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Buying Pre-Construction Real Estate in Mexico  

Condominium in Puerto Vallarta, Mexico
Credit: Harriet Murray

If you are considering buying pre-construction real estate in Mexico, it is most important that you interview and select a professional, experienced agent who will represent you because there is more risk for you buying property that does not legally exist when you have an accepted offer. The contracts of the developers will not have the elements in them that we use in resale contracts.

You also need the services of a bilingual, experienced real estate attorney.  The right attorney can make all the difference.   It is necessary they review the builder contract and negotiate rights in the contract for your benefit. An example is fines for being late: both parties should have fines if any fines are incurred, not just the builder. The attorney reviews the documents the builder submits, but your attorney also needs to read what is relevant to your risk with this builder in this construction development.

When you and your agent start to look at preconstruction, you should vet the developers of the properties you like. What does this mean?  What is the developer’s history with building in the local market where you are going to own? Can you find any owners who are willing to talk to you who have bought in one of this developer’s completed projects?

The agent should learn from the listing agent about the requirements met in order to have the property in the MLS (multiple listing service)? If it is not in the MLS, why is it not? The projects in this system should have provided a large amount of information to reduce the risk with the projects. For example, this means the developer has a permit from the city, furnished proof or ownership and control of the land, shows construction schedule, where funds are coming from to build the project, etc.

In most cases, the money you pay will go straight to the developer and not be in an escrow account, and in almost all cases, your money funds the developer to build the project, not his own.  If the developer is borrowing money, your purchase should note that the developer will pay the loan off to the amount needed to release your condo to be transferred to you, with no mortgage lien against it.

You need an attorney, hired by you, who is able to review the builder contract and give you time to have an opinion of risk.  There is pressure to make an offer using the builder contract, giving you little time to make a large payment. Before you do this, the developer agent should work with your agent to get documents, plus the purchase contract, requested by your attorney and give a reasonable time for review and negotiation.

Your attorney can work with the developer or his/her attorney, to add protections for you as a buyer.  Law here is codified, so adding some important codes for your protection can be important to you later.

Developers are required to have a one-year warranty for Puerto Vallarta projects, after they deliver the properties. And they need to run the HOA condo association until they can finish the project and get the required condo regime and bylaws recorded. The city issues catastral numbers to enable the city to register your property as private.

You will have to take delivery of the property when the developer notifies you, per the promissory contract. You need to pay all if not most of the purchase price, and you can take possession of your condo. You are under a formal agreement, but you are not owner until the escrituras are ready and the notary is ready to give you a date to close in his/her office.

You can be very excited about having a new condo that you can furnish and perhaps even make changes to while the unit is under construction. Look at the builder standards and equipment promised to be in the unit. Did your builder give you a set of standards he/she will follow as a part of the entire written agreement?  All builders reserve the right to substitute material or equipment if the promised is not available, or has become too expensive. But your opinion of what he/she can substitute is often very different from what the developer thought was adequate for your unit. This is when understanding more about the developer and his/her reputation becomes important. You may not have any recourse with changes the developer makes while building the project.

When you are an owner, you and your fellow owners will take over the running of the property through the civil association formed to activate your condo regime. You as owners will decide what the HOA fees need to be, after experiencing living in the property.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas.  I recommend that each potential buyer or seller conduct his/her own due diligence and review