FAQs | Real Estate in Baja, Mexico
1. What is the Engel & Völkers Snell Real Estate’s Closing Officer’s role in my closing?
Engel & Völkers Snell Real Estate employs a full-time closing officer to oversee the integrity of the transaction. Much like a title & escrow agent in the United States, the Closing Officer’s role is to coordinate all aspects of the sale process, working with Purchaser and Seller, Notary, Escrow Agent, Assigned Attorneys, Developer and Realtor.
2. How long does it take to close real estate in Mexico?
Engel & Völkers Snell Real Estate has developed an efficient and effective system to close a real estate transaction in Mexico. In most cases, a conveyance in Los Cabos can be closed from 60-90 calendar days for a cash transaction or 90-120 calendar days for a transaction involving financing. However, variations in these timelines may occur, albeit rare, due to delays with the trustee bank, municipal permitting, etc.
3. What does the ‘Closing Date’ mean?
Initially the closing date is the date established in the offer to acquire or purchase agreement between buyer and seller. It is important however to understand that the closing date is ultimately determined by the Notary. While every effort to meet the date established between the parties will be made, there are many variables to a Mexican closing and many individuals involved including the parties, the Notary and the trustee bank.
4. What is a Notary and why is different than in the US or Canada?
A Notary Public (Notario Publico) is a licensed and expert attorney, certified by the state government and appointed as a Notary Public to act as an official and unbiased representative of the government. A Notary in Mexico has far greater responsibility than a notary in the United States.
The Notary performs a variety of tasks including the authentication of legal documents and acts (huh?) including real estate deeds to title. AII real estate transactions in Mexico must be ratified before a Notary Public and duly recorded with in the Public Registry in order to be valid and enforceable.
In a real estate transaction, the Notary is responsible to both buyer and seller to insure the legality of the transfer of title, as well to calculate and retain Seller’s capital gain tax and Purchaser’s acquisition tax, coordinate appraisals, certificates of no liens, certificates of no debt, request the corresponding permits and record before the cadastral office and public registry. For this service the Notary charges a fee based on the value of the property. There are state and federal appointed notaries.
Engel & Völkers Snell Real Estate works primarily with Notario Publico No. 1 Armando Aguilar and Corredor Publico (a Federally appointed Notary) No.2 Francisco Javier Mazoy.
5. What is a fideicomiso?
In the ‘restricted zone’ of Mexico (100 kilometers from the border and 50 kilometers from the coast) a foreigner may purchase real estate only by means of a FIDEICOMISO (Trust). The fideicomiso is a bank trust, granted in a 50-year renewable term, in which the Trustee Bank holds the property in trust for the beneficial use of the purchaser (beneficiary). While the trustee is the ‘legal owner’ of
the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, improve, mortgage, as well as will the property to heirs. Essentially, the beneficiary of the property enjoys all the rights he would if ownership were fee-simple.
The fideicomiso is authorized via a permit issued by the Mexican Ministry of Foreign Affairs (Secretaria de Relaciones Exteriores) and in accordance with Article 27 of the Mexican Constitution. The trustee bank must obtain this permit on behalf of the beneficiary. In certain circumstances a beneficiary may be assigned the rights of a Seller’s existing trust, provided there is sufficient term left to that trust, this is known as an Assignment of Rights (Cesion de Derechos). The determination to pursue a new trust or to assign the rights of Seller´s existing trust is generally made by the Notary and is often base don the length of term remaining on the trust.
The parties to the fideicomiso are: Trustee (Fiduciario), Purchaser (Fideicomisario) and Seller (Fideicomiente). The Notary (Notario) additionally signs the trust formalizing the transfer.
6. Who is the trustee bank?
The Trustee bank is the Mexican bank authorized to act as trustee (Fiduciario). The Trustee Bank must be a Mexican registered financial institution with an established trust department. It is worth mentioning that the properties held in trust are not assets of the bank and size of the bank is not necessarily a sign of better trustee service.
When deciding on the trustee bank the Notary will usually look for a Trustee with a local empowered trustee officer in order to facilitate the closing in a more efficient manner.
Currently, Engel & Völkers Snell Real Estate is pleased to use the services of the following Trustee Banks currently operating in BCS; BBVA Bancomer, Banco Interacciones, ScotiaBank Inverlat, S.A., Banco del Bajio . In addition, the services of f banks, which do not have are local presence, are also leverage by Engel & Völkers Snell Real Estate.
7. Do I need to be present in Mexico at closing?
In most cases the answer is No. In the majority of transactions the Notary will prepare a simple bank instruction letter with a specific power of attorney for purchaser and seller to sign remotely. These letters will advise the Trustee bank of the Party’s individual intentions in regard to the purchase and sale of the property and direct the trustee to act on their behalf. This letter will be attached to the fideicomiso at closing in lieu of the parties signatures. Please consider that POAs or any document executed outside of Mexico will require apostilles (or certification in case of Canadian documents) and translation from a certified translator.
