Buying Real Estate
The Buying Process
Prospective buyers, whether financing a property or paying cash, should always remember to take into account the closing costs and the amount of time a closing will take, as well as the purchase price and down payment. Typically, you will need 20% or 30% in down payment plus the estimated closing costs.
If you are a foreigner, in order to own in the restricted zone, a Fideicomiso en Garantia must be set up. A fideicomiso is nothing more than a legal trust held by a Mexican bank that confers upon its beneficiary every single right that any Mexican owner has when they own a property (including improving, selling, renting, passing on in a will, etc.) except actually holding the legal title in their name. There is a one-time fee for trust setup, and each trust also carries an annual fee with both setup and the first installment due at the time the trust is set up.
Note: The “Restricted Zone” is a strip of territory 100 kilometers-wide along the borders and 50 kilometers-wide along the coast. It includes all of the Baja Peninsula. If you don’t live in the Restricted Zone, or are a Mexican citizen, a fedeicomiso is not necessary. You can title the property directly in your own name.
1) Among the first steps is securing the Permiso de la Secretaria de Relaciones Exteriores (SRE permit) which is your authorization from the Ministry of Foreign Investment to undertake the transfer. This request is made by the bank chosen to be your trustee, using information you are asked to provide including information on buyers and on the prospective alternate beneficiaries (who would become owners in your place in the event of your death.
2) Another is obtaining a Certificado de Libertad de Gravamen, which is a certificate that states that the property is free of liens, and an Avaluo y Deslinde. This is an appraisal of the property for tax purposes. This has nothing to do with the appraisals for loan purposes, nor with actual market value.
3) A search of the title will also be made, and a certificate obtained.
4) In addition, in the process of coordinating your closing, our in-house closing department will assemble identification papers for both sides, copies of seller’s ownership documents, and other materials the notario will require in order to complete the closing.
5) A Mexican Notario, a federally appointed public records keeper, will be selected to ensure that property transaction is properly conducted and recorded, and that all government taxes are paid and regulations are adhered to by both parties. S/He is not working for you, the seller, the lender or the broker. The job is complex and the notarios are paid substantial fees for doing it. Though notario fees vary they cannot charge more than the maximum fees as outlined by law. The depth and responsibility of their role in your transaction is exactly why many closings take 90 days.
6) Notarios also collect and pay (without adding a surcharge) the 2% acquisition tax paid by buyer and the ISR (comparable to capital gains tax) charged to seller, and any other state or local taxes in connection with the transaction.
7) The actual signing by both parties, the trustee and, if there is lending involved, by the lending bank, takes place before the notary, who retains the original of the document permanently. The notary, or our coordinator in the closing department, will then process a certified copy of the document through the county tax registry (catastro) and Public Registry (a public record of all such transactions).
8) Finally, execution of the fideicomiso must be registered before the Ministry of Foreign Investment, which issued the permit. Your trustee (a Mexican bank) is responsible for completing this step within 30 days after the title transfer has been approved.
9) Escrow and Escrow Fees – an escrow account is typically set up with instructions on how funds are to be disbursed. Mexican law does not recognize escrow accounts, so one of a select few escrow companies in the US is typically selected to handle all purchase money, receiving and transferring money as directed by the parties, by interbank transfer. Closing costs may also be handled through escrow, or in some cases deposited in “escrow.” accounts maintained by the entity conducting the closing. Escrow fees are paid by the buyer. If you are planning to finance, several more items will likely be necessary.
10) Title insurance is available but not required in most cases because lenders know if the sale passes muster with the Notario Publico, it is a legal sale, and the property title is not in question. Your agent will be watchful on your behalf and assist you in deciding whether or not to order a policy.
11) A US-style market appraisal will be required.
12) Loan origination fees are paid to the lender, usually direct from escrow at closing.
Closing costs generally run 4.5-5.5% of the purchase price. To aid you in calculating your potential closing costs, keep in mind that the lower the price of the home, the higher the closing percentage because most fees are fixed and added to the 2% acquisition tax. This would mean, for example, that a lot costing $60,000 will probably garner closing costs of up to 10%, while an $8 million villa will run approximately 2.5%.
Also remember, in Mexico it is customary that the buyer pay for everything except agent fees, which are paid by the seller.