Risks of Buying Mexican Real Estate

and 31 Recommendations on How to Reduce Your Risk

 

I first became interested in the idea of buying real estate during a trip to Cabo San Lucas.  It was warm, tropical, walkable, and small.  It just felt like paradise.  I also liked the idea of having some money in another country, for currency diversification and asset protection. I have purchased five condos now in Mexico and have learned something new with each deal.

 

I had heard about the American buyers in Punta Banda near Ensenada who lost their houses.  I read up on that a little bit and it sounded like they had built on leased land owned by an Ejido (a farming collective), bought into a deal that sounded too good to be true, and they should have known better.  I defended Mexico against people who brought up that story.  However, it turns out that there was quite a bit more to that story than buyers being swindled by an Ejido that tried to sell land that they shouldn’t have.

 

Many people warned me to stay away from Ejidos (communal farming land). In case of any dispute, the agrarian judge always rules in favor of the Ejido. In the Puenta Banda story in Ensenada, there were rumors of corruption, and maps being redrawn. The full story is here:  http://www.hispanicvista.com/html/punta_banda.html

 

There is an article about Ejidos here: http://www.fredlaw.com/articles/international/inte_0611_dpw.html

There is another story about Ejidos here:  http://math.ucr.edu/ftm/bajaPages/Stories/Serenidad.html

And a warning from a U.S. Consulate here:  http://www.usembassy-mexico.gov/guadalajara/Gereal.htm

 

I decided to stay away from Ejidos and figured that I would therefore be safe.  Since that time, an attorney has told me that if land from an Ejido was properly privatized, it can be safe to buy.  But I’ve also read articles that say to stay away from former Ejido lands until there have been years of private ownership with no claims by an Ejido. 

 

Recommendation #1:  Be very careful when purchasing former Ejido land or near an Ejido.  Hire a lawyer or just stay clear of such property. 

 

 

My first problem was figuring out what to buy and who to use as an agent.  I saw a few interesting properties on the Internet and communicated with a few agents about them.  I had no idea which ones were good deals and didn’t know how to find comps.  I decided to contact the publisher of an English language newspaper to get back issues, so I could see the price trends, at least of asking prices.  Unfortunately, they did not have back issues.  She told me that in the entire time she lived there, prices had not gone up.  They were too high to begin with.  I did not let that dissuade me.  I had a feeling that Mexico was in the path of demographic migration, that more American retirees would move there, and that the migration to warm climates by retirees who don’t need to work should increase values of properties. 

 

September 11 took its toll on travel to destinations outside the U.S.  Las Vegas got more tourist traffic, Mexico got less tourist traffic.  Tourists remembered the borders being closed and travel by air became more difficult, with long lines and increased screening.  I figured that this could have an effect on temporarily depressing prices.  Rents were certainly lower.

 

I contacted an owner in one of the complexes I was interested in before I bought my first condo in Mexico.  She told me that she loved her condo.  She bought her condo years earlier but still didn’t have her Fideicomiso.  There were liens on her title that she couldn’t figure out how to remove.  She told me that the contract could be a promise to sell all in Spanish and the buyer will never know they are getting a property with a title problem.  She told me to be careful about buying in her complex, because many units had liens on them.  I was glad I had contacted another owner.

 

 

The Story of Lulu Jacobsen

I decided to send a friend to investigate.  He was to meet a real estate agent named Lulu Jacobsen (Luetta Jacobsen).  She was an American living in Los Cabos and selling real estate there at Manana Today Realty, a Coldwell Banker franchisee.  http://www.bajalife.com/lulu/

 

When my friend arrived in Los Cabos, Lulu was not available, she had some legal issues in the States, my friend was told.  But another agent greeted him and showed him around.  He met with an escrow agent to discuss risks of buying real estate in Mexico and how to avoid them.  She advised him to stay away from Ejido lands, and that was pretty much the only risk raised.  The agent showed my friend several properties.

