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Here are the steps to take to purchase an apartment/condo, house, or property for a foreigner in the Cancun area.

Let’s start with a bit of background so there will be no screw-ups! First of all a Notary Public in Mexico is a glorified lawyer, not a paper stamper. He/she is appointed by the Governor of the State and has to go through rigorous tests to get a licence. All properties are registered through a Notary thus you don’t need a lawyer to handle a real estate transaction because the Notary IS a lawyer who is neutral and oversees both parties during the transaction.

The Notary is capable and well versed in real estate transactions. All properties are registered through a Notary so it makes it easy for him to find any problems and warn you up front. You will make all transactions in front of the Notary including down payments, title searches, the final payment, closing, and handover of the deed etc. Never make a transaction outside of the office of the Notary, and show him all paperwork that you have been given.

The next important thing to know is that within 100km of a national border and 50km from a shoreline you must register your property in the name of a trust. This technically means that you own the property but a bank puts it in trust for you. You need permission to buy property from the Secretary of Foreign Affairs (easily done). The Notary can help you with this. I bought an apartment in the city of Cancun and pay the bank around USD $330 a year to hold the trust. It is guaranteed for 50 years and is renewable.

I am guessing here but I suspect this trust law came out when some politician said, “Vote for me and no foreigner will ever own property in prime places!” After the election, the promise could be kept by using the trust law. “See, I told you that no foreigner could own property!” It is rumoured that they will scrap this trust law but don’t expect it soon... the banks are pretty happy with it. The Notary will be fully familiar with trusts and foreigners buying property.

The Notary will arrange for an official appraisal and the appraised price will almost always be much less than what you are about to pay. That’s okay. Usually the buyer pays the transfer tax which is typically 2-6% of the appraised value. The Notary has his own fee which is generally 2-3% of the appraisal value but they do have a minimum fee. My apartment in the city of Cancun was purchased for USD $33,500 in Feb 1998 and I paid the notary just under USD $2,000 for his work and around USD $1,700 in transfer tax. Thrown in those amounts somewhere was the fee for setting up the trust. The paperwork was enormous.

All transactions must take place in Mexican Pesos. In Cancun, most people quote a price in U.S. Dollars and you will convert it to Pesos on the day of sale. The Notary will clue you in on how this is done. You will need a good foreign exchange banker to handle the transaction. We can recommend two bankers in Cancun that do this kind of thing all the time and they both speak English perfectly.

Don’t ask a Mexican bank for a real estate loan - they don’t do that here! Generally you need to have cash up front. The banks in your home country might lend you the money but only if you have assets in your home country that you can pledge (such as a house). This is reasonable when you think about it. How would your bank sell your Mexican house if you defaulted on the loan? On the other hand, there are now some American mortgage lenders that are dabbling in Mexican real estate. They will have the Notary put several paragraphs on the trust that if you default, they get right to sell the property. This usually costs 2 or 4% more for this style of loan than the prevailing interest rate in the U.S.

Sometimes, the seller will ask for a percentage down and might take payments but this is getting complex and beyond the advice of this article. I’ve also seen deals where a Mexican has bought a small apartment and DOES have a mortgage with a bank. They might ask you to take over the mortgage and give them some cash. Again, this is too complex to deal with here.

One more critical point... you must have an FM3 permit to live in Mexico or you cannot sign any papers at the notary. If you don’t have an FM3 perhaps the bank can sign on your behalf as Trustee but again, this is getting complex.

Things to watch out for?

  • A buyer who is desperate for you to give him a downpayment right away.
  • Any type of promise, even in writing, that something can be constructed or will be repaired before the sale
  • Pressure tactics such as two other buyers are interested and you better buy it quick before they do
  • Ejido property that is only good for communal agricultural land. You don’t own the land, you merely share it.
  • A refusal to give you a complete copy of the deed (escritura)
  • The size of the land has some significance with the bank trust if you are buying property. Here is the rule. If the property is less than 2,000 m2 (1 m2 slightly larger than 1 square yard) is then you will not be forced to build a house of a specific cost within a time frame. However, if you buy a lot of 2,000 m2 you must build something on it wihin 24 months and spend USD $250,000 on the structure. A 5,000 m2 property requires spending USD $500,000 and 30 months to build. Properties in between these ranges are similar, ie: 4,000 m2 = $400,000.
  • The cost of setting up the trust at Inverlat Bank MXP 9,325 and a goverment fee of MXP 2,500. The annual fee is based upon the valuation of the property and is as follows:
    Value of Property in MXP     %     Annual minimum fee in MXP (add 10% tax)
    1,000,001 - 2,000,000        0.50  3,500
    2,000,001 - 3,000,000        0.40  8,000
    3,000,001 - 5,000,000        0.35  10,000
    5,000,001 - 10,000,000       0.20  15,000
    10,000,001 - 20,000,000    0.15   20,000
    20,000,001 - infinity          0.10   30,000

    Source of above info: Veronica Herrera, Trust Officer, Scotiabank Inverlat S.A. Ave Tulum, Cancun and was valid on 21 April 2001.
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Okay, that is the background info. Now let's get more specific. Follow these steps:

1) Look at properties and find something suitable. You can do this by driving around, looking in newspapers, contacting realtors etc. Get to know the prices! We continually suggest that you rent for the first few months while you do your research.

2) Ask the seller for a copy of the ‘escritura' from the seller and take it to a Notary Public for the district that the property is in. If the seller cannot give you a copy then drop all interest in that property no matter what story you are given. After a few days of research the Notary will tell you whether it looks okay from a legal point of view. If it is land that you are buying, the Notary can tell whether or not you can build on it and what restrictions are necessary (ie: 2 levels maximum). The Notary cannot tell you whether it is a ‘good buy' or not because he is simply overviewing the transaction and is a disinterested party.

If you are buying an existing building make certain that the paperwork matches the house. The paperwork will describe in detail, the exact dimensions of everything. Often the seller has constructed something like a 3rd bedroom without a permit. This does not seem to be a problem if it is finished and the inspectors never noticed. The bank however, asks that you allow them to appraise your property each year if they request it. The expense is yours, not the banks. I guess if you have improved the property significantly then they can charge you more for the trust each year. In the 3 years I have been here, the bank has never exercised that clause. Maybe they are after the larger million dollar homes. I will update this column as I find out more.

3) OK. The Notary gives you a preliminary green light and the property meets a crude investigation. You're really getting serious now and are just about ready to place a down payment. There is no official “Offer of Sale and Purchase” so you might to draft one in Spanish or your Realtor might have a standard form that they have used with success.

4) You can go to the Notary at this point and make the down payment. I suggest though that you hang on a bit longer, you need to get more paperwork from the seller. In particular, the seller must have receipts that all taxes are paid, utility bills are not outstanding, etc. The Notary will determine the taxable Capital Gains Tax should the sale go through and will be advising the Seller of how much he must pay the government. However, without a down payment at this point the Seller does not really know how serious you are. On the other hand he might spend it so it is wise to get the Notary to hold onto the funds or use an escrow agent.

5) The Notary checks out the taxes and utilities etc and hopefully determines that everything is ready for closing. At this point everyone will agree on a date and the paperwork will be drafted. You need to agree on the Peso amount at this point and then wire transfer enough funds on the closing day to do it. This will take some coordination with your banker... that's why there are two that I would recommend. I have found this part the most difficult and it will take some handshakes and agreements about who will go to the bank at what time, etc. In my case I brought the entire amount in cash to the Notary because the seller could not understand foreign exchange matters and how to handle it otherwise. I'm open for suggestions to anyone who has other experiences and can come up with a better method. Taking that much cash is certainly not advised.

 
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