In Mexico, is there a Real Estate Checklist that can prevent me from losing thousands of dollars?

Checklists are a part of our everyday life. We do checklists for our grocery shopping, for our Christmas shopping, when planning a trip, when planning a party, and so on. But there are checklists and there are CHECKLISTS, especially when it comes to your investment. This applies as well if you are planning to acquire property in Mexico, where certain legal requirements must be fulfilled to secure your investment and avoid later conflicts.

So what are the main issues I should include on my checklist if I’m buying property in Mexico?

  • A title verification should be carried out. The documents that the seller provides as proof of ownership over the property must be carefully reviewed in order to certify that the person who is selling you the property is the actual owner and that his title is not subject to any conditions or consent from third parties.
  •  It is important to verify that the property is free of any liens such as mortgages, otherwise you can lose it in case the debt or credit that caused the lien is not paid in due form.
  •  The property must also be free of any encumbrances such as easements, rights of way, leases or deed restrictions.
  •  You must make sure that the seller does not owe taxes for the property you are planning to purchase, otherwise the transfer of title cannot take place.
  •  It is important to make sure that the seller is in possession of the property and that he is able to deliver this possession to you without any difficulties.

And what the specifics if I’m buying a condo?

  • If the seller is a Mexican corporation, you must verify that it is duly incorporated and that the legal representative of that corporation has enough faculties to celebrate the contract and transfer the title, otherwise the contract can be declared null and void.
  •  You must verify that there are no debts regarding utilities and homeowner’s fees.
  •  It would be wise to look at the bylaws and financial statements of the Condominium before putting any money down.

You must also be aware that depending on the type of property you are acquiring, there are many more specific details that should be verified such as: environmental permits, concessions in federal zone, land use, transformation of ejido into private property, and the list goes on.

As you can see, executing a proper real estate purchase contract in Mexico requires for all these conditions to be fulfilled, otherwise you might face conflicts that will cost you a lot of money or even the loss of all your investment.


The curious need for a land trust when buying property on the Mexican coasts.

Buying property in a country different than yours can be quite a puzzle, not only because of the language barrier but also because, when it comes to real estate, each country has different legal concepts and regulations. Acquiring property on the Mexican coasts is perfect example of this, particularly because in Mexico our Constitution prohibits foreigners from acquiring direct title over property located in what is called the Restricted Zone (50 kilometers from the coast and 100 kilometers from the borders). You may ask yourself what is the reason for this prohibition and to answer that question we must review some history.

Remember the Alamo?

If you are American and you paid attention during your U.S. History classes, then you might remember the U.S.-Mexico War over Texas and the Battle of the Alamo. What you probably don’t remember is the cause of that conflict: back then, Texas was mostly deserted and part of the Mexican territory, so the Mexican Government granted new settlers title over land in that area. The first new settlers were 297 American families who were granted title over property throughout Texas. With time the number of foreign settlers increased, they decided to become an independent country and the rest is known to all of us: a war started, and in the end Mexico lost the Texas territory to the U.S.

So in order to prevent these events from happening again, a prohibition was established in the Mexican Constitution which prevents foreigners from acquiring direct title over property located on the restricted zone.

Later on, many foreigners still wanted to buy property on the Mexican coasts but still where unable to acquire title. The Mexican government then had to provide a solution without amending the Constitution and the result was a Mexican land trust or Fideicomiso.

And how does this land trust allow me to own property on the Mexican Coasts?

By using a land trust, a Mexican bank has direct title over the property you acquire. This is the way to get around the legal prohibition of the restricted zone but still provide security and legal certainty to your investment. As beneficiary of the trust, you will have the rights of ownership over the property: rights to use the property, to lease it, to improve it, to transfer title, to pass on to your heirs, to use as collateral, etc. The assets that banks have in trust, legally are not part of their capital, and can never be touched for the bank’s liabilities, so your investment is protected in this regard.

There have been some attempts to amendment to the Mexican constitution and lift the ban that prevents foreigners from acquiring land in the restricted zone, however nothing has been passed yet in Congress. The land trust is still (and probably will still be for some years) the only way for you to acquire land on the Mexican coasts, so you should try to take advantage of the benefits this tool offers.


