This is the year when we are seeing a more concentrated effort by certain lenders to offer residential mortage products in Mexico. In our area of the Bay of Banderas, we see in particular General Electric Financial entering the market. We are not the only test market for GE. The Cabo area, San Miguel, Playa del Carmen, and other targets have been chosen besides the Puerto Vallarta/Punta Mita area.

Mortgages are currently available to credit-worthy Americans for purchase of primary or secondary homes. In order to qualify, the American citizen must have income in the US and be currently residing there. If you are a US citizen living in these Mexican markets without a home in the US, you may be eligible for a peso based mortgage.

Be aware that many people call themselves mortgage brokers or companies. You want to choose a professional who has close ties to the lender and it is best if they are under direct contract with the lender to offer mortgage products. In my opinion, there should be no upfront charge to get you approved credit wise for a mortgage in the amount you are seeking for a purchase. The credit approval should be used with an offer to show your potential to purchase the seller’s home. The lender will require that the property meet underwriting guidelines and you will be paying fees to the lender during this process.

Also be aware that our “offer to purchase contract” has not contained language stating that your offer is contingent upon receiving a mortgage. This needs to be included now in offers which you are making. Some sellers will not find this contingency attractive when they realize that the approval and funding process can take the transaction longer to close.

Real estate agents in general have not had to understand this concept of a mortgage as a contingency to an offer. You need to be sure that this condition of the offer is handled competently. There are already instances where lack of knowledge or experience in mortgage funding in Mexico has disappointed both buyers and sellers.

A number of mortgages will be placed on Mexican real estate. As mortgages become more common, additional products will include re-financing, new construction and remodeling loans. The term of a primary or secondary home loan is currently shorter than 30 years. The interest rate is closer to what a lender charges for a second home or vacation home, rather than a primary home. Points are also paid by the buyer as a part of the cost of the loan.

Pre-payment penalties will be in this first product, but the lender says they will waive this condition as soon as they can fund refinance loans. It is critical that a secondary market be established whereby the lender can sell the mortgages in order to receive new money to fund other loans.

GE Financial and Goldman Sachs are also involved in the banks trusts, or fidecomisos. Their loan will require that a certain bank be used for the trust. This involvement appears to be a way for the lender to achieve a comfort level in making loans in an environment where foreclosure has been difficult to administer.

Another issue which is prominent in the process of selling and buying real estate is capital gains. The criteria which the notary uses to determine if capital gains is due or if the seller is eligible for an exemption, is now decided on a per case basis. No one can truthfully make blanket statements to you that you will not owe capital gains tax upon sale. The best thing you can do if you are going to sell your property is to take your documents to a notary and have them give you an opinion.

Tax planning should be done by buyers from the moment there is an accepted offer on a property. If capital improvements are made, the owner should get a factura for the expense. A factura includes 15% tax on the cost of the improvement. If the factura showing the improvement can be used to increase the taxable value of the property, the basis of the property is raised. If the seller owes capital gains tax upon sale, this higher tax appraisal of the property, can lessen the amount of tax due.

Buyers should save the factura they receive for their closing costs upon purchase. All or part of these costs can be used a deduction against capital gains upon resale. Real estate commissions with iva and the proper factura, can lessen the capital tax bite as well.

My advice is not to assume or think that you can figure out your own tax situation. Do not attempt to decide what is deductible and what is not. ake your documents and go to a notary to learn your options.

Capital gains tax is paid when there is a profit upon a sale. The government gets part of your profit, and you keep the rest. If you sell the property for less than it is appraised for on the tax rolls, there is still a tax due to the government.

The states of Jalisco and Nayarit differ on how the transfer or acquisition tax is determined for payment by a buyer upon a purchase. Learn these differences.

Your closing costs as a foreigner buyer include the bank trust or fidecomiso set- up fee and first year administration charge in advance. Your closing costs also include the acquisition tax mentioned above, the no lien certificate, tax appraisal, notary fee, and foreign investment permit. The fees which notaries can charge are determined by the individual state. You will owe an administration fee yearly to the bank handling your fidecomiso. You will owe real estate property taxes yearly.

Mexican citizens have to pay capital gains tax or meet the notary criteria for exemption.

IVA is value added tax or sales tax and is 15% in Jalisco. Each Mexican state can determine the iva and there are differences between states. When I last checked, Cabo charged 10% iva.

Comparables of actual sales prices are still difficult to determine to the extent we are used to in the USA or Canada. Individuals have historically wanted privacy in their reporting and not all real estate agencies report actual sales prices to the Multiple Listing Service of the local AMPI organizations.

In this current market, more properties have been sold than in years past. Sales activity is continuing strongly into March, 2006. Multiple offers are occurring more often and fewer discounts are reported off listed prices. The AMPI chapters are obtaining legal help in the handling of multiple offers. There should be shortly the existence of addenda and policies to guide the actions of sellers, buyers, and agents when multiple offers occur. The designated public notary is a neutral third party and shall not act as legal representative of either buyer or seller. At the same time, the real estate agencies in a transaction can provide real estate brokerage and consultation services. The real estate agencies shall not purport to give legal advice nor legal representation of any type.

If a property is adjacent to the federal maritime zone of the Pacific Ocean, the area may experience variations in the area designed as the federal maritime zone. All owners of property adjacent to the maritime zone should learn what their obligations and rights are in regards to this area of land. Ignorance of the law is not a defense.

I recommend that bother buyers and sellers contract independent legal counsel in connection with a real estate transaction. This legal counsel should be a qualified and competent attorney in Mexican law in the area where the property exists. An attorney in the USA or Canada, who has no qualifications to understand and practice in our local market, will not be able to give you proper advice.

Properties have been appreciating in our current market and the most recent appreciation has been higher than years past. Part of this increase in equity has been the increased interest of other North Americans in wanting to own property in Mexico. These buyers are attracted to our climate, more relaxed life-style, and lower cost of living.

The Euro and English Pound are currently stronger than the US or Canadian dollar or the Mexican peso. Investors and Europeans have more purchasing power here and they are beginning to enter our market as buyers.

If you, as a foreigner, are buying a home in our area to keep for the foreseeable future, you acquire it in a fidecomiso trust. If you pay tax upon sale, it is capital gains.

If you form a Mexican corporation, you may acquire property or land to develop and resale. The Mexican corporation is not required to form a fidecomiso for the property. When the property owned by the Mexican corporation is sold, taxes paid to the government are based on the income of the corporation, less deductible expenses.

You are allowed to have a Mexican corporation without having a national as a partner. You must have a minimum of two persons named in the corporation, but both can be foreign citizens. You must apply for and receive permission to form a Mexican corporation.

If you own property here, you will have been given a permit from the Mexican government. If you work here, you must be given permission by the Mexican government for a particular type of work. You will pay Mexican taxes.

Harriet Cochran Murray

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.