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How to Navigate the Offers to Purchase Process in Mexico  

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Marina at Puerto Vallarta, Mexico
Credit: Puerto Vallarta Tourism Board

The real estate business is hot right now with many new buyers coming into the market, so this is a good time to review how to navigate the offers to purchase process in Mexico. Let’s start with the due diligence you will need to do.

Due Diligence

Buyers have time to pay for and have an inspection of the property before committing to buy.  Mexican properties are ¨as is,” which means the seller is not legally required to make repairs or do maintenance. It is a bonus if they agree, but not required. Why then does a buyer have an inspection?  Because it is important to know the condition of the property and whether you will want to own it.  You can withdraw from the contract at this point and not be in default.  There is a time limit in the offer to have and decide on the results of the inspection.

Buyers have time to have legal review of the legal ownership papers of the seller. If this is a condo, the condo regime rules and regulations, which are recorded, and required yearly meetings are important to be evaluated by a competent Mexican real estate attorney. The cost is paid for by the buyer, and the attorney should work only for the buyer and be his/her advocate.  There is a time limit for this review and the report back to the buyer.  The buyer can withdraw from the offer without being in default.

If the contingencies are removed, and it should be in writing and signed by both buyer and seller, a deposit of normally 10 percent of the purchase price goes into a third-party escrow company account.  The buyer also pays for the escrow service to hold the funds and disburse them properly at closing to all parties receiving funds, such as the notary, agents, taxes of the seller and net proceeds to the seller.

At closing, prorations are settled and paid to the side owed funds. These can be utility bills, property taxes, HOA fees and other fees. The buyers are required to fill out and sign Know Your Customer Forms. These have been required since 2014 and are part of the international laws under the heading of Anti-Money Laundering Laws.

After closing, the buyer receives an xml file of a factura issued by the Mexican IRS, known as SAT. This formal legal receipt is evidence of what the buyer paid for the property. This will become his/her basis value when the property is sold or he/she leaves it to beneficiaries.  Without this factura, required since 2015, the seller will have very little basis and owe more taxes.

Pre-Construction Offers to Purchase

These offers should be bilingual. Very recently the AMPI chapters in the Bay of Banderas have hired attorneys to write offer contracts for pre-construction.

A buyer is required to place a hold or reserve by paying a nominal amount of money, which should be refundable if the buyer does not go further.

The buyer also will need to fill out “Know Your Customer” forms required by the Mexican government.

At this time, the buyer needs to know he/she has the right to due diligence even if the seller has not mentioned it, nor has any formal paperwork been done stating this right of the buyer.

To have his/her attorney conduct due diligence, the buyer will need to have time upon receiving the seller contract and addendums to be reviewed. Since this is not as common as it should be, the buyer and agent must be clear about this right of review before commitment.   The seller may or may not agree to requested changes, but this is when the buyer must decide on how much risk they want to take that the project will be finished, and all representations are followed through. Buyers and their attorney have the right to ask the builder for more documents showing ownership of the land, building permits, source of funds, timeline, guarantees, etc.

Importantly, the seller is required to provide the buyers with the XML file or facture as evidence of the true purchase price.

With the use of the new AMPI Pre-Construction Offer to Purchase, we expect a more balanced agreement between buyer and seller.

This article is based upon legal opinions, current practices, and my personal experiences.  I recommend that each potential buyer or seller of real estate conduct his/her own due diligence and review.

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