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twelveoaks

Aug 19, 2011, 7:00 AM

Post #1 of 8 (2281 views)

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Advice on Buying a house in Cuernavaca or Mexico in general

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We are planning to purchase a house in Cuernavaca and have been given mixed advice regarding the process. I know that a Notario does all of the paper work and the general transaction. Where the confusion comes in is regarding the need for an attorney. I was told that the notario does the title search on only the existing owner and to make sure the title is completely clear and to get a deed of trust we need an attorney . The cost of buying a house in Mexico is already high enough with out adding additional cost but I don't want to cut corners any where. So, from those who have purchased a house in Mexico what would be your advice ?

YucaLandia

Aug 19, 2011, 11:00 AM

Post #2 of 8 (2242 views)

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Re: [twelveoaks] Advice on Buying a house in Cuernavaca or Mexico in general

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I do not think there is a universal policy across Mexico as to the things that Notarios are expected to do in a home sale.

In our area, a good Notario's duties include: searching the title, identifying and clearing any prior liens or formal complaints against the property, checking for outstanding CFE bills, checking for outstanding JAPAY (water company) bills, checking for outstanding Texmex bills, etc. etc. They may even hold the escrow/earnest money deposits. Using that criteria: Here in Yucatan, a good Notario makes sure that the new owner is buying a property free of encumbrances, and that the new owner will not be presented with bills or charges or liabilities of any kind that were incurred by former owners.

Why not ask your Notario for an exact written list of the things they check, the things they do, and the things that they are willing to certify, and then choose a reliable Notario who does what you want, in ways that protect you?
steve
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Read-on MacDuff
E-visit at http://yucalandia.com

salto_jorge

Aug 19, 2011, 4:12 PM

Post #3 of 8 (2196 views)

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Re: [twelveoaks] Advice on Buying a house in Cuernavaca or Mexico in general

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I Guadalajara I selected a Notario that also acted as my attorney. It is a family business with 4 lawyers including the father and one law student (son).
I do not know if all notarios are lawyers but many are.

Do not use a notario selected by the seller, they will be getting paid by both seller and purchaser and will not have your best interest in mind.

The notario fees are high to some (2% of the value) on top of the taxes and paperwork that you have to pay for.
Seems like the purchaser has to pay closing costs.

(This post was edited by salto_jorge on Aug 19, 2011, 4:26 PM)

mazbook1

Aug 19, 2011, 4:46 PM

Post #4 of 8 (2184 views)

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Re: [salto_jorge] Advice on Buying a house in Cuernavaca or Mexico in general

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ALL Notarios in México are attorneys first, then they take 3 or more years of extra training (internship with a registered Notario) then, if they are lucky or well connected or some registered Notario dies/retires, they can get the necessary license from the State to open their Notaría - a notario's office. Notarios in México, besides being attorneys, are registered agents of the State in which they are licensed.

Since I'm in business, I go to my Notario FIRST when I need the advice of an attorney. If it is something that needs to go further into the legal system, he will advise me as to whom I should go for further legal work, IF it is something out of the purview of a Notario.

Need to buy land or any real property, go to a Notario.
Need to sell land or real property (particularly if you are taking back a mortgage), go to a Notario.
Need to do a business contract, go to a Notario.
Need to form a corporation, go to a Notario.
Need to make a legal will, go to a Notario.
Need to have a copy of an original document certified as a true copy, go to a Notario.
Need to have your signature on something notarized, go to a Notario. Note: Foreign documents needing to be notarized should be notarized by the consul or consular agent of the country where they originated. Not all countries or even political subdivisions will recognize a Mexican notarization, although many do. If in doubt, check first.

And always, always go to the Notario YOU chose, not one chosen by the other party. He is the only one who will protect YOUR interests, just as salto jorge says. If you are in México for the long term, it is always good to build a relationship with YOUR Notario.

I'm certain that the list of Notario services I have made is incomplete, but it does cover the majority of the things handled by a Notario. All of the things I have listed can ONLY be legally handled by a Notario. Abogados - attorneys - basically just represent you in the court system. They are the ones you go to when you are already in trouble, Notarios try to keep you out of trouble.

(This post was edited by mazbook1 on Aug 19, 2011, 4:58 PM)

robt65

Aug 19, 2011, 5:25 PM

Post #5 of 8 (2168 views)

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Re: [salto_jorge] Advice on Buying a house in Cuernavaca or Mexico in general

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Hello salto_jorge,

Good Afternoon. your said: "The notario fees are high to some (2% of the value) on top of the taxes and paperwork that you have to pay for. Seems like the purchaser has to pay closing costs."

