After having closed hundreds of real estate transactions in Mexico where U.S. clients have acted as Sellers or Buyers or Lenders, I have realized that there are important differences between the U.S. closing process and the Mexican closing process, as well as the actors in each process. Here is a summary of my findings:
In the U.S., the closing process is handled and administered by an Escrow Company with their own closing attorney. The Escrow Company verifies that the owner is properly recorded as such in the County Records, verifies the tax ID number of the property, orders title search, gets title insurance commitment, handles all telephone calls and emails from parties involved, coordinates closing process and date with realtors, buyer, seller and lender (if applicable), if there is an existing mortgage coordinates its payoff, obtains any information with regard to county property taxes, water and homeowner’s dues. At the end of the process, the Escrow Company prepares the HUD-1 and advises Buyer of amount of money needed to be wired to the Escrow Company’s trust account for the closing, and prepares disbursement instructions. If there is a lender involved, the Escrow Agent obtains lender’s closing package. At closing, all the parties sign the settlement statement, deed and other closing documents and tax forms.
In Mexico, the closing process is typically handled and formalized by a Notary Public when the parties involved in the transaction are Mexican. A Notary Public in Mexico has a completely different role than a Notary Public in the U.S. In the U.S., a Notary Public’s role is to certify a signer’s identity or that a document’s copy has been obtained from its original. In Mexico, a Notary Public attests not only identities and original documents, he/she attests all real estate transactions, verifies the owner’s title at the Public Registry, verifies tax ID and property taxes at the County office, issues the closing deed, pays capital gains taxes on the parties’ behalf, pays buyer acquisition taxes, and usually also takes care of recording the closing deed at the County land title office and Public Registry.
However, when a foreigner is involved as a seller, buyer or lender in a Mexican real estate transaction, or when a Mexican transaction is complicated or involves lending, there is usually a closing attorney or closing agent involved to support and complement the Notary’s work, and also to go beyond the Notary’s duties. Here are some examples:
The Notary will not perform or coordinate a title search, he/she will only request a certificate from the Public Registry showing if the property currently has a lien or other encumbrance, or if it is free & clear, but will not review the chain of title, nor will verify the correct cancellation of previous liens or encumbrances. An extensive title search can be performed by the closing attorney at the buyer’s request.
The Notary will not get involved in the title insurance process, simply because in Mexico title insurance is not part of a real estate transaction. Therefore, the closing attorney can coordinate title insurance with a U.S. based title insurance company such as Armour Secure (formerly Fidelity) or Stewart Title, among others, simultaneously with the closing process.
The Notary will not (and should not) act as “escrow” for the earnest money, interim deposits and balance of the purchase price. Not even the closing attorney/agent should be receiving purchase price deposits. You should always ask the closing attorney/agent to open a third party neutral escrow account with a well-reputed escrow company such as Armour Secure (formerly Fidelity) or Stewart Title, among others.
The Notary might not be as responsive as you wish. The Notary is not “your attorney” so don’t expect to receive immediate attention to your e-mails, phone calls and questions. Also, the English spoken by the personnel at a Notary’s office is limited, and usually overloaded.
The Notary will not act as your closing attorney, as it is understood in the U.S. Therefore, it is always recommendable to choose a closing attorney/agent when you enter into a real estate transaction in Mexico. This person will complement and review the Notary’s work, answer to all of your questions, e-mails, phone calls (in English!), will open a proper escrow account for you, and if needed, will perform an extensive title search and obtain a title insurance policy for you.
In addition to the above considerations, remember that BCS is a “restricted zone” (50 km from oceanfront) so foreigners acquiring a real estate property within the “restricted zone” must do so through a trust (fideicomiso). The closing attorney will prepare the necessary paperwork, trust forms, trust permit and work with the trustee bank to set up your trust (fideicomiso) and have it ready by closing. Local closing attorneys/agents understand the bank’s policies, rules and will make sure that everything is correct and in good order. Tip: do not use a closing attorney/agent from Mexico City or another mainland place because usually they are not familiar with the restricted zone rules, requirements and players. As a closing attorney myself, educated in Mexico and the U.S., I can tell you that dealing with the trustee banks is not an easy task… Not easy for you or your realtors, and
certainly not easy for a Notary Public’s staff. So the closing attorney is the right person to deal with the trustee banks and to set up your trust (fideicomiso).
Now that you understand the differences between a U.S. and Mexican real estate closings, you may go ahead and start submitting your offers to purchase!!
By Pedro Perichart, Managing Partner, P&H Closing Services, www.phcs.com.mx