|
|
-
The following story in a Canadian newspaper should be an eye opener for buyers. Although the scary story has a "happy ending," it cost the author a month of angst and frustration and the lesson was simple: Always use a title company to manage the funds involved in a Mexico purchase! Mexican standoff Learn the ropes before buying property By Alan Caplan BUCERIAS, Mexico -- Last February, by accident, we discovered what will be our retirement home. It was certainly bigger than we dreamed, but the price was right, below market, and the couple who sold it wanted out in a hurry. We wrote the deposit cheque. In the heat and excitement of the moment, it's easy to assume everything will go well. It's all part of the learning experience, they say. And we learned. We hired a lawyer to protect us and a notary to complete the paperwork, as required here. We were to close the deal barely a month later. The sellers wanted the funds in U.S. dollars (they're the only ones lately) in their Mexican U.S. dollar account. We flew in expecting to close the next day. We had no place to stay; our other house had tenants. The sellers arranged a place for us for a couple of days.
| fctAdTag("bigbox",MyGenericTagVar,1); |
We had wired the cash balance, the notary's fees and closing costs a week beforehand to the notary's American bank, as instructed. When we presented ourselves to close the deal as arranged, the caca hit the Ventilador. It was the first of the two weeks of Easter. The first week, "Semana de Santos" (All Saints week) begins Palm Sunday. The next is "Pascua" beginning on Easter Sunday. Mexico virtually shuts down for the entire fortnight. Our trustees, a Mexican Bank, were required to review and approve the deal before closing. However, the folks who do that were preparing to take to the beach. Anything "new" was put to the bottom of the pile until after Easter. Although the lawyer and notary pulled some strings (everywhere, it's who you know), the closing still couldn't take place until the following Tuesday. NO MONEY IN ACCOUNT Finally, all our paperwork was in place and we signed. But the notary advised the sellers not to because there was no money in the notary's U.S. account. "But," I protested "Your bank received it", producing a copy of my receipt. The bank did receive the money, but his account wasn't actually a 'trust account' to facilitate real estate deals, it was his personal bank account. He didn't have it. The U.S., like Canada, has money-laundering rules for large sums transferred from one foreign national to another foreign national via an American bank. His bank closed the account and sent him a cheque, including my funds, by ordinary mail. At that point he hadn't received it. So that day, despite my protestations, there was no deal. There we sat, our money in limbo, a preplanned time-frame shortening daily. We assumed we had time to assess, repaint, renovate and move in before we returned home. But time trickled away like grains of sand through an hourglass. And we measured each and every cascading grain. The notary received the money three weeks later. The sellers though, were generous to us. We could bring in painters and other contractors, but do no serious renovating. They lived in our mess, moving from room to room to accommodate. No amount of threatening the notary made a difference. Then the money finally came. The next day, the notary flew to the U.S., deposited the cheque into his 'other' account (the notary business in Mexico must be a fabulous gig) and transferred the funds to the sellers' U.S. account in Mexico. It was more than a month after we signed. TITLE INSURANCE FIRM The lesson: When purchasing a home in Mexico, always use a title insurance company to engineer it for you. They have 'real' trust accounts. They verify that the title is secure and clean and that the transaction takes place in a timely and effective manner. But I knew that.
The original article can be found HERE.
|
-
The procedure for a real estate closing for foreigners in Mexico is different than the process north of the border. This checklist helps demystify the process of buying property and creating a bank trust in Mexico through a cash sale, still the most common type of transaction. 1. Buyer and Seller agree to a purchase price and purchase terms for a given property. This may be done informally as an "Offer to Purchase" or, optionally, as a formal purchase contract created by an attorney of the parties. The appropriateness and need for a formal purchase contract is a decision of the parties involved. Formal contracts in Mexico, just as in the United States and other countries, are enforceable only through court action. Neither a Buyer nor a Seller should take a contract as a guarantee of anything; it is simply a promise to fulfill obligations. 2. Buyer and Seller create and sign escrow instructions and send them to an escrow company for approval, along with a copy of the purchase agreement/contract. Once the escrow agreement is approved the escrow company notifies all the parties. 3. Buyer funds the escrow account with the initial deposit (agreed upon by the parties) plus an escrow fee. Once this deposit has been made the escrow company notifies the parties. 4. Buyer completes a bank trust application packet and pays up-front fees to start the bank trust process. These fees cover government permits and standard fiduciary bank fees. 5. (OPTIONAL BUT RECOMMENDED) Buyer applies for title insurance. This has its own forms and associated fees. The cost of the insurance policy is approximately 0.55% of the purchase price plus attorney research fees. This estimate includes “gap” insurance that covers the Buyer from the moment of signing before a Mexican Notary until the Notary registers the bank trust with the city – a gap of up to 90 days. 6. Buyer applies for an FM3 resident visa at the most convenient Mexico consulate office, or at a Mexico foreign affairs office in a Mexican state such as Baja California. The processing of a visa application usually takes a few days to ten days, after the Buyer has provided the Mexican government with the proper documentation. Some Notaries allow the use of tourist visas (FMT) to prove legal status in the country, but FM3 resident visas are recommended for tax purposes. 7. The parties select a Mexican Notary to draft their bank trust. All Mexican Notaries have equal authority to do this yet fees can vary slightly in a given area. The Notary will require upfront fees to cover their work, surveyor fees, appraisals, various certificates, etc. The parties may request a review of the bank trust document a few days before closing but such a review is not automatic to the process; it normally has to be explicitly requested by the parties. 8. A few days before closing, the Buyer will normally need to deposit the balance of the purchase funds into the escrow account. 9. On the closing day, the Buyer will pay final closings costs (transfer taxes, registration fees, etc.). The fiduciary bank will likely attend or will have already signed the documentation. Proof of Buyer title insurance will be there if the Buyer has ordered and paid for it. 10. At the closing, the parties sign escrow disbursement instructions that tell how the purchase funds will be distributed by the escrow company. Wire transfers are normally executed by the escrow company within one to two business days. 11. The Buyer can normally take physical possession of the property immediately after the closing. At this point anywhere from 30 to 90 days – or even more – has transpired since the original offer agreement depending on many factors. (Closing periods in Mexico are notoriously longer than in the US.) 12. The Buyer may request a copy of the bank trust from the Notary within a few weeks to three months, depending on the Notary and their workload. 13. Although the Notary takes care of registering the bank trust in the property registry, the Buyer should separately ensure that the property is also registered in the city’s urban department (Catastro) so that the Buyer gets proper credit for property tax bills, and so that the previous owner’s name is removed from all city records relating to the property. Bank or seller-backed financed closing procedures are very similar to a cash transaction, yet they add their own set of forms and fees that vary according to the lender. —————————— Brian Flock, a Mexidata.info guest columnist, is a degreed and certified real estate broker in Baja California, Mexico. Founder of the Baja Fair Trade registry, he may be contacted at Baja Ocean Realty or (619) 793-5224.