 

Well, my friend came back and I read some things about Lulu Jacobsen. It is alleged that she emptied her trust account and fled to the U.S. with all the money.  So this is lesson number one. The agents are not licensed or bonded. Anyone can sell. Many do not know the market very well, and do not know which properties have title problems. If you send a down payment to an agent, the agent could disappear with your money and you'd have little recourse. I am not aware of any of Lulu’s victims having recovered any money from her.  Hiring a private investigator to find someone who has stolen money from you, getting a judgment, and finding assets can easily cost more than the down payment you lost so there is little point pursuing them. Even if it is a U.S. name franchise, like Coldwell Banker in the Lulu story, they may claim that it is a different entity in Mexico.  Oscar de La Hoya apparently lost money to Lulu and tried to make the case that the Coldwell Banker and other defendants should have some responsibility because they knew that Lulu Jacobsen had mishandled client funds in the past.  Here is one decision on the matter, which says that Coldwell Banker of Mexico should not have been dismissed from the case, with a discussion of background facts:  http://www.mexicorisks.com/Oscar de la Hoya.pdf

 

Recommendation #2:  Do not wire a down payment to a real estate agent in Mexico.  Even if they have a U.S. bank account, it is easy to transfer funds from a U.S. account to a Mexican account.  Many Mexican businesses have U.S. bank accounts that are set up for quick transfers from the U.S. account to a Mexican account.  If a real estate agent asks you to wire a down payment to their U.S. bank account, ask them about the Lulu Jacobsen story.  As stated in an article by Texas Realtor magazine, if you give money to the seller or real estate agent, be prepared not to get it back.  http://www.stewartaffiliates.com/download/613/texasrealtor.pdf   

 

 

Questions to Ask Before Making an Offer

Ask the sellers if they have U.S. title insurance and if they have their Fideicomiso. If a non-Mexican

seller of a property in an area where Fideicomisos are used doesn't have their Fideicomiso, there is a reason why, usually some title problem. That doesn't stop the sellers and agents from selling you something. If the seller has a Fideicomiso, that is not a guarantee that they have clean title.

 

Recommendation #3:  Ask non-Mexican sellers if they have their Fideicomiso.  Ask the selling agent if they have verified that there are no liens on the property, and if condo association fees, utilities, and property taxes are up-to-date.

 

 

The Case for U.S. Title Insurance

As you may have gathered by now, buying real estate in Mexico is very high risk.  I didn’t lose money to Lulu.  I escaped losing money to her and, having learned that lesson, continued to look for real estate in Mexico, having resolved not to transfer money to any real estate agents.  And after the Lulu incident, many reputable real estate agents, at least in Cabo, stopped asking their client to wire down payments to them.

And I successfully bought my first condo.  I hired an attorney to help me get clean title, and learned some more things.  And eventually did get burned.  I got a very expensive education, and am providing this information in the hope that fewer people will expose themselves and their life savings to more risks than necessary.

 

Recommendation #4:  Order and obtain U.S. title insurance.  Title insurance is not automatically obtained in the Mexican closing process unless you ask for it.  Title insurance issued by a U.S. company is enforceable in U.S. courts.  Make sure it is listed in your closing cost estimate from the closing agent. There is a good description of why you need to request title insurance in this article:

http://www.mexicomatters.net/mexicorealestate/17_mexicotaxespropertytransfer.php

Be aware that the notario publico typically only examines the current deed and a current lien certificate, which results in the possibility of an incomplete search of title history.   Make sure the title insurance can be enforced in the U.S., some policies are Mexican policies.

 

 

Asking for Title Insurance is Not Enough

Even if you ask for title insurance and pay for it, you might not ever receive a policy. Title insurance is not normally ordered until after funds are disbursed in the normal course of business in Mexican closings, unless you instruct your closing agent otherwise. Title insurance is typically ordered after funds are disbursed, surprising as that seems. 

 

Recommendation #5:  Make sure your attorney reviews the commitment for title insurance before any funds get disbursed. Read the exclusions carefully yourself before funds get disbursed, not after your funds are disbursed.  Make sure you can live with the exclusions--there may be more exclusions than in a typical U.S. title insurance policy.  The escrow agents get recommended by the real estate agents, and the real estate agents have every incentive to make sure your cash gets disbursed.  Ask (or have your attorney ask) the seller for their escritura publica (public deed), certificado de libertad de gravamen (certificate of no liens), and consider also asking for a certificado de no aduedo (certificate of no tax due) from the local taxing authority to make sure the seller has authority to sell and has no liens on the property.   Property taxes are relatively low so property tax is a relatively minor concern, though one that should be investigated.  The buyers position should be that no funds get disbursed until buyer is provided with an *original* deed signed by the seller and the bank.  My experience has been that the closing agent will ask you to sign a document authorizing them to disburse funds well before a title report has been prepared, and well before you really should authorize disbursement of funds--don't be in a rush to sign this, it will not speed up the process.  

