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.

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.

When I first moved to Puerto Vallarta and I came across a documented offer to buy real estate, as a Mexican lawyer I was intrigued to say the least. In all my years of legal practice in Mexico, I had never seen a document containing an Offer the way it is used here. At a first glance it seemed to me like a rough attempt to “tropicalize” a U.S. and Canadian legal instrument. This is because a documented “Offer to buy Real Estate”, is only used in Mexican cities where usually buyer and seller are foreign (such as Puerto Vallarta, Cancun or Cabo). In the rest of Mexico, the contract that is used when you are planning to buy or sell real estate is called a “Promissory Contract”, and this contract (unlike the Offer) is specifically regulated under Mexican Law.

So is an Offer to buy Real Estate, a binding contract under Mexican Law?

After I reading an Offer for the first time, I decided to study the document in more detail in order to determine if it was a valid and binding contract under Mexican Law and not just the product of what I like to call the “Conquistador Complex”. I concluded that even though it is an “atypical contract” in Mexico, the Offer does have the elements of a binding contract: there is consent of the parties (signature), there is a purpose (the commitment to buy and sell) and there is an agreed price. It is important that the offer includes, just like the “Promissory Contract”, a time limit to sign the final purchase deed (closing date). It is paramount that the wording in Spanish is clear and precise enough, otherwise the offer could lack legal validity. It is also advisable that the Offer is drafted and revised by someone with a certain knowledge of Mexican law so that it includes specific clauses such as early termination, penalties, escape clause, liabilities and enforcement.

But there is a catch…

Something that you must be aware of is that Xerox copies or PDF copies in Mexico have NO legal validity, so event if you have signed an offer and have a PDF copy, you should always get an original signed by the parties, otherwise in case there is a breach of contract, you will have a hard time trying to enforce the offer or trying to collect penalties.

So now you know that the “Offer to Purchase Real Estate” is legally binding contract in Mexico, but you still have to make sure that it contains certain elements, otherwise it can be declared null and void.

When you grow up in a country that has the richest nation in the world as neighbor, being constantly aware of the exchange rate between both currencies becomes part of your life. I’m not sure if this applies to Canadians, but for sure it applies to us Mexicans. Our economy is still dependent on the U.S. economy.  Many things in our internal economy are ruled by the U.S. dollar, and many transactions in Mexico are priced in U.S. dollars. For us the price of the U.S. dollar against the Mexican pesos has always been a sign of how our economy is doing. We have seen here an expensive U.S. dollar many times before and you learn to become very cautious when it comes to engaging in transactions priced in U.S. dollars, because eventually they can cost you a lot of money.

So if you are foreign and you have property in Mexico, can a strong dollar make you lose money?

The expensive dollar that we have seen in the past months (in Mexico economists now call it the “Super Dollar”) is a global phenomenon and not exactly a sign that the Mexican economy is not doing well, but more of a sign that the U.S. economy is out of its recession.  However, it can still affect you if you are planning on selling your property here in Puerto Vallarta due to the Mexican Capital Gains Tax.

How? Let’s make some numbers.

Even though transactions in Mexico can be agreed and contracted in U.S. Dollars, for tax and legal purposes the amount to be paid has to be converted into pesos at the official exchange rate published by the Mexican Central Bank for the date in which the payment is done.  So let’s say that you bought your property in Mexico five years ago and you paid USD$200,000.00 for it. Back in 2011 the exchange rate was around MXN$12.00 pesos for USD$1.00 dollar, so in Mexican pesos you paid MXN$2,400,000.00 pesos. If you want to sell now in 2016 for sure you want at least to get the amount you paid for your property (meaning the USD$200,000.00), but in pesos that amount is now much higher because of the exchange rate, which is around MXN$18.00 pesos for USD$1.00 dollar, meaning that you are selling your property for MXN$3,600,000.00 pesos. That’s an increase of 50%.

Therefore, selling your property now at the same price you bought it, still means for the Mexican Government that you have a 50% capital gains on the price. In the example I was mentioning above, for tax purposes you would have a gain of MXN$1,200,000.00 pesos which are USD$66,666.66. To that amount, and depending on your resident status, you might be able to apply deductions, but in the end you will probably still have to pay some amount for capital gains tax (about 35% of the final gain).

So if you have interests in Mexico, now you are aware of one of the ways a volatile exchange rate between the U.S. dollar and the Mexican Peso, can impact your patrimony.

If you are from the U.S. or Canada and you have been a resident of Mexico for some time now, for sure you are aware of the many cultural differences between our countries, and you might be aware as well that these cultural differences are also reflected in our legal systems, specifically in legal concepts that you have in the U.S. and Canada, but that we don’t have in Mexico.   Here is an example of how ignoring these differences in legal concepts might affect you here in Puerto Vallarta: if you and your spouse are buying property in Mexico, at a fist glance you might think that including both of your names as joint tenants in the purchase deed (or trust deed in this case) has you both covered in terms of what in the U.S. and Canada is called Right of Survivorship. Well, I have news for you: in Mexico there is no such thing as a Right of Survivorship.

So if Mexico has no Right of Survivorship, what does that mean for you and your spouse?

Well it means, that if either one of you dies, the ownership rights on the property (or in this case beneficiary rights on a trust) that belonged to the deceased will NOT automatically pass to the surviving spouse without any further legal requirement, and eventually some proceeding before your trust bank will have to be initiated and fees and taxes will have to be paid.

But not everything is bad news: your trust agreement should have a testamentary clause where you designate substitute beneficiaries, so you have to make sure that in that clause you and your spouse designate each other as substitute beneficiaries in case of death, and both of you can designate as a second substitute beneficiary, either your kids or whoever you decide. This way you are legally protected in terms of the estate planning for your property in Mexico.

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