|
-
The "Mortgage Fraud Blog" today published a case of an American woman working in Baja California Sur that should further encourage the adoption of Baja Fair Trade standards. This type of fraud is prevented by using either a standard First American Title or Stewart Title escrow account--the top disclosure requirement of every Baja Fair Trade agent. (Caution: Some development escrow agreements through First American Title and Stewart Title are not standard and may release funds prior to closing. Read carefully!) This case blasts many buyer misconceptions out of the water. Going with a well-known realty brand means nothing with regards to investment security. Nor does working with an English-speaking agent or broker ensure security. And nothing is a true escrow account other than a regulated title company. (NOTE: A real estate company's trust account is not an escrow account and does not protect a buyers money in any fashion whatsoever.) Baja Fair Trade advice: Always use an escrow account that only releases funds after closing before a Mexican Notary. Buyers should never give a real estate agent or mortgage broker a penny of their money. This is an unprofessional practice and completely unnecessary to the practice of real estate in Mexico.
The news follows... Thursday, May 01, 2008 Californian Sentenced For Real Estate FraudLuetta Kaye Jacobsen, 61, Cherry Valley, California, was sentenced in St. Paul, Minnsetoa, to 27 months in prison for defrauding her real estate clients. United States District Judge Richard Kyle also sentenced Jacobsen to three years of supervised release and ordered her to pay at least $804,035.14 in restitution. Jacobsen worked as a real estate broker in Cabo San Lucas, Mexico, and was an independent franchisee of the Coldwell Banker real estate company. She worked with U.S. citizens who were interested in acquiring an interest in vacation or retirement properties in Cabo San Lucas, Mexico. According to Jacobsen‘s plea agreement, from April 2001 to December 2001, she did knowingly and intentionally devise and execute a scheme to defraud clients of her real estate business and to obtain money and property from them by means of false and fraudulent pretenses. Jacobsen told her clients to wire funds that were to be used to purchase interests in property to a bank account that she controlled in San Diego. Jacobsen then told the clients that the money wired would be held in escrow and used to purchase interests in property on their behalf. However, Jacobsen used the funds for her own personal use. The plea agreement specifically cites a wire transfer of $47,398 from a Minnesota resident to Jacobsen‘s San Diego bank account on Sept. 28, 2001. The total loss to all victims was more than $1 million.
|
-
· Buyers, Sellers, and Brokers Benefit from Internet Technology The rapid growth in use of a new Internet technology over the past two years by Mexico real estate brokers has resulted in a de facto Mexican multiple listing service (MLS). The new system better serves buyers and sellers of real estate throughout coastal and other regions of interest to foreign buyers. This progress helps solve the key challenge of sharing and marketing listings between agents, a historical challenge in Mexico as it was in the early days of US real estate. Buyers and sellers would do well to make sure that their agent is part of this growing MLS in order to ensure that they are receiving the proper real estate service, particularly in regions of interest to foreign buyers. A common misconception amongst real estate buyers and sellers is that there is such a thing as the “one and only” multiple listing service. This is erroneous because there are literally hundreds of multiple listing services in the US and Canada, and the term is morphing to become a descriptor of any quasi-public repository of real estate listings (except in Canada where the term is a registered trademark for real estate). Anyone may create a multiple listing service with the value of the system being a function of how widely and how responsibly the system is used. Each market determines the MLS system that best meets the need – with the occasional disruption such as the lawsuit by the US Department of Justice with the National Association of Realtors®. Mexican real estate has a history of agents withholding listings from each other with the intent to get the commission from both the selling and buying sides of the transaction (i.e. “pocket listings”), similar to the situation in the US and Canada before the various regional MLSs were created. This made it difficult for a potential buyer to know if they were seeing the best properties or getting a fair deal, and for sellers to know if their agent would give proper exposure to their property. (The appearance of organized MLSs in the US in the early 1970s was a vast improvement over this inefficient system.) The good news for consumers is that booming Mexico markets of interest to foreigners plus the ubiquity of the Internet have driven the demand for more open methods of sharing listings to the benefit of buyers and sellers. No longer does the market have to submit to anachronistic sales methods in the Internet age. One particular multiple listing service has grown organically to gain a leading spot for Mexico’s real estate inventory: Point2 NLS by Point2 Technologies. Mexican agents from Tijuana to Rocky Point [Puerto Peñasco] to Puerto Vallarta to the Mayan Riviera have discovered that this commercial platform is an effective way of sharing and marketing nearly 7,000 Mexico property listings amongst over 1,000 fellow agents throughout Mexico. Quite simply, it is the largest database of Mexico real estate listings shared between agents in the world – and it is growing daily. “Point2 is a vehicle to provide, in Mexico, the technology that a full-blown MLS provides,” commented Saul Klein, CEO of Point2 Technologies in an interview. “Organizations of real estate professionals can add value around the platform. The key function of sharing and marketing listings between agents is intrinsic to Point2. Individual agents control their business relationships in a way that best serves their clients.” Klein noted that Mexico real estate agents are Point2 Technologies’ third largest group of Point2 adopters in the 85 countries that the company services, preceded only by the USA and Canada. Why should real estate buyers and sellers in Mexico care about an Internet technology? The answer is that if their agent uses Point2, that client’s agent has access to the most prolific MLS throughout Mexican regions of interest to foreigners. Buyers and sellers would be wise to ensure that their agent is using Point2. Sellers will want to seek out listing agents that generously share the properties with other agents’ Web sites in order to maximize exposure of those listings. Buyers in turn will want to understand how their preferred agent filters listing results that appear on their agent’s website. Until an improved sharing and marketing solution is offered nationally to Mexico, the Point2 system is leading the way towards addressing buyer and seller requirements for an MLS in the United Mexican States, one real estate listing and one real estate agent at a time. —————————— Brian Flock, a Mexidata.info guest columnist, is a degreed and certified real estate broker in Baja California, Mexico. Founder of the Baja Fair Trade registry, he may be contacted at Baja Ocean Realty or (619) 793-5224.