 

There is a reason why you see many uncompleted buildings Mexico. The labor unions are strong and can strike and place liens on buildings. To remove the lien, my understanding is that you have to pay back-pay as if the workers were working the whole time.  Liens can be expensive to remove. It is better to get clean title than to have to try to fix title.

 

 

The Story of America Alvarez

Now for the part of how I got burned.  It turns out that escrow agents in Mexico are not bonded. They could empty out their escrow account and flee. This is what happened to me and several others in Los Cabos.  After I had wired the full purchase price plus closing costs to an escrow agent named America Alvarez, one of the most prominent escrow agents in Los Cabos at the time, America Alvarez transferred money from her U.S. escrow account to a corresponding account in Mexico, grabbed the money, and disappeared.  I didn’t realize this until later, but America Alvarez used to work for Lulu and apparently learned from her.  Not much happened to Lulu after she fled, not for years.  This obviously left several people in a very bad way.  Several buyers and sellers whose transactions were in process had no idea whether the buyer or seller should absorb the loss.  Some flew to Los Cabos right away to file complaints.  Lawyers and private investigators were offering their services (for large fees).  I contacted the U.S. embassy in Los Cabos and got no response.  I contacted a property manager who also sells real estate, and his reaction was, just when sales were getting better after the Lulu Jacobsen disaster, this had to happen.  There was far more concern about potential loss of sales then any interest in making the victims whole or spending any money in filing complaints or tracking America Alvarez.  The local AMPI did not feel it was their business to help or take any action against agents who exposed their clients to such risk.  I contacted newspapers in San Diego, to where America Alvarez was believed to have fled, but none were interested in running the story.  Only the Gringo Gazette had the courage to break the story, even though a large percentage of advertising revenue came from real estate sales.  I contacted the FBI, the San Diego county district attorney, and others.  I filed a complaint in Mexico.  I filed a civil suit in California.  Many people lost money.  Some people lost their live savings.  It made no difference whether or not they used big name U.S. franchise or AMPI (local MLS) member. 

 

I also learned that you have to pay money to an attorney to get them to file a complaint.  I was told by a Mexican attorney that the Mexican prosecutors will not prosecute unless a case is either very high profile or victims pay them to help investigate.

 

More details on this story can be found at www.americaalvarez.com

See also the original story at www.mexicorisks.com/gringo.pdf,

and at www.mexicorisks.com/gringo2.pdf.

 

As far as I am aware, only one real estate agent reimbursed a client who lost all their money to America Alvarez. That agent is Chris Snell. (www.snellrealestate.com) Chris had a policy of using U.S. escrow (smart man), but one of his agents did not follow the policy and a client lost their purchase price to America Alvarez. Chris refunded the client's money.  Very honorable. I am not being paid to endorse him.  My impression is that other agents and the local AMPI did not want the America Alvarez story to even be published and took no action to pursue America Alvarez. I am not aware of any other agents spending any serious money to help their clients who lost life savings.

 

One Mexican lawyer told me that if anything is going to happen against the perpetrators, it will happen in the U.S., not in Mexico. However, the U.S. FBI is more interested in terrorists than thieves and America Alvarez is still at large. However, the U.S. FBI did finally get Lulu Jacobsen.  See www.mexicorisks.com/lulu.pdf.  So there is still hope that the FBI will eventually grab America Alvarez. 

 

Recommendation #6:  Use U.S. escrow.  If you don't follow any other advice here, one of the most important recommendations of this website is to use U.S. escrow.  Fidelity Title in New York and Stewart Title in Houston provide this service for Mexican transactions.  Their fees are negligible, and the value of this service is very high.  More and more developers and agents in Mexico are suggesting U.S. escrow.  If your agent does not, perhaps you should get another agent.  Insist on U.S. escrow.

