BC TITLE COMPANY

According to Mexican law, if a foreigner is buying property within a certain distance of Mexico’s border or coastline, direct ownership is not allowed, and ownership must be acquired through a Trust called a “Fideicomiso” in which a Mexican banking institution is the Trustee. – NOTE: This law is under revision by Congress to allow direct ownership by foreigners even within the established distances.

Currently, if a Mexican individual or corporation is buying the property, it is possible to acquire directly through a formal contract called an “Escritura” (Title or Public deed). But if you are a foreigner, yes, you need a fideicomiso.

The cost of the fideicomiso depends on the value of the property. The average closing cost fluctuates between 3% and 12%, but on average it runs 4 to 6%, usually the higher the value of the property the lower the percentage. However, there are some expenses that cost the same for every transaction, which is why in an operation with a higher value this represents a smaller percentage. Another factor that affects the cost is whether Title Insurance is purchased since the price of this policy also affects the percentage in an operation. To give you an idea, in an operation for US $250,000.00 the closing costs represent about 5.35% without Title Insurance and 6.23% including Title Insurance and in an operation for US $500,000.00 the closing costs represent 4.03% without Title Insurance and 4.82% including Title Insurance. In an operation for US $1,500,000.00 the closing cost represents 3.18% without Title Insurance and 3.91% including Title Insurance.

Usually, the parties sign before the Notary 40 to 60 working days after the offer is accepted, the time for the close depends on all conditions and contingencies (including financing) to be satisfied or removed. After the closing date, the process continues for about 6 to 8 weeks, which is the period required to pay the taxes for and to register the transfer of title in the local tax office and the Public Registry

In order to become the legal owner of your new property, it is important to reach the Closing Date. Closing Date means the day both parties sign before the Notary Public. This date is the most important event in a Real Estate transaction because with this act the title is transferred to the Buyer, the funds are released from escrow to the Seller, and the Buyer takes possession of the property. It is important to close the transaction on the established closing date, to avoid delays which create inconveniences and additional expenses to the Buyer and the Seller.

Any professional closing company will give you a summary of the closing process highlighting important dates, It will also provide periodic updates informing you of the progress in your transaction, and this information will give let you know that your closing agent is doing all the things you are paying to get done. If your closing agent fails to provide you with these updates you should always request for follow-up communication as unexpected situations that are not communicated on time might keep your transaction from closing as scheduled.

After the offer has been accepted, the Closing Company is the one responsible for the success of your transaction. A professional team will collect, prepare and produce all the necessary paperwork in order for you to sign before the Notary Public and register your title at the Public Registry. The Closing Company is the one responsible for CLOSING ON TIME while making sure all conditions are met and, if so needed, contingencies are removed.

A professional team will close on time, releasing money from escrow without problems and providing you with a smooth process until you take possession of the property, causing no inconveniences for neither Buyer nor Seller.

Also, a professional closing company will provide you with an estimated calendar of processing dates and will periodically send updates informing you of the progress in your transaction. In a few words, a professional closing company will work hard to produce a successful closing while you enjoy your life.

You as Buyer have to select the closing company and banking institution to be designated as Trustee because you will be the one paying for those services. Keep in mind that at times Realtors recommend the companies that pay them commissions and not necessarily the one that will best serve your interests.

Because in a Real Estate transaction there is the possibility of finding contingencies to be satisfied or removed, therefore it is important you have legal assistance on your side; some companies like BC Consulting have established alliances with Attorneys at Law knowledgeable in Mexican real estate law who will review and resolve any contingency in the transaction and otherwise deal with issues that arise.

If the closing company you are hiring does not have legal support, it is important you hire or have available your personal legal counsel, to verify that you won’t have unwanted situations arise during the process.

Escrow is a neutral third party that holds the purchase funds in an Escrow Account pursuant to an Escrow Agreement signed by both the Buyer and the Seller. These funds will be held in the Escrow Account and will be disbursed in accordance with Buyer’s and Seller’s instructions set forth in the Escrow Disbursement Instructions which will be signed by both parties at closing.

