The procedure for a real estate closing for foreigners in Mexico is different than the process north of the border. This checklist helps demystify the process of buying property and creating a bank trust in Mexico through a cash sale, still the most common type of transaction.
1. Buyer and Seller agree to a purchase price and purchase terms for a given property. This may be done informally as an “Offer to Purchase” or, optionally, as a formal purchase contract created by an attorney of the parties. The appropriateness and need for a formal purchase contract is a decision of the parties involved. Formal contracts in Mexico, just as in the United States and other countries, are enforceable only through court action. Neither a Buyer nor a Seller should take a contract as a guarantee of anything; it is simply a promise to fulfill obligations.
2. Buyer and Seller create and sign escrow instructions and send them to an escrow company for approval, along with a copy of the purchase agreement/contract. Once the escrow agreement is approved the escrow company notifies all the parties.
3. Buyer funds the escrow account with the initial deposit (agreed upon by the parties) plus an escrow fee. Once this deposit has been made the escrow company notifies the parties.
4. Buyer completes a bank trust application packet and pays up-front fees to start the bank trust process. These fees cover government permits and standard fiduciary bank fees.
5. (OPTIONAL BUT RECOMMENDED) Buyer applies for title insurance. This has its own forms and associated fees. The cost of the insurance policy is approximately 0.55% of the purchase price plus attorney research fees. This estimate includes “gap” insurance that covers the Buyer from the moment of signing before a Mexican Notary until the Notary registers the bank trust with the city – a gap of up to 90 days.
6. Buyer applies for an FM3 resident visa at the most convenient Mexico consulate office, or at a Mexico foreign affairs office in a Mexican state such as Baja California. The processing of a visa application usually takes a few days to ten days, after the Buyer has provided the Mexican government with the proper documentation. Some Notaries allow the use of tourist visas (FMT) to prove legal status in the country, but FM3 resident visas are recommended for tax purposes.
7. The parties select a Mexican Notary to draft their bank trust. All Mexican Notaries have equal authority to do this yet fees can vary slightly in a given area. The Notary will require upfront fees to cover their work, surveyor fees, appraisals, various certificates, etc. The parties may request a review of the bank trust document a few days before closing but such a review is not automatic to the process; it normally has to be explicitly requested by the parties.
8. A few days before closing, the Buyer will normally need to deposit the balance of the purchase funds into the escrow account.
9. On the closing day, the Buyer will pay final closings costs (transfer taxes, registration fees, etc.). The fiduciary bank will likely attend or will have already signed the documentation. Proof of Buyer title insurance will be there if the Buyer has ordered and paid for it.
10. At the closing, the parties sign escrow disbursement instructions that tell how the purchase funds will be distributed by the escrow company. Wire transfers are normally executed by the escrow company within one to two business days.
11. The Buyer can normally take physical possession of the property immediately after the closing. At this point anywhere from 30 to 90 days – or even more – has transpired since the original offer agreement depending on many factors. (Closing periods in Mexico are notoriously longer than in the US.)
12. The Buyer may request a copy of the bank trust from the Notary within a few weeks to three months, depending on the Notary and their workload.
13. Although the Notary takes care of registering the bank trust in the property registry, the Buyer should separately ensure that the property is also registered in the city’s urban department (Catastro) so that the Buyer gets proper credit for property tax bills, and so that the previous owner’s name is removed from allcity records relating to the property.
Bank or seller-backed financed closing procedures are very similar to a cash transaction, yet they add their own set of forms and fees that vary according to the lender.