 

 

A Competent Attorney is Worth the Money

It is well worth the money. You are spending probably $7000 or more on closing costs.  An extra $1000 for an attorney is not that much.  Just make sure they are competent--some of them are not. 

 

Recommendation #7:  Find and hire a good attorney in advance. Interview many attorneys and try to find one who is competent and has the capacity to help you in a timely manner.  Seek recommendations.  Verify that there are no conflicts of interest.

 

 

Expect Large Transaction Costs and Slow Closings

Transaction costs are huge. There is a big transfer tax. Expect to pay at least 7k in closing fees. And don't expect to get that back when you sell. Only buy if you are planning to hold long term or to flip before closing.  Closing costs include acquisition or transfer tax (this is a big one, and is a percentage of transfer price), fees for an appraisal, for a permit from the ministry of foreign affairs, for a foreign investment commission recording fee, notary fees, and closing agent fees.

 

Recommendation #8:  Get multiple estimates for closing costs and decide for yourself which closing agent to use.  Factor in closing costs when predicting your rate of return.  And ask your closing agent to compare fees from different fiduciary banks.  Compare closing agents.  Ask for recommendations from past clients to determine how efficient they are.  If they have big accounts (big condo projects for which they are the exclusive closing agent), your closing may take lower priority.  There are multiple steps that still have to occur after your real estate agent gets paid commission.  After the commission is disbursed, the pressure is off.  You can use an attorney as a closing agent if you so choose.

 

 

Different Notarios Make Different Calculations

As you probably know, closings in Mexico are handled by Notorios.  A Notario in Mexico is much more than the equivalent of a U.S. notary public.  Instead, a Notario is an attorney and is a neutral government lawyer involved in real estate closings.  Among other things, the Notario is responsible for formalization of the final real estate contract, collection of transfer and capital gains and recordation of the transfer with the Public Registry. The Notario is not your lawyer.  Different Notarios can make different calculations in terms of capital gains tax that the seller has to pay.  Don’t be intimidated into accepting a Notario that makes a lower tax calculation for the seller than your attorney thinks it should be.  Lower capital gains tax for the seller may mean eventual higher capital gains tax for the buyer, when you eventually sell.  Although Notario fees are typically fixed, it may be possible that different Notarios will charge different fees.  There is some discussion of Notarios here: 

http://www.mexicomatters.net/mexicorealestate/17_mexicotaxespropertytransfer.php

 

Recommendation #9:  Ask your attorney to verify the Notario’s calculations.  Consider getting a second opinion.  I have found the Notarios to be honest and competent, and have not had any trouble in this regard except that I was once asked to use a Notario whose calculation resulted in a lower tax calculation for the seller than another Notario.  This probably means I’ll pay higher capital gains tax when I sell. 

 

 

If The Seller Doesn’t Pay Capital Gains Tax, The Buyer Will

People used to underreport values because of the high transfer tax.  Sellers would pay less capital gains tax, buyer would pay less transfer tax.  But the government has caught on.  If you do this, or allow the seller to do this, you will get stiffed with the seller's capital gains.  If the seller doesn't pay their capital gains, for any reason, the buyer will probably eventually have to pay it.  For example, if you underreport your transfer value when you buy, you will pay increased capital gains tax when you sell.

 

Recommendation #10:  Modify the offer to say that the seller doesn't get any money until they pay their capital gains taxes.  You need an attorney to do that for you. Watch out for properties with title in a LLC or corporation (offshore or domestic).  There is a good chance you will get stuck paying the seller's capital gain taxes if you just buy shares of the company.  You might not even realize what happened until you sell.    If it is an offshore corporation, that brings into question the seller's ethics--they may have been trying to avoid income taxes.  Even if your offer says that capital gains taxes are to be paid by seller, this doesn't completely protect you. This is where an attorney can help. Make sure your attorney verifies that the capital gains taxes have been resolved before funds are disbursed to the seller.

 

 

Avoid Misunderstandings About Recorded Transfer Price

Because you don’t want to get stuck with extra capital gains tax, make sure your seller, attorney, and closing agent understand that actual purchase price is to be recorded, not some reduced number.  Or you may be in for a rude awakening when you sell your property.