While there are a few Escrow Companies providing this service in Mexico, most of these companies hold the funds and conduct their operations in the United States. In fact, the Law in the State in which the funds are held regulates the Escrow agreement. Using an Escrow Company your funds will be secure and regulated by U.S. law. There are some escrow companies with physical representation in Mexico however the funds are handled in the U.S.

The Buyer will pay all of the fees, costs and taxes incurred in connection with the acquisition of the property, including but not limited to Escrow fees, Foreign Affairs Ministry permit fees, (if applicable), Property Acquisition Tax, certificate of no liens and certificate of no debt for property taxes; property appraisal, notary fees, Public Registry fees, trustee bank fees, legal fees, Title insurance, if selected, and payment of recording fee at the Registry of Foreign Investments as well as any other cost related to the establishment of the Trust. This will include the fee for cancellation of Seller’s existing trust if the Buyer’s lender requires this cancellation. It is very important for you to get a Good Faith Estimate of Closing Costs from the closing company of your choice before you start the closing process.

The Seller will pay the Capital Gains Tax, if any are due, pending property taxes, pending trustee fee, trustee cancellation fee unless the cancellation is required by Purchaser’s lender, homeowners dues, the applicable real-estate sales commission calculated pursuant to Seller’s contract with the Broker, utility fees through closing date and any other pending contractual obligations.

Seller and Buyer might appear either personally or through their duly authorized representative for the execution of the formalized trust agreement. If Buyer or Seller has representation, a Power of Attorney will be required; this document will be produced by the closing company and will provide the instructions as to steps to be taken to make the power of attorney legal in Mexico. If the Power of Attorney is executed in Mexico it will be signed before a Notary Public. If the Power of Attorney is executed in the States or any other country, it will be signed before a Notary Public in your place of residence and then an Apostille will be required. Not all countries can produce Apostilles -- only the ones belonging to the Hague Convention. The convention is in force for Mexico, the United States, all members of the European Union and all but 10 members of the Hague Conference on Private International Law. If the country is not part of the convention (like Canada), instead of an Apostille, the Power of Attorney will need to be certified twice; first by the Canadian Ministry of Foreign Affairs and subsequently by the nearest Mexican Consulate in that country.

The Hague Convention is an intergovernmental convention entered into on October 6th, 1961. In this convention norms and regulations were established for a simplified system to allow documentation originating in one member country, to be easily recognized as authentic in another member country.

The Apostille is the documentary device by which a government department, usually the Secretary of State of an individual State of the United States, or a Justice Ministry or Foreign Ministry, authenticates a document as genuine, thereby legalizing it for use in another member country under the terms laid out in 1961.

Usually, Seller delivers to Buyer the physical and legal possession of the property on the date the new bank trust is completely formalized before the Notary Public and all purchase money has been released to the Seller. Sometimes the release of monies requires one or two extra days, and it depends on the time of signature and the service provided by the escrow company.

Another issue that can affect possession is the fact that the trustee bank sometimes signs one or two days later. The public deed is not fully executed until it has all the signatures including that of the bank’s representative. Without this bank signature, the Notary cannot provide the letter stating the deed is fully complete, which is always required by the escrow company. Remember, Seller will deliver possession once all purchase money has been received.

The Closing Agent will prepare Escrow Disbursement Instructions specifying how and to whom funds in Escrow are to be disbursed (amounts, payees and wiring instructions). These instructions will be executed by the parties at the time of execution of the public document before the Notary Public, and immediately furnished to the Escrow Company by the Closing Agent. When the Escrow Company has received this document and proof from the Notary Public that the parties have signed before him or her, all funds will be transferred according to the instructions.

Transfer of the beneficial rights or the ownership can take place at Buyer’s option by:  a) Transfer of title into a NEW TRUST by settling the property into that new trust whose beneficiary is the Buyer or any other party designated by the Buyer in writing, or b) TRANSFER OF BENEFICIAL RIGHTS in an existing trust by giving irrevocable instructions to the current trustee to transfer the beneficial rights to the Real Estate Property to the Buyer or any other third party designated by the Buyer in writing, or c) EXTINGUISHING AN EXISTING TRUST, Transferring the legal title outright by transferring the full ownership through a public deed (Escritura) – but only to a person, persons or entity entitled to legally receive the same under the terms of Mexican law.  In the case of any trust, a Mexican banking institution must act as trustee. 

