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Escrow Is Not Required in Mexico

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Lease agreement
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Harriet Murray Blogs for Expats In Mexico on Real Estate
Credit: Harriet Murray

Using a third-party to hold funds during a real estate transaction is what most Americans and Canadians believe is the proper way to purchase or sell a property. But escrow is not required in Mexico. The choice to use escrow is negotiated between buyer and seller.

A Mexican has a different experience. A third-party holding purchase funds is a risk, to a national. His/her experience is the opposite: If a buyer wants to purchase a property, he/she gives the seller a deposit, directly. When the buyer has all his funds, he/she pays them to the seller and they go to the notary and the deed is signed over to the buyer. Many times there is no mortgage or trust, so what funds the buyer needs to pay, are paid directly to the seller with no third-party escrow.

The difficulty arises for non-Mexicans in our market when they have to purchase within a fideicomiso trust for property near the oceanfront. The trust application process takes longer and is a condition of the sale, so giving money directly to a seller is a concern on the part of the buyer.

A client of mine recently had both experiences in her purchase of real estate in Mexico. When she came to Vallarta 10 years ago, she was recognized as a foreigner and the purchase of her home was through a fideicomiso trust. As time went on and she progressed through visas to Immigrato status, she was recognized as a Mexican citizen.

Now she does not need a fideicomiso trust. This is a savings to her in closing costs, and it gives her the ability to be more comfortable buying or selling as a Mexican without an escrow third-party account.

This system of no escrow works better when each of the principals is a Mexican citizen, either by birth or by naturalization.

If escrow is used, it can be a Mexican bank that has a permit from the Mexican government, or an approved escrow company outside of Mexico.

It is important to know in the case of escrow in Mexico, the title escrow company performs a limited function. It only holds (and charges a fee) the purchase funds and disburses them when the principals sign a disbursement letter directing how the proceeds are to be paid by wire transfer.

The escrow holder does not pay bills, make prorations, enforce the terms of the contract, or create the disbursement document or closing statement for the buyer and seller.

The function of this type of escrow is only to hold and disburse the purchase funds as a third party. The escrow agreement is a separate contract from the purchase agreement. The sale transaction works under two different contracts.

Try to remember when you are in Mexico, that there may be more than one good way to do something. You can prefer one way to the other, but see if the situation can be negotiated to fit both you and the other party’s comfort levels.

One thing is clear: Do not use a real estate agent, real estate company or notary to be the escrow holder of your funds.

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 of Mexican real estate conduct his own due diligence and review.

2 COMMENTS

    • Hi, James and thanks for your comment. Here is Harriet’s answer: A notary is not authorized to hold purchase funds. This could be a conflict of interest. Escrow is what foreigners are more comfortable using, but buyers and sellers must be cautious what escrow company they choose

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