|
-
An open look at the cost-of-living in Baja and Mexico Would-be expatriates look for home destinations that appeal to their individual definition of adventure and paradise. For the first time, International Living reported Mexico as the world’s top retirement haven because of its economy, real estate, and quality of life. That was great news for Mexico yet it missed some important details on cost-of-living from the experience of those who have already jumped at the dream of paradise on a budget. Real EstateThe main attraction for those migrating to Mexico has clearly been the real estate, as evidenced by the phenomenal growth of the home market here, especially since 9/11. Not only are oceanfront and ocean view properties still 50-80% less than their US counterparts (if there really is a direct comparison), property taxes are a tiny fraction of states within the United States. Coastal and inland water-view living is simply a bargain in Mexico when compared to the United States. ServicesSalaries in Mexico are much lower than north of the border and this shows itself in all kinds of services that expatriates need every day. Doctors, dentists, constructions workers, handymen, mechanics, housekeepers, and gardeners all charge 50-75% less than their US counterparts. The net affect is that expatriates can extend their money and even improve their quality of life. Other services such as entertainment are also much less in Mexico. GroceriesIt is challenging to compare the cost of food in Mexico to that in the United States. Mexican cuisine is substantially different than the normal daily fare of Americans, and it can be quite economical. However, adding a variety of dishes common to the multiethnic menu of today’s American poses challenges of supply and a substantial increase in food costs. The saving grace seems to be produce, which is fresher and offers more tropical favorites such as papaya, mangos, plantains, avocados, and guavas at good prices throughout Mexico. EnergyEnergy is about two to three times the price in the United States, with the exception of gasoline which is currently about 25% less than the going US price. This comes as somewhat of a surprise to foreigners who think nothing of leaving their PC and monitor burning at all hours of the day, and who ignore the “vampire affect” of the many chargers and electrical adapters scattered throughout their house. ElectronicsMexico’s stiff import tariffs on electronic goods from Asian competitors mean that electronics in Mexico are notoriously expensive. Adding the Mexican value added tax (IVA) makes these products cost about double the identical product in the United States. This is a serious consideration when thinking about adorning a new, Mexican home with a 55-inch plasma display for the living room! Notable exceptions are Mexican-made and Mexican-branded appliances that are on par or slightly less than their foreign equivalents. ClothingMost foreigners don’t bother buying clothing in Mexico for the same reason that many Mexicans along the border with the United States avoid buying clothes in Mexico. The quality of common clothing is relatively poor, or the price of good quality clothing is 30-50% more than in the US. And say goodbye to well-advertised sales in your Sunday paper. There is simply no such analogy in most of Mexico. Most expatriates continue to purchase their clothing on their trips to the United States – easier for border areas like northern Baja California but more challenging the further you go into Mexico’s interior. CommunicationTelephony in Mexico simply costs more. There is a good reason that one of the world’s two richest men is from Mexico! The good news is that high-speed Internet is now ubiquitous together with basic local telephone packages. Many foreigners control telephone costs by eliminating all the frills on their Mexican telephone line, and by making use of voice over Internet products such as Vonage and Skype. These services make calls back home economical and even save money on calls within Mexico. For example, a one minute call using Vonage to Mexico City costs about a penny a minute with eight cents a minute being the norm. Compare this with 25 to 45 cents a minute for long distance within Mexico on a Mexican line. Economics is one of the generally positive aspects of life in Mexico. A future column will also cover the spectrum of quality-of-life factors from the perspective of current expatriates in Mexico. —————————— Brian Flock, a Mexidata.info guest columnist, is a degreed and certified real estate broker in Baja California, Mexico. Cofounder of the Baja Fair Trade registry, he may be contacted at Baja Ocean Realty or (619) 793-5224.
