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How the Notary System Works for Home Buyers in Mexico

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View of a beachside home in Puerto Vallarta
Credit: Harriet Murray

If you plan to purchase property here, you will need to know how the notary system works for home buyers in Mexico, and also be knowledgeable about the Know Your Customer form.

Notaries

Notaries are appointed attorneys with special education in notario law to transfer real estate from a seller to a buyer.

Notaries doing the closing are in a similar position as an escrow title company in the U.S. I believe attorneys perform closings and transfer property in Canada.

How we close here in Mexico is with a notary. Unlike the U.S. notary who witnesses signatures, in contrast Canada, South America, Europe and parts of Asia all have the kind of notary who is on the same level as a judge who is appointed to transfer ownership of property from one entity to another.

Notary closing costs are in the currency of the country where the property exists and under the laws and currency of said country.

This means here, Mexican pesos are charged for the notario work. Historically, the buyer’s currency goes further with the conversion of their money into Mexican pesos from U.S., Canadian or European currency.

What are the notario-related costs?

  • Tax appraisal
  • No lien certificates
  • Transfer tax
  • Bank trust
  • Foreign permit, if there will be a new trust
  • Registration in the public registry
  • Notary fees
  • IVA taxes, which are a sales tax
  • Others as per the location of the property.

Bank fees, for example, are charged to a foreigner buying inside the restricted zone, which is a set-back from oceans, rivers, and lagoons that can never be owned by foreigners. For foreigners to acquire property within this zone, they will need to apply for a trust, which in Mexico is 50-year renewable with a Mexican bank that has a trust department.

The notary works with the bank trustee to create the legal document, which makes the bank trustee the holder of the title, and the buyer the primary beneficiary of the trust. A beneficiary has the rights to buy, sell, remodel, build new and designate his/her heirs, as secondary beneficiaries.

Upon the primary beneficiary’s death, the secondary beneficiaries can assume the primary position by paying the notary for a current tax appraisal, transfer tax, notary fees and registration fees.

So, closing costs to set up the trust for the primary beneficiary is on average US$575, paid in advance. These trusts are only available in specific Mexican banks.

Currently, closing costs in the restricted zone in the Bay of Banderas area are 5-7 percent of the purchase price.

Your purchase price will be recorded in the escritura at the number of pesos from the conversion of the other currency. The notary is to use the Bank of Mexico exchange rate for the day or day before the closing.

Know Your Customer Form

The Know Your Customer (KYC) form came into existence throughout the world in 2014. The United States, in its announcement of this requirement, made it mandatory for every country to identify dirty money that is being laundered and to identify criminals or terrorists accumulating money in banks for the purpose of attacking the United States.

When you fill out these forms as a buyer, you are not alone. Sellers must also fill out these forms, as either side could be using dirty money or have an intent to defraud.

These laws also cover requirements for all financial institutions with foreign investment to report every year how much money foreigners have in their accounts.

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.

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