Step 1: Make an Offer
This is usually done in the form of an “offer to purchase agreement” (oferta) or a “promissory agreement” (contrado de promesa), which your attorney or the real estate agent you’re working with draws up. Most real estate agents will have a standard form they use for this purpose. (When your offer has been accepted, you should ask your real estate agent and the notary to estimate the closing costs for you.)
Step 2: Set Aside 10% as Earnest Money in Escrow
Once your offer is accepted in writing, you’ll need to put a certain amount (usually 10%) of the purchase price aside as earnest money (depositos condicionales) in escrow with a third party. Whatever you do, don’t give this money to the seller. There aren’t any official escrow accounts in Mexico. Notarios—while they might be the logical, neutral third party to hold this money—won’t keep it in their bank accounts, as they don’t want the tax liability on the funds. If you’re working with a real estate agent, that agent will likely have a system in place in which he acts as the escrow agent.
One typical arrangement is for the agent to hold the deposit in dollars in the United States. When the deal nears closing, the agent transfers the money to his own Mexican bank at the current rate of exchange. This avoids the exchange rate problem—if the earnest money is transferred immediately into pesos and sits around several months until the deal falls apart, someone eats the currency fluctuations and the cost of the exchange…twice. And it will probably be you. Another option is for you to have a cashier’s check drawn up in the seller’s name and have your notario, broker, or a trusted third party keep it at his office. Also, the title insurance company you work with will usually provide escrow services.
IL tip: Buyer beware. In the U.S., escrow agents are licensed and legally responsible to see that the conditions of a contract are met before money is released. That is not the case in Mexico. Consider asking your title insurer to keep the escrow account. That way you can be sure you’ll get your money back if the deal falls through. If the real estate agent you’re working with is acting as escrow agent and he’s honest, there probably won’t be any trouble. But if he runs off with your funds, there won’t be much you can do about it.
Step 3: Inquire About Title Insurance
We suggest you call about title insurance for your property. Though a notary will investigate a property’s title to be sure it is free from immediate encumbrances and that the taxes are paid, that research may not extend back through the entire chain of ownership. A title insurance company, however, will dig to be sure that there are no surprises lurking. If the title is not clear, don’t buy the property. You need to make your own decision about title insurance. Sometimes brokers, especially in inland locations, don’t feel it’s necessary. We, however, do recommend it. In our view, it doesn’t just buy you peace of mind, it buys you insurance. While most likely you’ll never need it, you just never know…and that’s what insurance is all about. Should there ever be any challenge to your title, your title insurer will be there to fight your case in the local language in the local courts. If you don’t have title insurance and something goes wrong, you have little recourse…and what recourse you have will likely be very expensive.
Step 4: Wait While the Notary Investigates the Title, Gets an Appraisal, and Puts the Closing Papers in Order
You need to have a purchase sales agreement (contrado de compraventa) drawn up at this point. Normally, you’d have your attorney do this. But if you are working with a real estate agent, then his office may be able to take care of this for you. It should be in English for you and in Spanish for the Mexican authorities. Whatever you do, don’t let a seller’s attorney draw this up. You want to be absolutely sure your interests are not compromised. Depending on the way that you’re purchasing the property, your attorney can draw up the papers for a direct deed or help you form a Mexican corporation or create a bank trust, and he’ll get the papers in order to register your purchase with the Ministry of Foreign Affairs.
In the meantime, your title insurer and the notary will verify the property’s title. In doing so, they will request a copy of the lien certificate (certificado de libertad de gravamen) from the land registry, which will show the name of the owner of record as well as the details of the property, including the lay of the land (its size) and its status (commercial or residential, for example). They will also request from the local tax authority a non-lien certificate (certificado de no aduedo), which, if issued, will show that no taxes are due or reveal unpaid back taxes. In addition, they will make sure that no other property-related bills such as water or electricity are outstanding. And they will have the property appraised to establish its assessed value.
Other Papers You Should Have in Hand
If you are purchasing a home, make sure you have copies of the paid water, electricity, telephone, homeowner’s association, cable, and other utility bills from the seller. Unpaid bills remain attached to an address. They will be your responsibility—not that of the prior owner. If the seller had household help—a maid or gardener, any others—then you should have from each a signed letter stating that they have received their severance pay and that their rights have been satisfied.
Step 5: Close on the Property
Once you have assurances from your attorney, notary, and title insurer that the property’s title is good, and the purchase of sales agreement is ready for you to sign, you’ll meet with the notary, the seller, and your attorney or broker for the closing. You get the deed (escritura), and you either bring a check for the remainder of the payment or have the funds transferred into the escrow account and have whoever is acting as escrow agent release them once you have the deed in hand.
Step 6: The Notario Registers Your Ownership
Though you’ll have a copy of all the paperwork associated with the property, the transaction isn’t really complete until the notary registers your deed with the land registry office. We’ve heard all sorts of horror stories over the years (from all over the world) about notarios not completing this last step properly. So you must follow up with the notario or your real estate agent. When you have your (presumably registered) deed in hand, look for a seal on each page and for a certificate of registration, which should be included with the documents. With these papers in hand, you can go to the land registry office, where they will look at the registration number on the certificate and show you how the transaction has been listed in their books.
Step 7: Have Your Attorney Draw up a Mexican Will for You
IL tip: While your Mexican property can be transferred to your heirs as requested in your U.S. or Canadian will, it is by far the least desirable way to ensure they’ll get it. Guaranteed, if other arrangements have not been made, your heirs will spend months, if not years, wrangling with Mexico’s bureaucracy over your estate. Save them the torment, time, and expense. Have your attorney draw up a Mexican will in Spanish that disposes of your Mexican possessions and property. It will simplify matters immensely.
Step 8: Don’t Forget the Ministry of Foreign Affairs
No matter how you plan to buy property in Mexico, you’ll need to alert the Ministry of Foreign Affairs that you intend to make a purchase. As we mentioned before, it is usually your attorney or the notary who applies for the permit on your behalf before the closing. It’s standard practice to issue these permits, so you needn’t worry that you’ll be waiting months for the paperwork to go through. In fact, the government pledges to have them issued within a few days. If you’re buying through a trust and you apply for your permit through the ministry’s central office in Mexico City, you’ll have it within five working days. If you apply at one of the state offices, the permit must be granted within 30 days. If you’re forming a Mexican corporation that will hold title to the property, you need to register that company with the Ministry of Foreign Affairs. The Ministry has 15 days to get the registration done. In any of those cases, if the ministry’s deadline passes and you still have heard nothing, then the trust permit or the registration are automatically considered authorized.