 

Recommendation #11:  Make sure that seller understands that recorded transfer value will be actual purchase price, and make sure actual purchase price gets recorded.

 

 

It is Hard to Get Comps

You have to bargain. Asking price is not necessarily close to true market value. Asking price could be double true market value. There are MLS "sold" books but agents typically do not report any data. Many agents will have no idea what other units have sold for.  Besides, just like in the U.S., their commission would be higher if you paid more.  A big problem I had was that I wanted to be sure I wasn’t overpaying.

 

Recommendation #12:  To get a sense of true market value, consider searching public records.  You can hire an escrow agent to search public records to determine past transfer prices for neighboring properties as well as to determine what your seller paid.  This is not cheap but will get you more information than most buyers have. You will have to convert pesos into dollars using the exchange rate in place at the time. You can find historical exchange rates at www.xe.com  But be aware that many values are underreported, so some of the data from the public records may not be valid. 

 

 

Contact Other Owners

You can contact other U.S. owners and ask them what they paid.  I’ve found most to be extremely candid.  Ask them if they would buy again in this complex.  You may learn about legal problems, high condo fees, poor condo association management, theft of association funds, expected high special assessments due to storm damage or maintenance needs, etc.  Or you may learn that the complex you are considering is a great place to be with involved owners and competent condo association management.

 

Recommendation #13:  Talk to other owners.  You can find other owners by looking at websites for condos available for rent.  There are many such websites.  You can use a search engine and plug in the condo complex name, city, and “for rent.”

 

 

Originals Are Important

Make sure you get original, signed, versions of important documents. The courts will throw you out if you only have faxed copies of documents.

 

Recommendation #14:  Get and keep originals.

 

 

Squatters’ Rights

Be aware that Mexican law recognizes squatters’ rights.  There are professional squatters that move into the path of development hoping for a payoff.  Developers sometimes hire vigilantes to live on vacant land to keep squatters away.

 

There is some discussion of squatter’s rights here:

http://www.pacificcoasttravelinfo.com/mexicorealestate.asp

 

Recommendation #15:  Think twice about buying vacant land.  Learn about squatters’ rights, and take steps to prevent squatters from occupying vacant land if you do decide to buy vacant land.

 

 

About Fideicomisos

As you are probably aware, foreigners who buy property near the coast or border in Mexico cannot hold title directly.  They must hold title in a bank trust, called a Fideicomiso.  A bank holds title, and you have beneficial rights.  You can sell and have most of the rights of a regular owner, but must pay the bank a fee every year.  And if you ever invoke your home government to try to separate from Mexico, as they did in Texas in the days of the U.S.-Mexican War, you lose title.

 

The Trust system is relatively new and there is ambiguity in the law over whether you can renew after 99 years.  I received different answers depending on who I asked.  Of course, you can sell within the 99 years.

 

There is an annual fee for the services of the trustee, about $500 per year. The amount of the fee is set in your trust documents so make sure your closing agent shops around.

 

Recommendation #16:  Compare fees of Fiduciary Banks.  Or make sure that your closing agent contacts more than one bank.  Also ask where the bank fees need to be paid each year.

 

 

Closing Process

It takes at least 2 months to get possession and 4-12 months before you get your actual Trust. Registering property in Baja California Sur requires seven procedures, 123 days, and costs 3% of the value  of the property, on average, according to “Doing Business in Mexico 2007:  Comparing Regulation in the 31 States and Mexico City.” 

 

Recommendation #17:  Decide in advance how to hold title.  Because the process takes so much time, and there are transfer taxes and expensive closing costs, decide carefully how you are going to hold title.

 

 

Mexican Corporations

Some people put title in corporations to avoid the bank fee. A foreigner can set up a Mexican corporation. You only need two shareholders and one can be a U.S. LLC. There is ambiguity in the law as to whether you can own residential real estate in a Mexican corporation if you don't live in it.  I have received different answers from different people.  You cannot own residential real estate in a Mexican corporation if you plan to live in it.  The Mexican tax authorities watch you more carefully if you have a corporation, according to my accountant. 