|
-
Transaction security is essential to a healthy real estate market. However, many new buyers are surprised to learn processes that they take for granted in the United States are either optional or don’t have an exact equivalent in Mexico. This column will explain the key differences pertaining to the term escrow since it means something quite different here than in the US. In the United States escrow normally refers to the complete process of closing a transaction and securely handling money, for which the escrow company receives a fee. These companies tend to be title insurance companies that also offer a title insurance policy and provide all closing services. (See table below) In Mexico escrow refers exclusively to the secure handling of money by a third party, usually a title company or notario público (Mexican notary) for a fee of around $550. The remaining closing services are commonly handled separately, for a separate fee, by an independent closing company, the developer, a lawyer, the notary, or a loan company. ESCROW | US | Mexico | Common meaning | Funds management
Closing services and administrative oversight of paperwork
Ordering of title insurance
Order inspection reports
Estimate closing costs
Interface with lender requirements | Funds management only | Administered by | Title insurance companies | Title insurance companies
Mexican notaries |
Escrow means different things in the USA vis-à-vis Mexico. When purchasing property one of the most important considerations for both a buyer and seller is whether, and under what conditions, the transaction funds will be safely held and distributed by an independent party. In an international transaction, this issue is even more important and often complicated, as either the purchaser or the seller may not be familiar with, or comfortable, having funds deposited in a foreign jurisdiction or with an unfamiliar attorney or bank. Utilizing escrow services from established title insurance companies helps provide a fair level of security to all parties in the real estate transaction. According to an independent closing services company that I questioned on the subject, “The holding of funds (escrow) by a neutral third party … is one of the safest ways of conducting a real estate transaction in Mexico. One of the many benefits is that the buyer, the seller and the escrow company must sign the escrow instructions which explicitly state the terms for the money to be held in escrow. In addition, in order for any funds to be released from the account, both the buyer and the seller must sign the distribution instructions so that all parties are aware of where, when, how much and to whom the money is going.” I have personally observed that some agents tell their clients that “escrow doesn’t exist,” or that “escrow is not legal in Mexico.” My sincere hope is that this opinion is expressed simply due to a lack of knowledge about the purpose of escrow in Mexico, and not a desire to receive commissions sooner and easier. An unscrupulous agent may rally against escrow in order to hide commissions that exceed the customary fee, or to gain quicker access to buyer deposits. Buyers should be exceptionally cautious about an agent that advises against the use of escrow with a trusted, third-party company that is not involved otherwise in the transaction. I strongly encourage buyers to use escrow for real estate transactions in Mexico whenever feasible. They should not underestimate the value of their own peace-of-mind. Have a knowledgeable real estate agent or title services agent guide you on the method of negotiating balanced escrow terms that are fair to both parties. —————————— Brian Flock, a Mexidata.info guest columnist, is a degreed and certified real estate broker in Baja California, Mexico. Founder of the Baja Fair Trade registry, he may be contacted at Baja Ocean Realty or (619) 793-5224.
|
-
A MUST READ FOR BUYERS: Sage advice from from the seasoned Publisher of International Living on pre-construction project investments. You’ve probably heard this before, but it bears repeating: Buying into a project or development in the pre-construction phase is risky. I don’t mean it could be risky. It is risky. A project in the pre-construction phase is precisely what it sounds like…a project where nothing has been built. The British call pre-construction sales “off-plan” sales, perhaps because people are buying pieces of the development directly off the plans…since nothing else exists. If you’re an international real estate wheeler-dealer, this may be the kind of risk you can handle. You’re in it for the greater returns that come from buying property at the steeply discounted prices offered by some developers in the very early phases of their projects...usually as a way to get enough presales to secure better financing terms from their lenders. And if you are such an international wheeler-dealer, you don’t (hopefully) have all of your international investment eggs in one basket…you’ve spread your risk around a bit among other investments and can afford any potential loss. But if you’re shopping for a full- or part-time place for yourself, possibly with an eye toward some rental income when you’re not using it, be very careful about pre-construction deals…especially if the transaction you’re thinking about involves a big chunk of your savings or retirement nest egg. When you visit the site of a project in pre-construction, remember that what you see there at the very moment of your visit is precisely what you’re considering buying. If there is nothing there but dirt, then you’re buying nothing but dirt…along with the promise of the developer to build whatever he’s promising to build there. Don’t get me wrong; I’ve seen some pre-construction deals completed as planned, on time, and on budget. Smart expats have been lucky enough to latch on to deals like this and save considerably over what they’d pay for the same condo or villa at a later stage of development. But how can you tell which pre-construction deal will pan out and which one won’t? You can’t. That’s why they call it “risk.” Anything can happen at any time, and a developer who tells you otherwise is trying to make a sale. However, there are a few telling qualities of pre-construction developments that can give you a clue as to how they’re going to go. These are completely subjective things that I’ve noticed myself in dealing with real estate developments throughout Latin America. These tidbits aren’t meant for speculators and wheeler-dealers…they’re meant for people who are using their own hard-earned money to get something they’ve always wanted and can’t really afford to lose.
