How does the Bay of Banderas rank in comparison to the demand world wide for second homes?

A study conducted by Cemex SA, the Mexican cement giant and Active Living International found that about one million Americans currently live in Mexico. The segment of active-adults, who are buyers age 55 and over, is expected to grow larger and is a separate category, according to the study.

To attract those interested in retirement-style communities, Active Living from California has developed their first of five planned resort communities in Nuevo Vallarta. These homes are being marketed through the US and Canada.

Tourism statistics continue to show the east coast of Mexico around Cancun to have great demand as a resort destination. Nuevo Vallarta and the Bay of Banderas continue strong as the favored west coast destinations. Vallarta is considered one of the top 5 tourist destinations now in the world.

According to a recent report from Clifton Meridian, LLC, a real estate development firm planning upscale residential projects in Mexico, Mexico has become the 4th most popular retirement destination in the world.

How are transactions different in Mexico?:

Understand that the systems in place to protect the buyer and seller are different. You must take responsibility to learn that there are not the same laws for the consumer as you are used to in your home country.

“Buying south of the border, however, is not like buying property in the Unites States of American, or Canada, and purchasers must always remember that the process is different than purchasing another house in their neighborhood. Even if you believe you are a savvy real estate person, take off your domestic blinders and prepare to look through a different set of glasses. This is not to say that real estate transactions in Mexico are totally different or more complicated...but more awareness, street sense and patience usually are needed.” *

Since housing costs in Mexico are often low compared to other countries, a buyer might expect to buy cheap. That is not a good idea. Look to find a good value. A property priced too cheap should raise an alarm: it may be ejido land or lack services such as water or an access road. Make sure the seller is in fact the owner. One scam is to put up property signs declaring “this property is not for sale.” A con artist poses as the land owner hoping to sell it to an unsuspecting buyer.

Values are influenced by factors other than quality of schools and homogenous neighborhoods. Look for some fundamentals for an increase in value: roads, airport, waterfront location, view, swimming pool, security, landscaping, furnishings and development in the area. Factors which can decrease value are lack of water, inaccessibility, lack of roads or no easement.

An offer is different in form and content. An oferta can be the initial document setting forth the price offered and general terms. A contracto de promesa is a promissory agreement which can be done with or instead of the oferta. These are preliminary documents and are followed by the more formal convenio de compraventa, the purchase contract, which sets forth all of the terms of the sale and must be approved or protocolized by the Notario. It is very important that the convenio de compraventa accurately reflect all details of the transaction as it also guides the transfer of the property and is a source of information for the fideicomiso and escritura deeds, as well as the tax valuation.

The purchase contract can take the form of the contracto de fideicomiso, the real estate trust agreement required of foreigners within the restricted zone (which includes The Bay of Banderas as we know it), the contrato de compraventa con reserva de dominio, a reserve title agreement, and the contrato de cesión de derechos fideicomisarios, assignment of real estate trust rights.

The language of the contract is different. In order for a document to be considered legal in México, it must be written in Spanish. Translations of your purchase documents in English and other languages are available, and though they are not legally enforceable, they may be used as a reference. An attorney, preferably bilingual, should be engaged before the buyer signs anything.

Deposits and Escrow:

A five to ten percent earnest money deposit is expected as part of the offer. (In our market, ten percent is the customary deposit.) There is no legal requirement that this deposit be placed in an escrow, so you should not assume that it is deposited into one. In the most rudimentary form, a deposit check may be held in the real estate office’s safe. This deposit check can be cashed by the seller, broker or developer. Some Mexican brokers are reluctant to use a third-party escrow because it means they are not in control of the money. Developers can want the money up front to cover construction costs. Generally banks are not set up to handle escrow money and they may co-mingle funds.

The practice of escrow in Mexico is in an early stage, but the good news is that it is developing rapidly. Certain American title companies offer escrow services and AMPI** encourages members to use escrow services. While in some areas of Mexico the real estate company can act as the escrow agent, because they are parties to the transaction, this can influence objectivity in carrying out escrow duties and maintaining confidentiality. A neutral third party is best to engage as the escrow agent.

Not all escrow services are equally professional or reliable, nor is there a licensing requirement. It is wise to use an established company. A check with PROFECO, the Mexican consumer protection agency, will reveal if there are any reported problems with the company.

If escrow services are to be used, a separate agreement should be written to cover the terms including when and how the funds will be disbursed.

Due Diligence:

Not all contracts give the buyers time to perform due diligence for review of title documents by their own legal counsel, inspection of the property, or obtaining title insurance. These items should be written into the contract, if the buyer wants time for this review. The review of the escritura or fideicomiso deed and its transferability, the statement of no liens, and the tax appraisal, are done by the notary who will handle the transfer of the title. It is wise to have your own Mexican bilingual and bicultural legal counsel review these documents, as well.

The basic factors which establish the transferability of a property are the possession of a title in the owner’s name, the right to sell the property, and no liens.

It is a mistake to assume that physical possession of a title equates to ownership and the right to sell. The name of the owner on the title is the important fact, not who has possession of the document or of the property.

Possession of a title and rightful ownership of the property does not mean that it can be transferred. An owner of ejido land can receive a title to his parcela, but that does not establish the right to sell it to non-ejidatario.

Land that is owned communally or is co-propiedad runs the same risk as ejido land of having someone knock on the new owner’s door and announce that they are the rightful owner of the land.

Condominium developments are required by federal law to have a recorded regimen de condominio. Lacking this required regimen, ownership of a condominium unit cannot be legally transferred. A condominium development is required to have an administrator and an executive committee, as well as established procedures for meetings of unit owners. The regimen must cover the method of setting assessments and a system for resolving conflicts between owners.

Plans for a subdivision or fraccionamiento, must be approved by local and state authorities in order to be legally conveyed. This applies to both land and improvements on it.

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.