 

Many people in Mexico view income tax as optional, because the ability of the authorities to collect is supposedly poor, and nobody likes to give receipts. You need official receipts "Facturas" if you are

going to take itemized deductions.  You need to take itemized deductions if you use a Mexican company to hold title to your property). If you pay Mexican tax as an individual, there is a blind deduction option to paying income tax, which is the easiest approach. You need to get a Mexican tax ID or the renter is supposed to withhold the tax for you and submit it to the government, which is not likely to happen. To get a Mexican tax ID, you have to claim you are a Mexican resident.

 

Depending on your activities in Mexico and length of stay, you may become a resident of Mexico for tax purposes.  My understanding is that if you stay 183 days in Mexico, you are a Mexican resident for tax purposes and subject to Mexican income tax on your worldwide income.  This is discussed in these articles, as well as others:  http://www.solutionsabroad.com/d_taxesmexico.asp 

http://www.mexconnect.com/mex_/travel/rrwalters/rrwtaxes.html

 

I have been told that, at present, the Mexican tax authorities are not attempting to collect income tax from foreign sources.  But this could change at any time. Government officials have shown up at condo association meetings for one of my condos and have demanded lists of owners who rent out their unit. Their position was that these people need to pay income tax, needed proper visas, and needed to modify their Fideicomisos to allow rental activity. It is rumored that the hotels don't like untaxed competition from condo owners and lobbied for greater enforcement of the rules against American condo owners.  You never know when they will enforce their right to tax you on your U.S. income.

 

If you do have income in Mexico, you are supposed to pay estimated taxes every month. Be prepared to get lousy information from your property manager with respect to income and expenses. Don't expect

anyone to give you receipts for anything. Tax rules in Mexico change frequently.

 

Recommendation #18:  Talk to a Mexican accountant about income tax planning if you are planning to rent out your condo, preferably prior to buying.  As with attorneys, interview many, obtain recommendations, and make sure that you feel comfortable that your accountant is competent.  Decide in advance whether or not you want to set up a Mexican corporation.  Because of the large transfer tax, you can’t easily switch title into or out of a corporation as you can in the U.S.

 

 

Capital Gains Taxes May be Higher Than You Expect

The tax laws change all the time. Capital gains tax weren't too high if you resided in your condo for a couple of years before you sold. But that exemption is no longer there. Capital gains taxes can be high. Your capital gains taxes go down the longer you own a place. 

 

Recommendation #19:  Ask your accountant how Mexican capital gains taxes are calculated, be aware that capital gains tax will reduce your rate of return, and keep capital gains tax in mind when contemplating selling.

 

 

You now have a foreign trust.  If you are an American citizen or resident, you have to file special documents with the IRS that few accountants know about, form 3520 and 3520A. If you don't do it in time (and it isn't the normal tax deadline), the penalties can be pretty drastic.  The IRS will likely attempt to correspond to the fiduciary bank in Mexico instead of with you about these forms and the bank will likely ignore the letters.  You may be being assessed penalties and interest without knowing about it. 

 

Recommendation #20:  Talk to an accountant in your own country about income tax planning, prior to moving.  If you are an American, ask about forms 3520 and 3520A.  Consider whether income tax would be higher if you are a resident of your own country or a resident of Mexico and consider adjusting your plans accordingly.  A certain amount of U.S. income is except from U.S. income tax, if earned abroad.  There is some information on this here:  http://www.irs.gov/faqs/faq13-3.html  There are double taxation treaties, and complex rules involved, so seek competent counsel.  Some accountants may not be familiar with such complex issues and tax treaties.  If it seems like the IRS is not acknowledging your forms 3520 and 3520A, it is probably because they are sending letters to Mexico.  Have your accountant contact them and verify that everything is ok.

 

 

Financing Contracts

Financing is increasingly available in Mexico.  Having a bank analyze the condition of title may help increase the odds that you will get good title.  But be aware that it is risky to use developer financing.

Typical contracts say the developer keeps title until you pay everything off. If they go bankrupt in the meantime, you can lose everything.  I have heard that it can take some time to get a lien removed after you pay off a loan.

 

Recommendation #21:  Hire an attorney to review financing contracts.

