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Understanding Real Estate in Mexico - 2
Mitch Creekmore

There are many aspects of Mexican real estate deals that are very similar to transactions closed in the United States. While it would seem the basic terms and principles are the same, a foreign buyer is much better off to assume nothing. Two such terms are escrow and earnest money deposits (depositos condicionales). In the United States, an escrow agent or title company - or a person legally empowered to act as an escrow agent - will serve in the capacity of handling escrow functions and earnest monies. In all cases, the company or individual who carries out the escrow procedure is licensed and empowered by law to do so. They are legally responsible to see that the agreed-upon conditions of an escrow agreement are met before any funds are released.

This is not the norm in Mexico. Historically, foreign purchasers have given earnest money as contractual consideration to the seller. And in many cases, the real estate agent or "broker" involved in the transaction has served as an escrow agent. Real estate brokers are not licensed in Mexico and typically do not set up separate accounts for earnest money deposits. The caveat here is expressly made in bold letters: If a foreign buyer is willing to give earnest money to the seller or the real estate agent in the transaction, be prepared not to get it back! A foreign buyer should always exercise caution and use common sense when it comes to his or her money. Today a U.S. title company can provide escrow services with individual interest-bearing money market accounts for each purchase.

Ultimately, foreign buyers get to the point where they are ready to have the transaction consummated and take title to the property. In Mexico, all real estate transactions and the legal conveyance of any type of property involve the participation of the notariopublico.

Although the title translates to "public notary," the notario publico's responsibilities greatly exceed the formalization of signatures. Appointed by the governor of the state and the executive branch of the federal government for a particular state "district," notarios are attorneys who must pass two extensive examinations in order to receive their lifetime appointments.

In a typical transaction, they will prepare the deed of conveyance subject to the "protocolized" purchase-sale agreement. The notario brings buyer and seller together for the formalization of the property transfer, and they authorize the appropriate signatures upon execution of the escritura. And lastly, after the property transfer has been formalized, the notario will record the escritura with the public registry of property where the property is located.

Prior to the closing, the notario's additional duties include: examining the documents of the selling party to ensure their accuracy and legitimacy; verifying title, and searching the public records to determine the status of the seller's title to the property and the existence of liens against the property. The notario is also responsible for the collection and payment of all applicable property taxes and government transfer taxes.

As representatives of the state however, notarios do not insure title to the real estate nor do they have any legal responsibility for title defects. In short, a purchaser cannot seek restitution against a norario in the event the purchaser suffers a monetary loss due to a title defect unless fraud, misrepresentation, or gross negligence could be proven in a Mexican court of law.

Issuing title insurance on Mexican real estate requires an in-depth examination concerning tide documents, development permits, municipal approvals, paid taxes, plat and survey issues, recordation and registry compliance, along with the overall conveyance or "protocolization" procedure of the public notary In order to issue an owner's policy of tide insurance and assume the inherent monetary liability that comes with the policy issuance, the insuring company must be as certain as possible regarding all of the various elements in the property transfer.

It is not often understood that in Mexico, not only does a title policy protect against recording errors, liens, encumbrances, encroachments, taxes, and boundary line disputes, but also against fraud, misrepresentation, impersonation, secret marriages, incapacity of parties, and undisclosed heirs. Even the best of notarios or attorneys may be unable to discover these title problems.

Often, a real estate agent or broker may not tell a buyer about the availability of title insurance for Mexican property. Perhaps this is because the agent or broker is fearful that the transaction may be delayed because of a title company's requirements. Real estate professionals must remember that possession of the property does not necessarily mean good and recorded title to it.

The Mexican Association of Real Estate Professionals (AMPI) now has a formal working relationship with the National Association of Realtors (NAR) to enhance relations between U.S. and Mexican real estate professionals. There are now commission-sharing arrangements between brokers in Texas and Mexico, which has been a problem because there is no formal licensing act in Mexico.

With major franchises such as RE/MAX, Century 21, and Coldwell Banker having established operations in Mexico, and through referral networks such as RELO, realtors have a variety of avenues to assist their clients in taking advantage of Mexico real estate investment opportunities.

If you missed the first installment of this series, click here.

Mitch Creekmore is the director of business development for the Mexico Division of Stewart Title Guaranty Company in Houston. He is a licensed Texas real estate broker with more than 16 years of commercial brokerage experience and teaches a TREC-approved continuing education course entitled Real Estate in Mexico Today.

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