So for what it’s worth, here are some tips if you’re looking at a pre-construction development anywhere in the world: 1. Make sure the developer owns the land in the first place. Believe it or not, some developers will take reservations for units or parcels in their planned development before they actually own the land. In fact, that’s what they want your money for…to buy the land. This kind of project can’t even be called “pre-construction.” It’s “pre-reality.” Only wheeler-dealers with nerves of steel need apply. 2. If the developer does own the land, find out how much debt the project has sitting on its back. A project in its very early phases that is heavily financed will probably spend a significant portion of the money it gets from you and other early buyers to service that debt...and debt service comes before roads, sewers, electricity, and your unit. Developers who can prove to your lawyer’s satisfaction that the debt load of their project is low or non-existent get huge gold stars. 3. Don’t buy into a pre-construction project based on projected rental returns. Nobody knows the future, so nobody can tell you what the rental return will be for your unit…if it’s delivered. And if a developer guarantees you a certain rental return for a certain period of time, ask him how he’ll do it. As far as I know, the only way to guarantee a specific amount of rental return without seeing into the future is to arrange to pay it with something other than rent…something like a hidden markup added to your sale price. You’re getting your own money back, possibly from an investment fund from which the developer is earning a little something extra for himself as well. 4. Don’t buy into a pre-construction project based on the eventual presence of a fabulous anchor hotel or resort operator. I’ve heard this from a hundred developers: “I shouldn’t even be telling you this, but just this afternoon we received a letter of understanding with a Four-Star operator--whose name I can’t mention--to build the anchor hotel and spa on the property. Do you know what that will mean for your property value?” Yes, I do. Nothing. A letter of understanding is worth a little less than the paper it’s written on. If I had a dollar for every fabulous four-star hotel deal I’ve heard about that didn’t happen, I could build my own hotel. Until a hotel of any kind is actually under construction on a project, it shouldn’t have any real affect on your property value unless you’re trying to sell your unit to a sucker, which is probably what the developer is trying to do to you. 5. Don’t buy into a pre-construction project of detached homes or villas that the developer himself hasn’t had enough faith to build a few spec units on. A couple of model villas/bungalows/town homes or a decent clubhouse already built on a property can be a fair indicator that the developer is in good financial shape, has great backers, or has a well-heeled construction partner. It may also indicate that the developer won’t need to use the money he gets from your sale to build the unit he sold just before yours. That’s about it. There is a whole host of ways that developers will sweeten pre-construction deals for prospective buyers. They’re all designed to reassure you…usually with some kind of cash refund guarantee or collateralization clause that offers land against non-performance of contract--or sometimes with an investment scheme that lets you participate in the future profits--if any--of the development corporation itself in some way. But none of these sweeteners can change the fact that buying pre-construction is buying dirt and a promise. If you go the pre-construction route, try to make sure the promise has something behind it. Dan Prescher
Publisher, International Living
|
-
This Mexidata.info article ties in directly to Baja Fair Trade's recommendation that any financing should be tied to real property rights (i.e. a mortgage) instead of a promissory note. By Brian Flock The Mexican coastline from Baja California to Cancun is dotted with beautiful developments and spectacular development proposals that offer in-house financing to real estate buyers. This type of financing can be attractive for buyers when they are dealing with reputable developers who are financially sound. Yet in the sometimes shaky world of Mexico real estate there are risks involved to some in-house financing, but those risks can be managed. Financially strong sellers usually offer in-house financing for three basic reasons. First, it can be an effective marketing tool to reach potential buyers that might not otherwise qualify for a loan through US sources, or who don’t want to affect their credit in the USA. Also, it allows the seller to offer flexible, customized loan terms that commercial lenders can’t match. Finally, it can differentiate a financially sound seller from a smaller competitor who does not have adequate cash to do their own financing. American buyers using their cultural assumptions may believe that opting for in-house financing is just a simple cost/convenience decision. The in-house loans are easier to set up than any of the commercial loans. Some in-house rates are now only slightly above the commercial loan rates and up-front closing costs tend to be lower. Yet there is a downside to some in-house financing offered in Mexico that should cause buyers to stop and think carefully. There is no problem with in-house financing provided that the seller is financially sound, with money to cover expenses and cash flow. The challenge is that the buyer doesn’t really know the seller’s financial condition. In fact, most buyers are not aware of the true condition of the property’s title. There are cases where developments offer in-house financing because they know that the property cannot actually qualify for a loan from a commercial lender. Therefore, buyers must ensure that the financing documents protect their interests. I recommend that buyers do the following: 1. Determine whether the property still qualifies for a regular commercial loan, even if the buyer actually intends to use in-house financing. The deal should be made contingent on the property qualifying for a commercial loan at closing. Include a contract clause that allows the buyer to receive a complete refund, and be freed from further obligations, if the property doesn’t qualify. If the property can’t quality for a commercial loan because of title problems or permitting issues, this is a major red flag. 2. Contractually treat the in-house financing just like a normal Mexico mortgage (hipoteca) at closing, instead of a simple promissory note. This will require a full closing before a Mexican notary in order to ensure that the buyer’s loan payments reduce the loan principal and increase the buyer’s equity in the property. This is critically important. All commercial loans are handled as mortgages against the property, whereas some in-house programs don’t deliver title (i.e. rights to the property) until the buyer fully pays the note. This is a major difference. 3. Look for pre-qualified developments that have already partnered with commercial lenders. The fact that the seller is “pre-qualified” is not a guarantee of future loans by the commercial lender, but is indicative of some previous research by the lender. Even if there is already a lender relationship, it is still important that the contract terms require the seller to maintain the property’s eligibility for commercial lending. 4. Seek other signs of seller financial strength, such as willingness to accommodate full escrow of deposits until delivery, performance bonds, or voucher control. 5. Be particularly careful of a document called a pagaré, which is a promissory note. If the buyer does not have possession of the unit, such as in the case of a preconstruction contract, they have not received anything in exchange for the promise to pay. The buyer has no control over when the property will be delivered. But, they have just signed a separate contract to make payments, often on a predefined date. If the buyer reads the documents carefully they may even discover that the promissory note contains no references to the sales contract or delivery of the unit. In other words, if the seller never delivers the unit or the title, the buyer could still be obligated to pay. Using these tips to analyze in-house financing options will help buyers in Mexico find the path to a rewarding coastal investment. —————————— Brian Flock, a Mexidata.info guest columnist, is a degreed and certified real estate broker in Baja California, Mexico. Founder of the Baja Fair Trade registry, he may be contacted at Baja Ocean Realty or (619) 793-5224.
|
-
Although originally printed in JOINus Rocky Point, January 2008, Baja Fair Trade recommends this message to all buyers in Northern Baja. Don't forget that title insurance is NOT available on property until you get title. Title insurance is not available on preconstruction contract. Title Insurance is Not An Option!