 

 

Those are the main recommendations.  The following points are relatively minor, but are things you may want to know before you decide to buy in Mexico:

 

It is a bit hard to get money out of Mexico. One way I've figured out to do it is via ATM card. Bank drafts are too expensive. It isn't that the currency is unconvertible; it is just that their mail system doesn't

work. The locals don't trust the mail so are not inclined to mail things of value. The mail system there doesn't work very quickly. It takes over 3 weeks for a letter to get to the U.S. Expect to spend a lot of money on courier fees.  Also, since it is mostly a cash society, the manager is unlikely to put the money in their own account and issue a check to you. There is a culture of avoiding taxes and avoiding recorded transactions. If you have a big income project, you could periodically do bank wires for $10 or so, but a trip to the bank can take a couple of hours. You could courier a bank draft, but then you pay $30 or so for the courier, plus a couple of bucks for the bank draft. It is more of a transaction cost issue than any big problem. By using the ATM card approach, my manager can deposit cash in my account, quick line to the teller instead of a longer wait for a special service. And I can take it out here with the only transaction cost being the ATM fees. I also have checks from my Mexican bank account but didn't realize that you can't use them until you activate them. Which you have to do down there in person. There is some way to do it by phone but I haven't figured that out. I am missing some password.  I am also going to try to convert my ATM cards into debit cards so I can use them like credit cards.

 

Recommendation #22:  Plan to set up a Mexican bank account and request an ATM card and checks, if you wish to get your rental out of Mexico.  Activate your checks before leaving Mexico.

 

There is no problem getting money from the U.S. to Mexico. There are some banks that will let you automatically transfer funds from a U.S. account to a Mexican account. California Commerce bank offered that service. You can also use Western Union for a small service fee each transaction (about $20) and bad exchange rate.

 

 

To open a Mexican bank account, you first need an FM3 visa and a Mexican light bill. You can get the FM3 from a Mexican consulate with three month's of bank statements showing some amount (around $1000) deposited each month. You need to give them your U.S. passport for a day. You also need photos without glasses (they don't tell you that until you get there) and you need to pay in cash. I've been told that you need this visa to own property in Mexico according to the law or you are an illegal immigrant and have no rights in the event of a legal dispute. It is easier to enter and leave on a tourist visa than on an FM3. With an FM3, you need to get a re-entry permit from immigration each time you leave. They might ask you what you were doing in the country. 

 

You have to repeat the FM3 process when you arrive in Mexico and register with immigration. You basically need the same documents all over again. Or you can pay a fine a year later.

 

Recommendation #23:  Get an FM3 visa from your consulate if you plan to open a Mexican bank account.  At the time of writing, an FM3 also gets you on the path to Mexican citizenship, which can be useful for future purchases (can avoid the fideicomisos).

 

 

You have to renew your visa in the exact same town year after year. The requirements vary by city and are not normally published.

 

Recommendation #24:  Plan to return to the same city in Mexico at least once a year to renew your FM3.

 

 

To get the utilities changed to your name (which you need to do to open a bank account), you need a full copy of your trust documents and the photo page of your FM3 and an old light bill from the previous

owner (or at least their name or the address). Of course, it can take 3 months to a year to get your trust documents. If you have any title problems, it can take a very long time to get it cleared. But you can also get an “intent to trust” letter from the Notario that will let you turn on the power, if the previous owner turned it off. 

 

Recommendation #25:  Make a copy of your Fideicomiso and photo page of your FM3 prior to changing the power bill to your name at the CFE.  Change the power bill to your name prior to attempting to open a bank account.

 

 

The court system is slow and inefficient. If you get in a dispute, don't expect any rapid recourse in the courts.  In the Punta Banda dispute, complaints were filed in approximately 1987 and the Supreme Court ruled in 1999 ordering that the land be returned and Americans were evicted in 2000.

Consider the following quote from the U.S. Department of State Consular Information Sheet for Mexico:

"Mexican authorities have failed to prosecute numerous crimes committed against U.S. citizens, including murder and kidnapping. Local police forces suffer from a lack of funds and training, and the judicial system is weak, overworked, and inefficient. Criminals, armed with an impressive array of weapons, know there is little chance they will be caught and punished."

If murderers are running around loose, consider how important your little title dispute is likely to be.

