HOW THE PROCESS WORKS: A BRIEF OVERVIEW
Prospective buyers of properties for sale in Baja Sur, whether financing a property or paying cash, should always remember to take into account the closing costs and the amount of time a closing will take, as well as the purchase price and down payment. Typically, for financing, you will need 25% in down payment, plus the estimated closing costs, plus escrow establishment fees. Interest rates have come down on mortgages in Mexico, however, with the economic instability up north, they’re still viewed as a bit high with the rates now available for equity and new-purchases in the USA.
When buying properties for sale in Baja Sur, once your offer is accepted, if you’re paying cash, there are several steps (and fees) you and the selected closing service will contend with. If you are a foreigner, in order to own in the restricted zone, a Fideicomiso must be set up. A Fideicomiso is nothing more than a legal trust held by a Mexican bank, that confers upon its beneficiary every single right that any Mexican owner has when they buy a property (including improving, selling, renting, passing on in a will, etc.) . Expect a one time fee for trust setup, in addition to a small annual fee for trust management services with both setup and the first installment due at the time the trust is set up. Note: The “Restricted Zone” is a strip of territory one hundred kilometers wide along the borders and fifty kilometers wide along the coast. It includes all of the Baja Peninsula. If you don’t live in the Restricted Zone, or are a Mexican citizen, a fedeicomiso is not necessary. You can title the property directly in your own name through an Escritura.
(1) Among the first steps is securing the Permiso de la Secretaria de Relaciones Exteriores (SRE permit) which is your authorization from the Ministry of Foreign Investment to undertake the transfer. This request is made by the bank chosen to be your trustee, using information you are asked to provide including information on buyers and on the prospective alternate beneficiaries (who would become owners in your place in the event of your death.
(2) Another is obtaining a Certificado de Libertad de Gravamen, which is a certificate that states that the property is free of liens, and an Avaluo y Deslinde. This is an appraisal of the property for tax purposes. This has nothing to do with the appraisals for loan purposes, nor with actual market value.
(3) A search of the title will also be made, and a certificate obtained.
(4) In addition, the person coordinating your closing will assemble identification papers for both sides, copies of seller’s ownership documents, and other materials the notario will require in order to complete the closing.
(5) A mexican notario, a federally appointed public records keeper, will be selected to ensure that property transaction is properly conducted and recorded, and that all government taxes are paid and regulations are adhered to by both parties. S/He is not working for you, the seller, the lender or the broker. The job is complex and the notarios are paid substantial fees for doing it. Though notario fees vary they cannot charge more than the maximum fees as outlined by law. The depth and responsibility of their role in your transaction is exactly why many closings take up to 90 days
(6) Notarios also collect and pay (without adding a surcharge) the 2% acquisition tax paid by buyer and the ISR (comparable to capital gains tax) charged to seller, and any other state or local taxes in connection with the transaction
(7) The actual signing by both parties, the trustee and, if there is lending involved, by the lending bank, takes place before the notary, who retains the original of the document permanently. The notary, or a coordinator will then process a certified copy of the document through the county tax registry (catastro) and Public Registry (a public record of all such transactions).
(8) Finally, execution of the fideicomiso must be registered before the Ministry of Foreign Investment, which issued the permit. Your trustee (a Mexican bank) is responsible for completing this step within 30 days after the title transfer has been approved. You’ll initially receive a draft of this document, and a certified original with all appropriate registry stamps about 8 months later.
If you don’t receive notification of the final document’s readiness, check with your agent, who can locate and DHL the documents to you.
(9) Escrow and Escrow Fees – an escrow account is typically set up with instructions on how funds are to be disbursed. Mexican law does not recognize escrow accounts, so one of a select few escrow companies in the US is typically selected to handle all purchase money, receiving and transferring money as directed by the parties, by interbank transfer. Stewart International is the most widely used in Los Cabos at this time. Closing costs may also be handled through 3rd party escrow, or in some cases deposited in “escrow.” accounts maintained by the entity conducting the closing, such as the Settlement Company or P&H Closing. Escrow fees are paid by the buyer.
I know it all sounds a bit complicated, but we do EVERYTHING for you.
If you are planning to finance, several more items will likely be necessary:
(10) Title insurance is available but not required because lenders know if the sale passes muster with the Notario Publico, it is a legal sale, and the property title is not in question. Your agent will be watchful on your behalf, as will the Closing Dept. team, and assist you in deciding whether or not to order a policy.
(11) A U.S. style market appraisal will be required.
(12) Loan origination fees are paid to the lender, usually direct from escrow at closing. Closing costs through our inhouse closing dept. generally run IN TOTAL about 4.5-5.5% of the purchase price. To aid you in calculating your potential closing costs, keep in mind that the lower the price of the home, the higher the closing percentage because most fees are fixed and added to the 2% acquisition tax.
This would mean, for example, that a lot costing $60,000 will probably garner closing costs of up to 10%, while an $8 million villa will run approximately 2.5%. Also remember, in Mexico it is customary that the buyer pay for all closing costs except agent fees and appropriate commission amounts, commission taxes, and any capital gains, which are paid by the seller.
Your presence at closing is not required. The actual Closing, completed in the Notario’s office, is easily handled through the designation of a representative listed in a Limited Power Of Attorney to act in your behalf. The Closing office will create the document for you, which you must sign before a notary in your state of residence. This document must then be ‘Apostilled’ by the Secretary of State in which you reside. Note that both of these steps will have additional fees involved.