nada). To avoid problems be sure the name on the documents matches the name on your passport and FM3 or FM2.
Another reason for checking the names carefully is to be sure it is your name on the documents and not that of the notario or some relative. While such fraud is rare, it has happened.
The numbers -- purchase price and appraised value (they are usually not the same) should be accurately stated. There may be pressure from the seller to list a smaller sales price to reduce his tax liability. It is both illegal and not in your long-term interests to do this. Don't allow it. Hopefully, your notario will also be restive to this fraud.
Do I need a lawyer? A lawyer may not be necessary for a simple, low-cost transaction; a notario, which you must have, may be enough. For a high value or complicated transaction you should have your own lawyer in addition to the notario. The lawyer may be especially important, even sometimes required, in dealing with issues in the restricted zone, and if you wish to have a Federal Zone concession. If you are buying in a fraccionamiento, a lawyer is going to be helpful in guiding you through the covenants and restrictions. Obviously, you should choose your lawyer very carefully to be sure he is qualified in the area of your need.
Never use the same lawyer as the seller or even one recommended by the seller.
The Notario is selected by you, not the seller. Although you select the notario, s/he is not your representative, s/he represents the State, and, by law, is a neutral party in the transaction.
I won't try to list all the documents the notario must prepare and file with various government agencies, suffice it to say there is a multitude. Some of these filings carry a fixed fee, some fees are based on the selling price, some on the appraised value. None of these government fees is negotiable.
The maximum fee that can be charged by the notario for her/his services is set by law. The maximum fee depends on the selling price. For a low price transfer, say less than 20,000 dollars, the fee will be about 2%. For a high price transaction, say half a million dollars, the fee will be around 0.2%. A lower fee can sometimes be negotiated.
The notario will pull all these fees together, including her/his fee, to give you the total closing costs. That is where sticker shock comes. The closing costs will be more, perhaps a lot more, than closing on a comparable deal in the USA. Don't faint if the closing cost amounts to more than 10% of the selling price.
While it is possible to separate land from an ejido and sell it legally, great care must be taken to ensure that it is done correctly. An exhaustive (and exhausting) title search must be done by your lawyer if you know or suspect the land was ever part of an ejido.
Buying ejido land without a clear title can be a very costly misadventure.
Ejidos are found all over México. As cities have expanded, ejido land has become prime real estate in many areas.
If you are buying land that was once a part of an ejido, no matter how long ago, it is imperative that you have a detailed title search to be sure the land was properly separated from the ejido. If a member sells land without the proper consents, the title will not be clear, and the buyer can loose everything as happened in Baja. That is why a careful title search is so important. Of course, it is important in any purchase, but ejidos are a special cause for diligence.
If you own property facing a body of water, you need to understand that while no one can own the first 20 meters from the water's edge, anyone can buy a concession to use the land in limited ways. One does not have to own the adjoining property to get a concession. That means that a taco vender can get permission to set up a portable shop between your property and the ocean or lake. Not a wonderful idea. To prevent this, many water front owners buy concessions to ensure that no vendors can intrude. You cannot exclude the general public from using the beach or picnicking along the lake or river in front of your house. You cannot build a fence or other barrier that would limit public access to the federal zone.
If you have lake or river front property, you can extend your lawn down to the water's edge without getting a concession. But you will require one for any improvements, such as a pier, boat dock, diving board, steps down to the water, etc. You cannot extend your house into the zone.
The cost of the concession depends upon the intended use. Holding the land vacant will cost less than permission for a boat dock. You will need the services of a lawyer and a surveyor to draw up and file the necessary papers.
If your property is on a cliff at the water's edge, the Federal Zone does not move to the top of the cliff. Hopefully, your house will not move to the bottom of the cliff as is so common in California.
Federal Zones also occur along federal highways and under and next to high-voltage electrical distribution lines.
Buying in the non-restricted zone is usually pretty straight forward and won't involve any considerations beyond those already mentioned. Be sure to update your will to include your newly acquired property.
Buying in the restricted zones
Since the law forbids a non-citizen from owning property within the restricted zones, a bank trust (fideicomiso) must be used to hold the title. As the beneficiary of the trust, you have complete control of the property.
You can name an heir to inherit the fideicomiso. By designating an heir, the property can pass without going through probate. A very good deal.
Your notario will prepare the papers for the bank to establish the fideicomiso. There will be a fee for creating the trust as well as an annual administration fee. The amount of these fees is set by the bank, and usually they are not negotiable. You can shop for the bank that gives the best deal. Most banks do not send a reminder that the annual fee is due; it's up to you to keep track of it. If you fall behind with the fees, the bank can get pretty nasty.
A fideicomiso is usually restricted to a land area not exceeding 2,000 square meters (about 20,000 square feet). Larger areas require a special procedure which your attorney or notario can explain to you.
A corporation is sometimes touted as a way to avoid dealing with a bank trust. Commercial property may be owned by a Mexican corporation which can be wholly owned by a foreigner. Such property may be anywhere in the country, even in the restricted zones without restrictions, but it must be used for commercial purposes. It cannot be used to own your personal residence, despite the fact that some people in Baja are doing that very thing. (Surely a day of reckoning is coming.)
There is a burdensome amount of paper work that must be filed with the government, some monthly, some annually, along with fees and taxes. There is considerable question whether a corporation, in fact, has any advantage over a bank trust.
If the government finds that you have violated the terms of your corporation, you could loose your property.
This is a classic bait and switch scam reported by a cyber friend.
I had a problem with a sales person for a construction company that was building a custom development. This lady told me I needed to pay 5,000 pesos to select a lot and that they would arrange for credit for building the house. No problem being a foreigner. FM3 was all I needed for the house and the loan. I paid the 5,000 pesos and chose a lot.
Within 24 hours I had an email that the lot I had chosen was not available, even though it showed as being available on their map with push pins the evening I chose it. And there were no others like it available; I would have to make another selection. The only other lots available cost more; a lot more -- 250,000 pesos more.
Then within the next 48-72 hours another email that their lender could not lend to people my age. I would have to get my own financing, but they would send me to a lender who would take care of me. Never happened, and they would not give me back my 5000 pesos. I just lost it. Glad it was no more than that. And this was a really nice upscale development. When my partner told people about it, people who know about these things, they were shocked.
More stories promised. Coming soon, I hope.