 

Recommendation #26:  Avoid any activity that might require using the legal system.  Consider adding binding arbitration clauses to your Offer and other contracts.  Discuss this option with your attorney.

 

 

If you want to periodically use the condo yourself, and rent it out when you are not using it, you will need to find a manager who is willing to do short term rentals. I have found that these can be hard to find. And this does not work as well as 6-12 month leases in terms of cash flow, because of substantial vacancies and competition with hotels and timeshares, which are sometimes overbuilt. You will probably have to go through a couple of managers before you find one who is competent AND good at finding renters.

The most successful owners are actively involved in finding renters for their own properties. Some managers may be tempted to not provide you with all the income they receive. 

 

Recommendation #27:  Interview some property managers and other property owners before deciding whether or not to buy a condo you intend to rent out.

 

 

Be aware that it is sometimes hard to sell in Mexico. Because agents often set the asking price too high, sales can take a very long time.

 

Recommendation #28:  Make low offers and be patient. You'd be surprised. A lot of owners are elderly, just want out badly for whatever reason (e.g., strong negative cash flow due to high condo association fees), and capital gains isn't that important to them. Some properties are owned by U.S. children who have inherited the property. They get tired of the huge condo fees and other fees. It is "found' money to them and they just want to unload the albatross. For my first condo, which I bought a couple of years ago, I talked to an owner who said that she paid $50k five years previous, but that some were going for $60k. I offered 35k and my first offer got accepted. My last one, two years later, same complex, I offered 35k and settled at 38k.

 

 

Standard real estate commission is 10%. There are big savings to be made by avoiding properties that are on the MLS. But you need the advice of someone who knows the market.  Don't waste your time with agents who can't tell you what prior sold prices have been. The managers often will also help you find a condo at a reduced commission. No license is required to sell real estate in Mexico. The real estate agents are not legal experts and will not guarantee you clean title. But they are very competitive because a commission is very big money.

 

Recommendation #29:  Make property managers, other owners, and condo association managers your first source of information.   Don’t expect an agent to ensure that you will get clean title.  A lawyer can better protect you than an agent, particularly a lawyer you find on your own.  Make sure they are competent and ask questions to make sure there are no conflicts of interest.  Other American owners will give more candid advice about a complex than those with a vested interest in making a sale.

 

Recommendation #30:  Don't use a short "offer to purchase" form supplied by a real estate agent. Those only protect their commission. Get a lawyer to draft a "pro-buyer" offer form for you. Make sure to address that the recorded value will be the actual contract value, that no funds will be disbursed to seller until you or your attorney are satisfied that capital gains taxes have been paid from escrowed funds and that clean title is available, and that unit will be sold as shown, with no furniture removed. Also, put in the offer that no funds are to be disbursed until you lawyer has reviewed and approved of the preliminary commitment for title insurance. I have never seen a real estate agent form in Mexico that addresses these issues.

 

Other considerations

There is a rich history of re-socializing property, particularly foreign-owned land. Look up Emiliano Zapata, Alvaro Obregon, and Luis Echeverria.  Maybe their actions were justified based on the situations of the times. But if a left-leaning President is eventually elected in Mexico, might he follow a Chavez-style approach to foreign land ownership given this history?

 

Recommendation #31:  Use risk capital, not your life savings.

 

There is some more good information here:

http://www.sfbcabo.com/owninginmexico.cfm/subject_body_id/3

 

The above isn’t meant to dissuade you from buying in Mexico.  Many people buy in Mexico and have no problems at all.  Just go in with your eyes wide open to potential problem areas.  When I bought, I knew there were risks, but nobody told me what they were.  Agents wanted to paint a rosy picture.

 

It cost me thousands of dollars to obtain this education.  You see, my money was stolen by America Alvarez, the escrow agent.  In addition to the lost money, I had thousands of dollars in legal fees in Mexico and in the U.S.  I put some effort into trying to catch America Alvarez because other victims had lost their life savings trying to buy a retirement home.  I hope you feel that I might have provided you with some useful information.  

     

The above should not be construed as legal advice.  I am not a Mexican attorney.  Use this information to hire a competent attorney and to determine if he or she is aware of the risks and issues.  No liability is assumed.  Buyer Beware.