By Angelica Gonzalez, CEO, OTP Trust
In the course of the title verification process that our bi-national title and trust processing firm OTP Trust provides our American and Canadian clients, we are often asked about the advisability of obtaining title insurance for the Mexican property our client is purchasing.
Our answer is always: Buy Title Insurance!
Many of those asking this question are sophisticated investors. When we ask -- Would you buy your neighbors' house in the United States or Canada without title insurance? -- universally, the answer is No!
Then why do these intelligent Americans and Canadians -- if they are buying property in Mexico where they don't know the law and potential risks involved -- even consider not buying it?
There are two general reasons why title insurance is sometimes considered an "option" for Mexican properties:
First, title insurance is a relatively new concept in Mexico, and Realtors, Attorneys, Notarios, and even Brokers are often confused about the benefits and importance of title insurance for Mexican properties. Often this relative inexperience with the mechanisms leads to an incomplete or improper presentation of the benefits of title insurance to the client.
Second, closing costs are higher in Mexico than in the United States -- usually between 4-8% depending on the size of the transaction -- and often Realtors, Brokers, and Developers are scared to increase the closing costs with title insurance (usually just 0.5%!) and they only offer it -- if you are lucky -- as an option.
We believe that "passing" on title insurance in Mexico is a big mistake and that -- just as in the United States or Canada -- title insurance should be an integral component of every real estate transaction.
It is clear is that no single group of choices a buyer makes purchasing real estate -- anywhere -- is more important than his/her choices related to all aspects of the title to the property. When a citizen of the United States or Canada purchases real estate in Mexico, there are often concerns on the buyers side regarding the safety of their investment. While understandable, in the modern era of Mexican real estate in most instances these concerns are groundless.
However, in a minority of cases real issues do arise that cloud the legitimacy of ownership of the property, and are the cause of great uncertainty, unhappiness, and sometimes financial loss.
Since title insurance is available in Mexico, why do some Americans and Canadians "pass" on title insurance for their Mexican properties?
Most Americans and Canadians are aware that a Notario is involved in real estate transactions in Mexico. It is a unfortunately common misconception that because there is a Notario -- a person with a certain knowledge of Mexican law who is involved in aspects of paperwork preparation related to real estate transactions -- that the Notarios' sign-off on the legitimacy of a given title is sufficient. This is simply incorrect.
There is a further misconception that Notarios check the chain of title on the property you are buying. In fact, the Notario is only obligated to check the last transaction, which may have been very recent. In contrast, title insurers check the chain for the past twenty years or the last two transactions, which gives you the assurance that the property you are buying has clean title.
More importantly, Notarios are not obligated to verify the authenticity of the documents they receive, or to look for potential risks involved in an specific transaction: all they are obligated to do is to verify that the documents related to the transaction satisfy Mexican legal formalities.
If a Notario clearly makes a mistake he is obligated to pay for it (if he/she has the money to pay), but what if there is no clear mistake?
Here are two examples about what can happen in any country in the world -- including Mexico:
1) You buy a property from a man who is recently divorced. He hid ownership of the property from his ex-wife. He sells you the property, but his ex-wife discovers the transaction and goes to court. She nullifies your transaction because the property was purchased while they were married, and the sale was made without her consent.
2) You buy a property from a company. Months later you are served by the Court because the power of attorney the representative used was revoked the day before your transaction.
In these two examples, no one -- especially the Notario -- could detect or prevent those incidents. Who will pay for your loss, litigation costs, and damages? There is only one good answer: the title insurance company!
These examples illustrate why title insurance is not an "option" for any real estate transaction anywhere: it is something you need to both protect your financial interest in your real estate investment and to ensure your worry-free enjoyment of it -- and this is as true in Mexico as in the United States or Canada.
When working with your realtor and/or developer in Mexico, always ask them if you need title insurance. If they answer "you don't need title insurance" or "yes, we'll take care of your title instead of a title company" then you have more than a yellow light in front of you!
And if the property is uninsurable? Walk away from the deal: would you buy property in your home country that you couldn't obtain title insurance for?
Luckily for the American or Canadian buyer, Greater Rocky Point now offers a very competitive title insurance market, with coverage offered by First American Title, Stewart Title and Land America. All are United States based (and licensed) organizations with professionals who have worked harmoniously and efficiently with OTP Trust.
Simply put, buying property in Mexico does not have to be risky or feel risky, which the several hundred thousand American and Canadian families who enjoy secure ownership of properties throughout Mexico can attest!
|
-
Members of Baja Fair Trade participated with the February 9th WiLDCOAST beach cleanup in Playas de Tijuana. The beach has never looked so good and it was great to see a larger number of local Mexicans than Americans at the event. Participation was expected to be around 1,500 and that seemed to be about right from the turnout. We created a one-minute video overview of the cleanup event and placed it HERE (<--click). WiLDCOAST has a special focus on Mexico and uses famed lucha libre star, el Santo, as their spokesman for coastal preservation in addition to Playboy model Dorismar. Popular bands such as Mana and Los Tigres del Norte also partner with WiLDCOAST in their conservation efforts.  
|
-
ALL ARE INVITED AND ENCOURAGED TO ATTEND THE EVENT! The beach doesn't care about our differences. Let's get involved. Carpooling recommended! Not to mention there will be a celebration (read--fiesta) afterward. WiLDCOAST will break the record for the highest attendance of beach cleanups in the history of Baja California and possibly Mexico.
