By Harriet Murray ● Cochran Real Estate ● August 2012
Seller take-back mortgages are structured with some of the same technical parts as traditional third party loans. Mortgage terms are agreed upon by seller and buyer and incorporated into the documents which become part of the fideicomiso trust (escritura-deed) for 50 years, renewable.
In third-party mortgages (companies and individuals), the lender is named the primary beneficiary in the escritura, and he is the owner of record until the mortgage is paid off. When the balance of the mortgage is paid off, the buyer presents documents to the bank trustee so that he may now become primary beneficiary of the trust with rights to sell, remodel, gift, etc.
Owner financing advantages for a buyer are typically fewer fees with fewer people required to approve the mortgage terms as part of the sale. There are pros and cons either way. More due diligence is typically done by a third party lender. Costs are higher also for mortgages from companies. Usually the time for loan funding is one to several months longer for approval by companies. Interest rates vary and are different for American lenders versus Mexican lenders, and individuals.
A seller providing financing, in case of default by the buyer, will have these choices if he wants to keep the property:
- Bid on the courthouse steps as a buyer at foreclosure.
- Consider the agreement a long -term lease and take possession without foreclosure. In this instance, the agreement now becomes a long term lease and not a sale. The judge can decide a fair rental amount for which the tenant (former buyer) has paid previously. The seller may have to give the tenant back some monies received prior in order to be sure this is legally a lease and not a sale.
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.