Deprivation of property: is your title clean as a whistle?

Imagine you buy a home in Mexico, you move in, you decorate it and make adjustments, and you plan to live there happily ever after. Suddenly you receive a notification from a judge saying that the title over your house is not valid because another person has paramount title over yours and that you have to vacate the property immediately or you will be evicted. If this occurs, you would have to go to court to defend your title, and chances are you can still lose this litigation process. However, Mexican law provides an indemnity for the buyer in case this awful scenario occurs.

So what remedies do I have if I am dispossessed of my property because of a paramount title?

If the seller acted in good faith when he sold you the property (meaning he didn’t know someone else had better rights over the property), you are entitled to claim from the seller the price you paid for your property, the expenses you incurred when you purchased the property (fees, taxes and so on), the expenses you incurred due to the litigation process regarding the paramount title, and the value of useful and necessary improvements you may have done to the property.

And what If the seller acted in bad faith knowing there was a paramount title?

Then in addition to the remedies mentioned above you are entitled to claim the updated price of your property, the value of voluntary and comfort improvements you may have done to the property, and damages and losses.

It is extremely important that the deed where you acquire title over your property includes a clause where the seller is expressively obligated to respond from any paramount title and deprivation of property. The wording of this clause should be very precise so that this responsibility is not limited in any form.  Including that wording in your purchase deed will not protect you from dispossession due to a paramount title, but if this happens at least you will have a way to get some of your investment back.


Warranty policies when buying a home in Mexico.

When you buy a refrigerator, a dishwasher, a car or practically any product, you also get a warranty policy for that product. In these cases, the warranty policy is stated in a piece of paper that comes with the product you are purchasing. When you buy real estate in Mexico, you also get a warranty policy, but unlike if you were buying a TV, these warranty policies do not come in a piece of paper delivered with your purchase.

So how can I know what my warranty is if I’m buying real estate in Mexico? 

In the case of real estate purchase, the warranty is simply stated in the law and many people don’t know about it. For example, when buying a brand new home directly from the developer, according to the Consumer Protection Law, the guaranties are:

  • Five years for structural damages.
  • Three years for waterproofing.
  • One year for any other defects.

The developer is obliged to correct any defects that may arise within the time periods mentioned above.  These periods will start when you take possession of your home.  If once the developer has corrected the defects, these arise again, then the developer must correct again the defects and compensate you with 5% of the value of the repair in case of minor defects, and 20% of the purchase price of your home in the case of severe defects. If the defects arise for a third time, you are entitled to ask the developer either to replace your home or to cancel the purchase agreement and get all your money back.

So what happens if I didn’t buy a brand new home?

If you are not buying from the developer, you are also entitled by law to a warranty from the seller. This warranty is valid for one year and is applicable to hidden defects that impede you to inhabit your home or that diminish considerably the value of your home. The period of one year starts when you take possession of the property and if these hidden defects arise within that period, you are entitled to get an indemnity from the seller.

Once you buy a home and you start living in it, you can get several not pleasant surprises that can prevent you from enjoying your real estate purchase.  This can happen in Mexico or anywhere else, but now you know that in Mexico you are protected by law.


Pre-sale: how to avoid buying air.

In Mexico, when you buy something that is not tangible yet, many people joke saying that you are “buying air”, meaning that what you are paying for is something that doesn’t exist and, and in the worst case scenario, may never exist. This saying is also used when buying real estate in pre-sale, since there is always a risk that the developer might never finish the construction and therefore you are very likely to lose your investment.

So what can I do to minimize this risk if I’m buying a property on pre-sale?  

First you should make inquiries about the reputation of the developer. Serious developers care much about their reputation, and they want satisfied customers to give good references to future clients. You should ask about the previous developments and the delivery of the units.

A Promise Agreement to Sell-Buy or a Promise Agreement to Establish a Trust (in case of foreigners acquiring in the restricted zone) are the adequate agreements to execute in this case. However, these agreements must include certain terms and conditions that will protect you in case of controversy such as a fixed closing date, an escape clause, clear penalties against the developer for not complying with delivery of the unit, and so on.

