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Second Homes in Mexico and the North American Real Estate Connection

Beachside property in Puerto Vallarta
Credit: Harriet Murray

Mexico, Canada and the U.S. have many connections besides their obvious physical proximity and the ease of travel between the countries. Second homes in Mexico are a primary example.

Each of the countries rates the others at the top of their list for second homes. Puerto Vallarta tops the list for expat interest in second homes in Mexico.

Mexico’s second home popularity brings increased visibility and the potential for many individuals and businesses in the real estate chain to benefit personally and economically. With visibility, though, comes scrutiny. With scrutiny comes responsibility.

In principle, these three North American countries benefit more if everyone benefits and this requires knowledge, skill and a commitment from all three business and trading partners.

First, what are North American buyers looking for in Mexico second home real estate transactions?

1. Favorable climate

2. Safety and stability: TRUST

3. Transparency in markets

4. Honesty

5. Activities, entertainment, culture and friendliness.

6. Municipal Infrastructure, including services and transportation

7. Freedom

8. A variety of second home options

Who are the players in the second home real estate chain?

1. Developers

2. Builders

3. Buyers and sellers

4. Legal parties

5. Real estate agents

6. Support services

7. Property management

8. Rentals

What are the responsibilities of the players?

A buyer’s fear of loss has a direct correlation to how well the players perform and how well their criteria are met. The market for second homes decreases if some of these requirements are not met.

For example, assuming the basic requirements are in place, but the players are unorganized, dishonest or unprofessional, the percentages of success go down substantially. If players in another North American real estate market are on top of game, they will win over their competition.

If the developer does not finish the project and has pre-sold units taking money payments directly, the buyers are at risk for losing their money, or at the very least, spending more money to fight legally for their reimbursements.

If closing transactions are difficult, expensive or non-transparent, buyers will advise their friends it is not worth buying in that market.

If real estate agents do not understand that their fiduciary responsibility is to protect their client and the loss of his/her funds, there will be problems. The story of the misdeeds of an agent can spread like wildfire, and it should.

Three recommendations for Buyers and Sellers

1. Understand the scope of work of the notary. The concept of the notario publico needs to be explained to the foreign buyer or seller. The Mexican notario is an experienced, specialized attorney who decides if the seller has the authority and ability to transfer his property.

The notary is required to file the fideicomiso, or deed, with the public registry, and he/she is a neutral party to the transaction. Notarios should, however, inform a buyer or seller if there are material issues that may cause harm to one of them. The notario does not have the responsibility to hold or disburse purchase funds.

2. A notary coordinator is a good thing. An outside bilingual professional, authorized and paid by the notary, can coordinate the closing. The actual closing will be with one specific notary for a specific buyer and seller. In my experience, there is a conflict of interest if either the buyer’s or the seller’s attorney acts as the transaction coordinator. I have found that one of the two principal parties could be at a disadvantage.

3. You should also know how expenses and funds are handled at closing. Buyers assume that all prorations of utilities and expenses of the property will be paid at closing. This may not be the case. In Mexico, the escrow company only holds the purchase funds so they are not in the possession of either the seller or buyer.

The notary is not required to make sure any bills are paid except the property tax, water and the condo fee. The bank trustee will not approve the transfer of the property until the bank trust fees are current.

Real estate agents need to make sure utility bills and services are paid. They (or the client’s attorney) write the escrow instructions to wire funds to the different parties receiving payments. Net proceeds go to the seller.

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.