8. When do I get possession of my new property?
Unless otherwise negotiated by the parties, the possession of the property is transferred simultaneously with the transfer of title and release of funds from escrow to the Seller.
9. How should I title my property?
A purchaser may title the property in any way property could be titled in the US – in their individual name(s) (either via joint tenancy or tenants-in-common), an individual or family trust, an LLC or other US corporation or partnership, etc. This is a matter better determined by Purchaser’s US legal or accounting advisors as tax and legal consequences in Mexico are the same for a foreigner in Mexico regardless of how the property is titled. We recommend to do it individually or through an entity. Please note here that Family Trusts are no longer permitted by most trustee Banks and we do not recommend it.
10. Can I title my property in a Mexican Corporation?
Property can be titled in a Mexican Corporation and held fee-simple (without a fideicomiso), however in these circumstances the property cannot be used for residential purposes and has to generate income and for investment purposes We suggest that you discuss this option with your US and Mexican legal counsel and financial advisors prior to making this determination.
11. How is escrow different in Mexico than in the United States?
Currently the concept of ‘escrow’ is not used in Mexico. For this reason Snell Real Estate pioneered the use of U.S. based 3rd party escrow in Mexican transactions.
A closing with Snell Real Estate will invariably offer the services of the well-recognized companies for escrow services. As in any real estate escrow arrangement in the U.S., Purchaser and Seller will enter into an escrow agreement with the Escrow Company in addition to the purchase agreement. All funds will be deposited and disbursed in accordance with escrow instructions provided by the parties. Payments from escrow can be made to any third-party with the parties’ mutual written authorization.
The remaining funds are held in your escrow account until the deed (trust or fideicomiso) is signed as provided in the escrow agreement. Any monies needed to be paid to the seller will be released at that time according to the disbursement instructions drafted by the Engel & Völkers Snell Real Estate Closing Officer prior to closing and authorized by the parties.
12. Who closes my sale?
The notary. As transactions in Mexico generally require more documentation than the average transaction in the United States, Snell Real Estate has a full-time closing officer to take the sale from agreement to purchase. The Snell Real Estate Closing Officer will handle all the specific requirements involved in the closing of a Mexican real estate transaction, assisting in the coordination of due diligence, the trust and closing processes, walking clients through the contract, ushering them to a complete and successful closing.
The parties in the Mexican real estate transaction are:
- Buyer and his/her realtor &/or legal counsel Seller and his/her realtor &/or legal counsel
- The Notary & Legal Coordinator
- Engel & Völkers Snell Real Estate Closing Officer
- Escrow Agent
- The Trustee Bank
13. Do I need title insurance?
Engel & Völkers Snell Real Estate advocates the purchase of title insurance on every transaction. Title Insurance is considered an insurance policy for property ownership. A title policy is the only monetary indemnification a buyer can obtain to guarantee ownership of Mexican real estate.
14. Do I need to hire an attorney?
A portion of the closing costs itemized in a Engel & Völkers Snell Real Estate sale is the cost of the associated legal fees to a federally appointed and licensed Corredor Publico (Federal Notary). This specialized attorney is hired to oversee that the parties involved are protected to the full extent of Mexican law and that the transaction is closed effectively and in accordance with Mexican law and US escrow.
15. When do I get the title to my new property?
On the day that the title is signed by all parties; Purchaser, Seller, Notary and Trustee Officer, title is officially and irrevocably transferred. However, the Notary must record the newly transferred deed for public record. This process takes approximately three months, and sometimes a bit more. Once fully recorded in the local tax office and public registry, the Notary will prepare final statements, submit a copy of the fully registered deed to the title insurance company. Buyer should pick up the recorded deed at the Notary. Notaries will not deliver these documents to anyone else that does not hold title of the property unless written notification/authorization is provided.
16. What is the public registry?
The local pubic registry (Registro Publico) is the Registry of Public Properties. This office maintains the record of ownership of all properties held in the municipality and a contract is not formally validated until such time as it has been registered. The Notary is responsible for registering the transferred deed of title.
17. Is my personal information of public record?
Only the Owner’s name(s) are of public record. All personal information requested, such as date of birth, social security numbers and address is maintained in confidence by the Notary and Trustee Bank. The new privacy law protects all data and every client is given a privacy law document to be signed.
