By Harriet Murray ● Cochran Real Estate ● May 2012
Two of the more experienced mortgage brokers in our market, give a very realistic picture use of mortgages in this western section of Mexico.
- The difference in the time it takes to complete a South of the Border loan here is because of the complexity of the transaction and the need to hold the real estate in a trust within the restricted zone. Permission from the Mexican government must first be given in writing to foreign buyers. So from the beginning you have bureaucracy from big government down to the lending bank poring over the legal papers of the property. If the property is in a current trust, time is required to have the current trustee agree to extinguish the current trust at closing with the issuance of the new trust.
- Many mortgage brokers advertise that they can place loans on Mexican properties, but they have no actual experience in Mexico and know nothing of the law or the notary process. They do not understand the many documents needed to complete a transaction.
- The buyer will need to choose a mortgage broker carefully and be very sure that this person has closed a number of loans on Mexican property. An unethical or unprofessional broker can give the buyer unrealistically low interest rates, terms, or closing costs. There are variables which can change the costs, which can include the difference in currency rates. (Closing costs and taxes are charged in Mexican pesos). The buyer must be sure he has a realistic quote of required closing and loan costs.
- Personal recommendations from real estate brokers or friends, who have gotten a mortgage, are the most reliable ways to find a mortgage broker.
- As in the USA and Canada, the buyer should be pre-qualified for a loan before looking at property or singing any offers.
- The good mortgage broker should also give the buyer a list of all the documentation which will be needed for a loan in advance of a written offer. This list can be referenced in the sales offer as documents needed are part of the overall agreement to purchase.
- The seller must satisfy to the notary and lender that he is the legal seller and can act in a legal capacity to sell the property.
- The biggest problem causing delayed closings, is that they seller is not prepared, and does not have the required documents essential for the mortgage to be funded. Receiving seller documents are essential in order to go any further than negotiating a sale contract.
- An interesting difference in cash buyers and buyers with lenders: Cash buyers don’t often have restrictions or procedures to evaluate risks when buying in a foreign country. They can take too many risks, listen to the wrong people, assume too much.
- Lenders, on the other hand, have procedures, standards for due diligence, and must be conservative to avoid setting up a bad risk loan which can default.
- The last thing a lender wants to do is inherit a previous owner’s problems. It always takes longer to follow a conservative procedure to reduce risk.
- With proper preparation and documentation in the beginning, a normal closing time should be 30-60 days longer than a cash closing. When the paperwork is missing and principals to the transaction do not take a pro-active role, months can pass by before a loan closes and the seller receives his money, or the deal craters and never closes.
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.