And what about payments to the developer?

You should try to establish a calendar payment that will allow you to gradually pay the price of the unit so that you can verify that the developer has initiated the construction of the development and is executing it out without delays.  The last payment should be scheduled to take place at closing, this way the seller will try to avoid delays on the closing date.

Even though buying on pre-sale is a way to get a lower price for the unit you will be acquiring, the truth is that there is no guarantee that you will get your unit until you sign the deed where you acquire title. The best way to be protected is to do your due diligence and sign a pre-sale contract that is not lacking the basic elements that are beneficial to the buyer.


Same-sex marriage in Vallarta.

As a gay man, growing up in Latin-American country which is predominantly Catholic and where machismo and homophobia were (and in some places of Mexico still are) constantly present, was not an easy experience.  Until recent years, I never thought that whenever I would choose a life partner, we would have both the prerogative and the choice of having our relationship legally recognized. However, Mexico is a country in transition governed by rule of law. During the last 6 years, laws have been passed and rulings from our National Supreme Court have been issued that protect gay rights and allow same-sex marriages to be performed and recognized nationwide. Puerto Vallarta was part of this transition and since last month marriage licenses to same-sex couples have been issued in our city. This is a huge step considering that Puerto Vallarta has been an important LGBT destination for many years.

So if I got married in the U.S. or Canada, is my same-sex marriage from abroad valid in Vallarta and Mexico?

Yes, it is. Our National Supreme Court issued an historic ruling on 2010 in which it stated that same-sex marriages performed in any Mexican state or abroad, had to be recognized at a federal level by all states.  It is advisable that if you spend considerable time in Puerto Vallarta and you have a same-sex marriage certificate from abroad, you should start the proceeding of having that certificate legalized under Mexican law, and that way you and your spouse won’t have difficulties when visitation rights are required or when health decisions have to be made.

If I’m foreign, can I marry in Puerto Vallarta?

Yes. Two foreign people can have a same-sex marriage in Puerto Vallarta, and also a foreign person and a Mexican can have a same-sex marriage here.  The paper work is different but in both cases you will get a marriage license and a marriage certificate.

As you may know, the Vallarta Gay Pride is taking place during this week and because of the recent events regarding same-sex marriage, this year the festivities have a special meaning to our community. It is indeed a time to celebrate, so “Happy Pride” to all of us!


Is the correct price stated in your purchase deed?

Determining the price of real estate property is not an easy task. Many specific factors have to be considered in this process, such as the price of the land, materials and finishings, and the age and condition of the construction.  And then there are also other factors that must also be considered, but that are somewhat relative, like supply and demand or location. In any case, whatever amount you agree with the seller as the purchase price, has to be accurately stated in your purchase deed. It has been a common practice in Mexico that, at the request of the seller, the purchase deed states a price on the property lower than the actual price the buyer paid for. This is done to reduce the capital gains tax that the seller has to pay, but if you are buying and you get this proposal, you should decline it for your own benefit.

So what can happen if the correct price is not stated in my purchase deed?

If when you bought you agreed with the seller to state in the purchase deed, a price lower than what you actually paid for, you can later have a problem when you try to sell the property. This problem will be that you will end up paying more capital gains tax than what you really should, since your acquisition price will be very low compared to what you are selling for.  This is why you should verify with your real estate agent and your attorney that the price you are paying is the actual price stated in the deed.

And the tax authorities will follow the money ….

Tax and money laundering regulations have become stricter in Mexico during the past couple of years. These regulations involve not only seller and buyer in a real estate transaction, but also other parties such as Notaries and real estate agents.  Raising a flag to the tax authorities, either from Mexico or abroad, is something you should avoid by having a transparent transaction regarding the price of your property.


Construction Contracts in PV: Is your fixer upper going downhill?

Doing construction or renovation works on your property is always stressful, mostly because you have to deal with contractors. Apparently anywhere in the world contractors tend to be informal, don’t offer certainty on a timeframe and can’t guarantee the quality their work. But if you are foreign and you are hiring a contractor in Mexico, things can be even more difficult due to several factors such as the “mañana” time, the questionable honesty of many of these contractors, and the language barrier.  If you bought a property in Puerto Vallarta that still needs some work and you want to transform it into your dream home, you have to be very careful when engaging with a contractor and specially when giving him an advance payment or any kind of payment because you may never see that money again.