18. What is an apostille?
Since October 15, 1981, the United States has been part of the 1961 Hague Convention abolishing the Requirement of Legalization for Foreign Public Documents. The Convention provides for the simplified certification of public (including notarized) documents to be used in countries that have joined the convention (see list of countries http://www.state.gov/m/a/auth/c1267.htm). Under the Hague Convention, signatory countries have agreed to recognize public documents issued by other signatory countries if those public documents are authenticated by the attachment of an internationally recognized form of authentication known as an “apostille.” The apostille ensures that public documents issued in one signatory country will be recognized as valid in another signatory country. When a document is to be used in a foreign country, it may be necessary to authenticate the notarization or certification. Foreign countries often require documents to be authenticated before the documents will be accepted in the foreign jurisdiction. An “authentication” certifies the signature and the position of the official who has executed, issued or certified a copy of a document.
19. What is ISABI?
ISABI (Impuesto Sobre Adquisiciones de Bienes Inmuebles) is also known as the acquisition tax. This tax is assessed on every transfer of real estate occurring in México and nearly always is calculated at 2% of the registered red value of the property. This is a municipal tax and is paid by the Notary at closing.
20. What, when and how do I pay property taxes?
The only taxes due annually in Los Cabos are property taxes (Impuestos Prediales). These municipal taxes are published at the beginning of the January and must be paid at the local tax office located in San Jose next to the Fire Station and in Cabo San Lucas in the municipality offices. If payment is made by the end of January your are generally given a 15% discount and by the end of February you are generally given a 10% discount. Snell Real Estate is pleased to help facilitate the payment of these fees – please contact the Snell Real Estate Closing Officer for more information as in most cases they can be paid online.
21. How do I pay annual trust fees to the trustee bank?
The Trustee Bank charges an annual maintenance ranging from 464.00 to 812.00 USD including 16% IVA. When financing a property the charges involved may be increased. These fees will be billed to you at your home address and may be paid by wire transfer. Alternatively Snell Real Estate is pleased to help facilitate the payment of these fees – please contact the Snell Real Estate Closing Officer for more information.
22. Does it matter what trustee bank I use?
The role of the trustee bank is to act as the trustee of the property held in trust. The trustee bank officer’s signature will be required at closing, in any form of litigation, and at the time of sale of the property, etc. When choosing a trustee bank, the Notary will always look for the following criteria:
Location of the trustee bank’s empowered officer- it is important to have the trustee officer located in or near Los Cabos.
The current trustee of the property – in the case of an assignment of rights of the existing bank trust, the Notary will use the same trustee bank which currently holds the property in trust. This occurs most often in private resale of property.
23. Is my property an asset of the trustee bank?
No. Property held in trust or fideicomiso by a trustee bank is NOT an asset of the bank. In the rare case that the bank goes into financial difficulty, the property is transferred to another trustee bank. These laws are federally imposed.
24. Are any taxes I pay in Mexico deductible in the US?
In accordance with The Treaty to Avoid Double Taxation signed by Mexico with several countries among them United States, Canada and the European Union, Seller’s capital gain, a federal tax, can be credited in the United States. The possibility of any other deductible fees or taxes should be discussed with your US financial advisors.
25. Can I renew my Fideicomiso when it expires?
Currently a fideicomiso is issued in 50-yr increments, which can automatically be extended by an additional 50 years at the end of that term. Under current law, at the end of the combined 100-yr term, you will need to apply for a new foreign affairs permit to extend the term.
26. What is an assignment of rights/cession de derechos?
An Assignment of Rights of the existing trust (Cesion de Derechos) is a manner of transferring title by assigning the rights of the Seller’s existing trust. This method of transfer of title is used primarily in private resale of property held in trust. In this case, the Purchaser assumes the Seller’s existing trust term and existing foreign affairs permit. This results in slightly lower closing costs and sometimes a slightly earlier closing date, due to the fact that the Notary does not need to obtain a new foreign affairs permit. The determination of how to transfer title – via a new fideicomiso or via the existing Seller’s fideicomiso, if applicable, is usually made by the Notary and is dependent upon the remaining term of the trust.
27. Does my legal counsel need to be present for my closing?
Your attorney may choose to be empowered by you to sign for you at closing. However, most attorneys choose to oversee the documents remotely and not attend the closing personally. This is a decision you should make with your legal counsel directly.
28. Will my fideicomiso / title be in English?
The fideicomiso is drafted and executed in Spanish, in the event you need a translated copy, your Engel & Völkers Snell Real Estate Closing Coordinator can provide the contact of a translator.
29. Can someone inherit my property in Mexico?
Yes, and it is very simple. You can appoint your beneficiaries when the fideicomiso is being created or the rights of a current one is being transferred. There is no requirement (such as minimum age) other than providing a copy of their passports.
30. Who is responsible for closing costs?
Unless being negotiated, buyer must cover the closing costs and seller would only be responsible of paying capital gain taxes and any legal fees directly incurred by the seller (POA, representation fees, legal advise, trust cancellation fees (only when trust cancellation is strictly necessary).
For more information on purchasing real estate in Mexico, please contact us today:
