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 The Acquisition Process

– Follow the Process

For the first-time investor in foreign property, acquisition can be a confusing and lengthy process, especially if one is accustomed to the modern mechanisms available in the United States. No where is this more evident than in Mexico where the most desirable, coastal properties lie within the “Restricted Zone”. And while it is possible to for the investor to self-navigate through the process alone or with the help of the seller’s agent, such an undertaking is, at best, ill-advised. The reader is urged to consider employing competent counsel in acquiring property in this newly-available area in order to maximize the value and minimize the financial risk.

mexican riviera

-The Technology

While still not as technologically advanced as the US and other nations, Mexico has come a long way in the last few years relative to the mechanisms employed to purchase property. And while their escrow and real estate professionals remain unlicensed and unregulated despite laws that have been attempting such regulation since 2014, escrow is now becoming an accepted practice and US escrow companies are available to the investor at the investor’s request. That said, investment in newly-opened Mexican real estate is as safe as it is anywhere else in the world provided the investor has a competent, well-experienced real estate team representing and protecting his or her interest. And as to real estate agents who say that they can represent both sides in a purchase agreement, the well-informed investor knows that while this “Dual Agency” remains a common practice in Mexico’s well-advertised, vacation/retirement property acquisition merry-go-round, to have the seller’s agent also representing the investor’s interests remains imprudent, impractical and ill-advised. The seller’s agent’s fiduciary duty, a duty of the highest moral and legal standard, is always to the seller and not to the buyer. A clear discussion of the practice and why it remains unlawful in nine and discouraged in all fifty of the United States is available to the reader elsewhere within this site at “Dual Agency”.

-Property Confines

As the vast majority of investors’ interests lie in property acquisition along the Mexican coastlines and as that area is defined as within the Mexican Constitution as “Restricted Area”, we’ll confine this discussion to that property within the Restricted Zone which is within 31 and 62-miles of the Mexican coastlines and borders respectively. Further, we’ll be discussing the acquisition of both buildable land on predefined lots within legal subdivisions and existing developments with properties available as either turn-key or “pre- and mid- construction”.

-The Process

old ejido landWhile there’s always the caveat that exact processes will vary from state to state and depend on location and type of property, universally the property-acquisition process remains relatively the same:

1. Locate suitable property

2. Retain competent representation

3. Visit the property and consider well is current and long-term suitability

4. Discuss the acquisition with your counsel

5. Make an offer through your counsel

6. If the offer is accepted, direct counsel to draft a Purchase Agreement complete with any conditions you may want

7. Make a refundable deposit if accepted

8. Retain a Notario through counsel

9. When you and your representative are satisfied, execute the Title Deed at the Notario

-Location, Location, Location

mexican houseFinding physically and aesthetically pleasing property is the easy part. In Mexico and most foreign lands, while the property may appear “All that and a root beer”, foreign regulations are far different than those in the United States. So your first step after finding your “perfect parcel” is to secure competent representation; and that can be best accomplished by speaking to friends or investigating on-line. You want competent counsel, preferably a team of agents, lawyers and foreign affairs experts specific to the location that holds your interest; in this case, Mexico. And while many people, especially those hawking property south of the border will tell you to “ask the folks in town if they recommend anyone”, I’m fairly certain that even the first-time investor can see the problems attendant to this type of approach. Respectfully, the intelligent investor wants competent, bilingual, American representation, well-experienced in foreign assets and customs; and candidly, your local, family-friend, real estate agent doesn’t qualify.

Your counsel will then research the property to ascertain it’s legal history, it’s development history and the seller’s history as well. It should be well-noted here that, although few and far between albeit well-documented via the news media whose mantra still reads, “If it bleeds, it leads”, and despite wholly-unfounded claims that the government was seizing American homes, the property seizures of years ago were caused wholly and without exception by two things; greed and a wholesale lack of investigation on the part of the buyer. A diligent historical investigation would have revealed the fact that the properties in question were never legally acquired prior to subdivision and therefore a ticking time bomb for investors. Please see our “Cases on Point” section for a complete discussion supporting the recommendation of retaining competent counsel as your first step.

-Visit

mexican street sceneVisit and tour the property of course but look for what’s wrong with the property as diligently as you look for what’s right. Does it fit your needs today? Will it fit them tomorrow? Can it be rented out when you’re not using it? What can you reasonably re-sell your investment for when it’s time to sell? What’s the town like? What are the people like? Is it secluded? Is it too secluded? What’s the expected growth for the area? In short, look for answers to questions as seriously as you looked to make sure that your home back home was in the right school district for the kids. And when you and your family agree…

-The Offer

Make an offer. Typically, the seller’s agent will draw up a “Convenio de Compra/Venta” or Purchase Agreement and it will be in Spanish with a verified English or other relevant language copy provided for the the buyer. Of special note here is the fact that in Mexico, the Spanish language document “controls” which means that if the English translation is in conflict with the translation, and the discrepancy is not in your favor, you have no recourse. This is yet another instance where having trusted, bi-lingual counsel representing your interests is in your best interest. And no, at this point in the process, it’s a little late for Spanish lessons. Further, the offer should contain contingency clauses, detailed costs/credit-debits, inclusions/exclusions, conditions for repairs, specific performance time frames and cancellation clauses. Contrary to popular belief, while that 10% earnest money may be the basis for remuneration in the event of performance failure, it may very well be inconsiderate as travel and other expenses attendant to foreign property investment mounts and the buyer may be out far more than 10% of the purchase price; and this needs to be taken into consideration at this time. Know also that properties in Mexico are very rarely financed, especially through a Mexican bank and when they are, the interest rates are significantly higher than in the US. The on-line resource Mexperience contains a wealth of information on this and other aspects of Mexico and is a valuable resource for those planning an investment there. When the deal nears closing, the deposit is then transferred at the then-current rate of exchange. Of special note here is that if the earnest money is converted at the time of deposit, with fluctuating values in the currency market and attendant changes in exchange rate, where the deal fails to close, the investor may very well be on the negative side of devaluation. Further, be aware of the charges incurred in exchanging pesos for dollars and dollars for pesos, a fee sometimes as high as 3-5%. Best practices dictate a bank-to-bank wire transfer where the American bank has a footprint in the foreign country. A $35 wire transfer fee between bank branches is better that 3-5% of $250000.  Another option is to prepare a cashier’s check, drawn in the seller’s name deposited into escrow.

-The Little Things

For all of the complexities of the Purchase Agreement you, or hopefully your counsel, will have many other matters to deal with.  There is the selection of a Notario who is truly the “Captain of the Ship”, responsible for everything legal and, as well-noted elsewhere within this website, is not your regular American notary. He’s a consummate, experienced, educated attorney who is appointed to a life-position by the Governor and responsible to the government for every aspect of your property acquisition. And while it is common belief that the Notario works for both the buyer and the seller, he does not; his fiduciary responsibility is to the Mexican government. He can not give legal advice or provide you with any other form of guidance other than what is required by the Mexican government. He is not your translator. He is not your agent. He is not your friend. He is there for one thing and one thing only; to make certain that the transfer of property is in accordance with governmental guidelines. That’s it.  Everything else; your fideicomiso, direct deed or help to form a Mexican corporation, securing of a title report from a title escrow company of your choice, securing a lien certificate or “certificado de libertad de gravamenes” which shows the name(s) of the owner(s) of record as well as the details of the property, including property dimensions and zoning status (commercial or residential), securing a non-lien certificate (certificado de no adeudo) from the local tax authority which will show that either no taxes are due or will reveal unpaid back taxes, verifying that property-related bills such as water and electricity are current and securing an appraisal to ascertain a fair and just price is all up to you or your counsel. Additionally, the experienced investor is aware of the fact that common labor and materials-persons also enjoy lien rights attendant to property that they’ve serviced. Assurances need to be secured that evidence any and all improvements, lawn care, domestic help and other accommodational services that Americans take for granted in America have been paid because if they haven’t, the liens that are filed by those people attach to the property and become your responsibility. In the end, with the Notario having a fiduciary responsibility to the government and the seller’s agent having a fiduciary responsibility to the seller, that leaves the buyer, without counsel, wholly unprotected and exposed when all the little things start becoming big things.

-Closing it Up

With or without counsel (and hopefully by now you see the benefit), while all of this can be done from the comfort of the investor’s home, once the buyer and counsel are assured of a proper and clean title and the agreement is ready to sign, its time to take a trip down south to the Notario where the buyer/investor will execute the requisite paperwork IN-PERSON and exchange it for the “escritura” or registered title deed. The buyer will provide the seller with either a certified check in the amount of the difference between what is in escrow and the final sale price or wire-transfer the required funds into escrow for release to the seller by the escrow agent. Note the bold and underlining in “registered”. The informed investor knows to inspect the document not simply for signatures but for the official seal on each page of the escritura and for a Certificate of Registration. Only then can the investor head to the land registration office where he or she will present the deed to the officer who will check the registration number against the system (yes, Mexico actually has a computerized registration system now) and affirm that the transaction is, in fact, duly recorded giving the buyer the peace of mind that comes with doing everything the right way.

-But wait, there’s more

If the reader refers to the beginning of this module, the words, ” foreign affairs experts specific to the location that holds your interest; in this case, Mexico” were embolden to emphasize the fact that those experienced in local, US-based real estate practices are insufficiently prepared to represent your interests on foreign soil. One of the first things that needs to be done is to alert the Ministry of Foreign Affairs that you intend to make a purchase. In the United States, its typically sufficient that escrow informs, within 45-days of the escrow’s closing, the County Tax Assessor of the transfer of ownership but on foreign soil, like Mexico, the government wants to be made aware of the intent to purchase before the closing and inform you of the fact that your purchase is subject to the Calvo-clause which cedes the right to the review and disposition of any maters relative to the property to the Mexican government; And it’s your job, or that of competent counsel to do just that as is providing the government with copies of your documents certifying your legal status in Mexico including your passport, birth certificate, marriage certificate, visa, etc. .

-And in the end…

So there you have it; a short but fairly complete idea of what it takes to acquire property on foreign soil, specifically Mexican soil; and all the reasons one could possibly have to retain competent counsel for your real estate acquisition. The number of perils that await the uninformed investor is only equaled by the number of zeroes included in the amount of money at risk through self- representation or dual-agency. However, in the event that you remain convinced that you are competent to govern your own acquisition affairs, or unconvinced that dual agency is a viable avenue to legal property acquisition, then this website is dedicated to providing you with as much information as possible to facilitate your acquisition and, respectfully, wishes you good fortune in your journey.

-Nutshell Takeaway

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Look beyond the aesthetic properties of your property

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The typical local, family realtor is insufficiently experienced to represent your interests in foreign acquisitions

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Do not rely on the sellers agent for you best interests

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Property "utility bills" attach to the property, not the owner

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The Ministry of Foreign Affairs comes first

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If possible, retain competent counsel, free to the buyer

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