I have found from personal experience that buying property or house and property can be done similarly to most of the USA. That is to say that it is up to the buyer to state verbally notario proceedings in the beginning what constitutes what the total buying price and what it will or will not include. When my wife and I bought our home and two additional adjoining lots (all from separate buyers), we drew up a separate contract stating the seller was to pay ALL the current years taxes, provide current receipts from both CFE and JAPAM that no monies was owed on any of the properties (all three were different owners) and the seller was also to pay 50% of OUR Notario fees. We chose our own land surveyor and that was also part of the deal that the sellers) were required to pay. As you can probably tell, this not only reduced our buying price, but also gave us peace of mind regarding any possible leins from the utility companies. Then we had the notario (ours was also a lawyer) make sure of there were no other liens against any of the properties. We also included a number of other issues as a prerequisite to a sale such as having drawings of the original construction of the house, plus some other building materials that were lying around as well as a few pieces of furniture. In our area this was and still is still is a buyer’s market. As far as I am concerned one can make any deal when buying that he / she wishes. Anything and everything is negotiable when buying or selling anything including real property. Just put it in writing and get it also thrown into the work the notario does and registered as part of the deal. Any and all of these items are nothing but simple bargaining issues.

robt65

YucaLandia

Aug 19, 2011, 7:46 PM

Post #6 of 8 (2142 views)

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Re: [mazbook1] Advice on Buying a house in Cuernavaca or Mexico in general

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In addition to all the good qualities that mazbook lists, Notarios are also financially liable for mistakes or professional omissions in executing their duties, which may explain the 2% fee mentioned above. These liabilities would be similar to hiring a tax attorney in the US for tax advice, and the attorney then being on the hook for any and all future penalties, interest, and other other payments owed if they are found to be wrong.

e.g. Notarios are often hesitant to approve the home-owners exemption for capital gains taxes on the sale of an expat home, unless the expat is a naturalized citizen or has a naturalization application pending, because the Notary is liable for paying the tax if the government later disallows the exemption.
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E-visit at http://yucalandia.com

YucaLandia

Aug 19, 2011, 8:18 PM

Post #7 of 8 (2134 views)

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Re: [twelveoaks] Advice on Buying a house in Cuernavaca or Mexico in general

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twelveoaks,
Are you sure that all taxes are being paid on the sale? (e.g. including the optional 2% Acquisition Tax?)

Unless you handle the taxes right, you will likely find yourself liable for 25% (or so) taxes on the sale price of a subsequent sale, or your notary handled it properly, you can qualify to pay 28% capital gains taxes, only on the net gain - where the net gain may be reduced by various deductions and expenses.

From Yucalandia's article on Capital Gains Taxes: http://yucalandia.wordpress.com/...-mexican-properties/
* There is a 3% per year inflation adjustment on the basis, but you only qualify if you paid the 2% Acquisition Tax at the time of sale (this can give a net 30% tax savings at the time of the sale);
* The 2% Acquisition Tax is an allowed deduction;
* The construction’s costs (building’s basis values) depreciate 3% a year and can not exceed 20% of the initial cost, while the resulting cost (basis) will also be adjusted up for inflation;
* The improvements that imply deductible investments will be subject to the same depreciation treatment, and must be count with its respective documental support (Facturas in seller’s name) – no wonder businesses give you the option for Facturas… (and sometimes raise the price of the job by 15% if they have to give you a Factura vs a Nota).
* Maintenance is not a deductible expense;
* If the expat has held an FM-2 for the past five years, they can apply for Mexican nationality, and then ask their bank to convert the FTD contract to an “escritura”, thus acquiring Real Rights on the property which will enable them to claim the Primary Residency's capital gain exemption at the time of the sale.

On a final note, it is tempting to allow the seller to follow a common practice here: listing a low price in the official sale documents, (with the difference being paid in cash), but reporting/recording an artificially low price when you buy the property, then later leaves you on the hook for bigger Capital Gains Taxes when you sell.

If your Notario is not discussing these items, like the consequences of paying or not paying the 2% Acquisition Tax, now when you buy the property, maybe it is time to find a different Notario?

Another perspective is that Mexican Tax Law is a special area that may require the advice of an attorney specializing in taxes, esp. Capital Gains Taxes on homes and property. In any case, it makes sense to me to pay the optional 2% Acquisition Tax, and to potentially get up to a 30% tax reduction if you sell after 10 years, especially since the Acquisition tax is also deductible.
steve
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Read-on MacDuff
E-visit at http://yucalandia.com

(This post was edited by YucaLandia on Aug 19, 2011, 9:29 PM)

jrpierce

Aug 21, 2011, 8:05 PM

Post #8 of 8 (2034 views)

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Re: [twelveoaks] Advice on Buying a house in Cuernavaca or Mexico in general

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My wife and I purchased a home in Morelia more than 3 years ago. Probably because I was a real estate agent for awhile in the US, and because my wife was a real estate attorney in the US, we wanted title insurance just as everyone gets in the US. The person representing us in the sale here was a Mexican attorney who wasn't sure we needed the coverage but was happy to help us set it up.

The title company found a defect in title that had been missed by notarios in the two prior sales of the property! It took six months to clear up the title defect, however we did so and are confident we will have no problems when selling the property down the road. Moreover, after the sale, the title company provided an attorney to look out for our interests when it appeared the property lines on the deeds might have been wrong (they were not). No one would purchase property in the US without title insurance, yet many do so in Mexico, even though the same issues apply here, and are exacerbated by the amount of records in Mexico that must be manually searched.

We used Stewart Title Company, I believe the oldest US Title Company in Mexico. We were very pleased with their service.

Many may tell you this is not necessary, and of course you should decide for yourself, however we've heard about some bad experiences from folks where title defects show up after purchase.

Jim