So how can I be legally protected if I hired someone to do renovations or construction works on my property?

The first step is to sign a construction contract. This contract has to be precise enough and it should include certain clauses for your protection, such as a description of the work to be performed, details of the materials to be used, a calendar for the performance of the works, a calendar for payments, the obligations and liabilities of the contractor, penalties in case there is a delay in finishing the work, and so on.  The advance payment should never be more than 30% of the total value of the contract. It is also advisable that you ask the contractor to hire a surety bond for the advance payment, a performance bond, and a hidden defects bond.

And beware of social security and labor obligations!

You should always verify that the contractor is complying with his obligations as employer before the social security and labor authorities. If the contractor is not fulfilling these obligations, his employees or the Social Security Institute (IMSS) can go after your property since it’s considered the main place of work.

A professional and honest contractor is not easy to find, but now you know that you should always have everything on paper and that way the money you decided to spend in upgrading your home in Mexico, is at a minimal risk.


After closing, there is no rest for the wicked.

Follow up is an important part of any process, and real estate purchase in Mexico is no exception. Let’s picture this scenario: you closed on your property, you and the seller signed your trust deed before a Notary Public, everything went smoothly so you might think you can sleep like a baby because there is no risk involving your real estate purchase, right? Well, not quite. You can celebrate that you have purchased a property in Puerto Vallarta, but the work is not over, and the purchase process still needs to be totally concluded so that your property is out of risk. After closing, and in order to finish the entire purchase process, the Notary must record your trust deed in the Public Registry of Property. Carrying out this final stage is extremely important but sometimes neglected by some Notaries and closing coordinators.

So what can happen if my trust deed is not recorded in the Public Registry of Property?

If your trust deed has not been recorded or if this recording process is taking too long, your property is still at risk. The main purpose of having a purchase deed recorded in Public Registry is to make the rights of the buyer effective against third parties. These third parties are usually creditors of the seller. If the seller still appears in the Public Registry as the owner of your property, anyone suing the seller can put a lean and eventually foreclose on the property. Furthermore, if your purchase deed is not recorded, the seller can sell the property twice and if the second buyer records his deed before you, you lose the property.

And don’t forget to ask for your invoice …

Part of the follow up required after closing is making sure that you get your electronic invoice from the Notary. This electronic invoice is required to make deductions when you sell the property so if you don’t have it, you will be paying a lot of money in capital gains tax. It is only after getting this electronic invoice and a notarized copy of your trust deed duly recorded, that you can consider your real estate purchase totally concluded.


If you are buying real estate in Mexico, not doing your homework can be more costly than a simple “F”.

When buying any kind of product, it is expected from the buyer to make inquiries before paying for that product. A smart buyer usually makes informed decisions and making these informed decisions is required specially when buying a property due to the value of real estate. Moreover, if you are buying property in Mexico, you have to be even more cautious about making an informed decision.  Over here you should always do your homework in terms of gathering enough information on the property before making any kind of payment, including a down payment to the seller or an initial deposit to an escrow company, and also including a down payment to the Notary for the closing costs.

So what can happen if I put a deposit on escrow or give a down payment before doing my homework?

Representations from the seller stated in a documented Offer do not guarantee that the seller is free to transfer title or that the property is free of any leans or encumbrances. If you rely only on these representations, you could later have a not so pleasant surprise. There are several aspects that can complicate (and sometimes totally impede) the closing process, such as: (i) the legal capacity of the seller to transfer title, (ii) liens or encumbrances on the property, (iii) any outstanding balance on the property tax. This is why you should always conduct a title verification or a legal audit on the property before putting any money down, otherwise you can lose that money.

Don’t depend on the kindness of strangers…

If you’ve made a down payment (either for the price of the property or for closing costs) and for any reason you decide to cancel the purchase, it will be very hard to get that money back, mainly because you will depend on the good will of the seller. This is why before making any payment, you shouldn’t forget to do your homework and then you will be making an A+ purchase.