This is the first of many events in which WiLDCOAST will help transform Baja California into the capital of environmental conservation. What: Playas de Tijuana is one of the most contaminated beaches off the Pacific Coast. This beach has reached such high levels of contamination that it has prevented safe contact with the ocean. It is time to do something, time to take action and to be part of the solution. Besides the beach cleanup, there will be a variety of exhibitions ranging from photography, sculptures and paintings, arab and African dance, capoeria, music, food and a percussion concert. When: Saturday, Feb 9 2008
9 am to 3 pm Where: Playas de Tijuana
At the Beach
50 meters from the MEX/USA border fence |
|
-
The buying public speaks best on the importance of Baja Fair Trade disclosure standards for real estate in Northern Baja. See the growing list of testimonials and join in... R.P., California Broker
"I fully support what you and your organization are trying to accomplish. As a Real Estate Broker and investor in California, it continually amazes me that many Realtors in Baja adhere to unethical standards. They just don't seem to realize that this short term way of doing things (to make a quick commission) just backfires, and hurts them in the long run. If a Baja Realtor had the vision to understand that fair and ethical trade practices will actually INCREASE their income in the long run, I think they would all jump at the chance to join your organization. Please keep up the good work!" F.B.
“I too applaude your efforts. Unfortunately, the associations that you once tried to partner with have little interest in "cleaning up house". I put down 30% in one of the developments supposedly being built. For some reason they won't answer my calls anymore. Funny how they did when I was interested in giving them money to line their own pockets. I wish I had some organization that I could trust who could have given me the truth about the development.”G.L.
"I am surprised that opposition to fair trade practices even exists. I was born in Mexico and raised in the U.S. I have always been proud of being Mexican and have made sure my children were also proud of being of Mexican Heritage. I am now certainly ashamed that some ... have chosen to hold on to their "Bandito" ways. I am now of retirement age, I was planning to purchase a home in Baja and have been getting my U.S. home ready to sell; however. I am going to seek out those realtors who promote fair dealings in the real estate industry in Baja. You all know that the best way to get sales is through referrals. Those persons opposing fair trade practices and don't understand that less money is to be made by those realtors who perpetuate corruption, lies and swindling... Expelling members from the local real estate groups because of their support of the Fair Trade practices was an embarassing, self-serving and ignorant move." E.L., CA Realtor
"I'm a realtor, of course. I support you in your efforts. I think adoption of higher standards is always better for the industry and it's certainly better for the customer and for each individual realtor who adopts higher standards. The real estate industry is going to have to offer real value in order to survive the internet revolution. There should also be strict educational requirements for realtor licensing. I don't think many realtors understand the impact the internet and new laws regarding information sharing will have on the industry." M.M. "For those who want to preserve the “Mexican way of doing business” it should be noted that it’s precisely this mode of operation that makes many—including Mexican-American citizens such as me—reluctant to purchase in Baja." NOTE FROM BAJA FAIR TRADE: The good news is that buyers need not worry IF they follow Baja Fair Trade principles regardless of who represents them. P.G. "Speaking strictly as an outsider and non-professional, I can't see why the "Old Guard" are so reluctant to adopt fair trade practices. Surely they must know that the biggest obstacle to sales in Baja is the fear of getting ripped off, and the Baja Fair Trade goes a long way toward assuaging those concerns." A.A. "Thank you for your efforts to bring an ethical compass to ... real estate business. I am a Mexican citizen residing in the US." M.B. "As an investor and Baja property owner, I fully support your cause and efforts to bring clarity to real estate transactions in Baja. This is desperately needed and I believe in the long run it will be of extreme benefit to the Baja real estate market in terms of bringing security and "peace of mind" to potential buyers and investors. Keep up the good work!" J.P. "thanx for having our back....it's all about levels of expectations...
i still believe the consumer needs to do their homework, but the [local] real estate poker hand is being dealt with magical cards that don't represent the value you historically thought the cards represented..... eventually the word gets out that the poker game is rigged and people take their money to another poker game.
continue the good fight." G.C. "Our investments in Mexican real estate must be protected." S.B. "What a wonderful idea...full disclosure and fair play with the people who keep realtors employed (the buyers). I know that I will only do business bajafairtrade agents from now on. I will see that my friends and associates will hear about this as well." M.N.
"I received a notice from you about efforts to support full disclosure for realestate buyers in Mexico. I am a homeowner in Ensenada and would like to support any such movement. Let me know how." S.S."Once again you have issued a very important piece of publication for all to read, learn about, and become involved.....which we shall do at once......your dedication is valuable, and important, and please know you are supported in your good work" K.R. Its a good thing that your doing, keep up the hard work and next time I come to Baja to look for real estate, I'll contact you for a good Realtor." G.C. "I AM VERY PLEASED THAT YOU STOOD UP TO THE OLD GUARD. PLEASE KEEP US APPRAISED AS TO WHAT IS GOING ON WITH THEIR CONVOLUTED WAY OF DOING BUSINESS. THIS IS BIG DISCLOSURE. PLS KEEP IT UP" Mr. E "Thanks for posting those letters. It is nice to see a hint of the inner workings exposed." C.B. "All I see is an honest agent trying to promote business for the baja realty market. His attitude of "let's do it right" must have hit a nerve with the "let's do it any which way" crowd. I have several friends up North who have watched my actions in buying here with much trepidation, and a couple are thinking of buying here as well... My hat's off to Brian." NOTE FROM BAJA FAIR TRADE: The good news is that buyers need not fear IF they follow Baja Fair Trade principles. A.F.