In most contracts drafted in the Los Cabos area the parties agree that in the event either one of such parties fails to comply with the terms, dates and conditions set forth in contract, the party affected by such non-compliance will be entitled to enforce, rescind or terminate the Contract receiving or retaining, as applicable to the case, from the party responsible for the noncompliance, as Conventional Penalty, an amount equivalent to the Earnest Money, to be paid according to the following terms:

In the event of non-compliance by Buyer, the EARNEST MONEY will be released to the Seller, and the excess of that amount, if any, will be refunded to Buyer.

In the event of non-compliance by Seller, THE EARNEST MONEY and any other money deposited will be released to the Buyer. In this case, the Seller, in addition to and separate from the release to Buyer of the amounts already deposited, will pay immediately to the Buyer an amount equal to the Earnest Money as Conventional Penalty.

It is important that such penalties are established in the Offer or Contract, so Buyer or Seller may elect to use any legal means to enforce the terms of the legal contract. Court and other related costs are usually paid by the responsible party.

The attorney review verifies the current legal status of the property.  The report states the property is free of liens, mortgages, attachments, reservations, and fiscal debts, and it is currently in the payment of property taxes, Home Owner Association fees as well as any other dues or fees assessed against it. What the Attorney review also does, is to verify the legal condition of the Current Title looking for possible contingencies or issues in this transaction.

The Title Search reviews not only the current title but follows the Chain of Title until we find the very first owner. With this review we know all the history for this property, and we identify if there are important issues in the past that might become a risk in buying this property.

Before you start looking for a property, you can select a finance company of your preference. Then you will apply for financing pre-approval; with this procedure, you will obtain a financing pre-approval letter from the financing company and with this document, you will have an idea of how much you can get from this financing company. After you have an approximate amount for your loan, you can start looking for the property you want to buy. Once you find the property and your offer has been accepted by the Seller, you have to work with your financing company in order to obtain the Financing Approval Letter. This financing approval letter will be in the same terms and conditions offered in the initial pre-approval letter, or otherwise acceptable to the buyer. Once you have this letter you can proceed to close the transaction. Your financing company will deposit the balance of the purchase price into the Escrow account at closing and parties will be ready to sign the Title.

Once your offer has been accepted, it is important to obtain the Financing Approval Letter as soon as possible; if by the closing date, you have not been able to obtain the Financing Approval letter, then you must notify the Seller of your inability to obtain such letter, proposing the means of resolving this. Seller will respond, accepting, rejecting or amending your proposal, and you and the seller will work together in good faith to arrive at a mutual agreement.

If Seller decides not to accept your proposal, or you cannot arrive at an agreement, then you and the seller might terminate the transaction with no further responsibility for either of the parties. If financing is a condition of your purchase contract, this cannot be considered as Buyer’s default, because the financial approval is not in Buyer’s control. It is very important that there is a clause in the offer or contract stating this and other financing terms and conditions.

In order to determine the status of Title, it is important to conduct a complete Title Search of the public records related to the property. With this review, the professional closing agent will determine if there are any rights or claims that may have an impact upon the title to the property.

Even with the Complete Title Search, it is possible to have undiscovered claims not shown by the public records that represent a risk for your investment. In order to protect you against this possibility, the Title Insurance Company provides insurance coverage for such claims.

If a claim is made against your insured title, the Title Insurance Company protects you by defending your title, in court if necessary, at no cost to you, in order to protect your title and maintain the possession of your property. If an undiscovered claim covered by your policy arises and affects your ownership of the real estate, you will be reimbursed exactly as your title insurance policy provides.

Companies established in the United States, as with Escrow Service, provide title Insurance in Mexico. In fact, the Companies providing escrow services are the same companies providing Title Insurance. This service is provided and regulated by the standards and Law in the States. So the service you receive for Title Insurance Companies in the States is the same you are receiving in Mexico.

Different from other insurance services, the Title Insurance Policy is paid only once, and there are no annual payments: As long as you or your heirs own the property, the Title Insurance Policy will be in force.