"Please provide the names of the existing realtors that are involved in Baja Fair Trade which by the way I support totally. I would also like the realtors names that oppose it."
NOTE FROM BAJA FAIR TRADE: We post the name of all agents officially involved in Baja Fair Trade on our home page (www.bajafairtrade.com). R.Y.
"Good Luck with your dealings with the "Snake Oil" salesmen ..." NOTE FROM BAJA FAIR TRADE: There are many honorable agents who would ally with Baja Fair Trade if allowed to by their associations and franchises. These individual agents should have no problem educating you on Baja Fair Trade principles if you ask them to regardless of their direct participation. D.C.
"Thanks for the heads up" B.C.
"You have our belief and our support." D.P.
"We saw the article. We thought your response was excellent and very well written." C.S.
"Sounds cool to me..." Nancy Conroy, Editor, Gringo Gazette North
"The standards that Baja Fair Trade promotes are consumer protections that are extremely important in this real estate market. Full Disclosure, Escrow and Bank Trusts are indispensible, and buyers should insist on these protections in every transaction."
|
-
Article Summary: Request that your agent provide a written and signed list of disclosures for any property that you are looking to purchase. Raising the Bar for Mexican Real Estate Representation By Brian Flock When purchasing real estate in any part of Mexico, it is important for buyers to know their “Bill of Rights.” Most gringos venture into the country in search of a little piece of paradise without fully understanding the rights that they have as foreigners. They hope for processes that will give them real estate protections that they are used to at home, but they often find something quite different. In an effort to standardize buyer representation and disclosure by real estate agents, a new registry of real estate agents has been created in Baja California, Mexico, called Baja Fair Trade (www.bajafairtrade.com). The purpose of the registry is to better serve buyers and to promote real property rights by increasing transparency through a standardized disclosure database. Baja Fair Trade agents recognize the special concerns that buyers have once they visit Baja California, with its unique processes, laws, and culture. The Registry’s focus is to help them obtain the real property rights that the buyers came to buy in the first place. The agents commit to promote properties that allow complete funds escrow and that are contractually contingent upon a clean title. They also disclose significant, known issues that may affect property values using the first such database in Baja California. Registry participants may be members of any association and must make specific disclosures to their clients in the current absence of objective federal, state, local, or association disclosure requirements. Notably, Baja Fair Trade is the only registry of real estate agents that opens itself to public and media scrutiny. As well, buyers who feel that one of the agents on the Registry has not met the standards of the program can notify the committee via the Praise and Complaints tab on the home page. Registry participation is open to brokers and all of the agents underneath them, or to individual agents who do not have a broker sponsor. The Registry is independent of real estate agency or association and promotes escrow, title insurance, debts that are managed as mortgages, property inspections, and professional closing services. Any real property shown by a Baja Fair Trade agent should meet certain standards. The Baja Fair Trade agent discloses factors that may affect a buyer’s purchase decision, such as the risks associated with skipping steps, environmental hazards, property invasions, lawsuits and disputes, and other known factors that may impact property values to the buyer. Baja Fair Trade standards prohibit certain referrals for compensation. An agent may not receive compensation for referring customers to an escrow agent, structural pest control firm, home protection company, title insurer, escrow company, or title company. The relationship of the buyer’s agent to the seller (if any) must be disclosed along with the method and amounts of the agent’s commissions. Several tools have been established that will allow Baja Fair Trade agents to share and exchange information. Using Google Earth and Google Groups, a downloadable disclosure form will be made available to participating agents regardless of their other affiliations and will serve as a central database. The access to this information is an invaluable tool to the performance of proper disclosures to buyers. Working with a Baja Fair Trade agent will help protect buyers and open doors to critical information once held in private. —————————— Brian Flock, a MexiData.info guest columnist, is a degreed and certified broker of Baja Ocean Realty in Baja California. Founder of the Baja Fair Trade registry (www.bajafairtrade.com), he may be contacted at brian@bajaoceanrealty.com, www.bajaoceanrealty.com, or (619) 793-5224. The original article: Raising the Bar for Mexican Real Estate Representation, by Brian Flock
|
-
The Deceber 5 Union Tribune article by Diane Lindquist covered the developing housing downturn along the Baja "Gold Coast" and how the majority of projects here are by relatively small developers. This makes the Baja Fair Trade standards (www.bajafairtrade.com) especially important for any buyers. Full escrow of funds should be the mantra of every buyer that crosses the border to enjoy the coastline here. That's the best way to objectively sort out solid developments from the shaky ones in these softening market conditions. Quoting the article: The “Gold Coast” corridor from Tijuana to Ensenada could lag behind other areas in recovery, said Bruce Greenberg, who heads an Arizona real estate appraisal and consulting firm. He said the region's developers tended to be smaller developers and builders who came across the border. “Two guys with cell phones” was the description offered by Justin Mehren, managing director of Latin America Capital Group. The current slowdown will spur a better quality of development, said the experts. Mixed-use projects that anchor lodging with shops, restaurants, attractions and entertainment will attract funding that is available, several said. “Diverse planning is needed. And there's a need to integrate with tourism,” McCarthy said. |
|
-
I fully support what you and your organization are trying to accomplish. As a Real Estate Broker and investor in California, it continually amazes me that many Realtors in Baja adhere to unethical standards. They just don't seem to realize that this short term way of doing things (to make a quick commission) just backfires, and hurts them in the long run. If a Baja Realtor had the vision to understand that fair and ethical trade practices will actually INCREASE their income in the long run, I think they would all jump at the chance to join your organization. Please keep up the good work! R.P.
|
|
|
|