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Personal Experience in Real Estate Sales -
Part 1.
By Harriet Murray
July, 2004 |
The opinions given below
are my personal ones based
on experiences with my clients.
- Use
of an attorney in a transaction:
There are those that think
having a attorney give legal
real estate advice to a client
is a "deal killer." I
disagree. The choice of the
attorney; however, is very
important. The firm and/or
specific attorney, whom I
prefer for a foreign buyer,
is one who is bilingual and
bi-cultural. The best communication
and results occur when there
is a clear understanding
between the attorney, client,
and agent of what the client
expects that he is getting
and what he can expect to
receive, within the context
of a different culture and
different legal system.
Also,
the correct attorney is
one who wants to protect
his client and help his client
achieve his goals. The right
attorney does not have the
kind of ego, which becomes
an obstacle to the transaction.
Give me an attorney who wants
to help rather than hurt;
one who believes in a "win
- win" situation
when possible, any day.
Many
of my transactions closed
because a good attorney solved
the legal problems of the
real estate sale. The proper
attorney is an important
part of the team. Cost? I
have seen charges for attorneys
that were outrageous and
were based on the ability
of the client to pay, rather
than the scope of work. There
is no need to pay exorbitant
fees to get the proper job
done. A good attorney charges
a fair fee for his/her expertise
and skill. He/she should
charge for his work. The
money spent is well worth
it.
- Understanding
the scope of work of the
notary: The concept of
the "notario
publico" really has to be
explained to the foreigner
buyer or seller. Even if
a foreigner has bought a
property previously, there
is no assurance that when
he is the seller that he
will understand what the
notary's function is in the
transfer of real estate.
Notaries
do more than transfer real
estate. They notarize wills,
minutes of condominium
meetings, and bills of sale
of personal property, etc.
Notaries are lawyers with
special training who have
been given a lifetime appointment
in the state in which they
are authorized to work. The "notario
publico" is
not the same as a public
notary in the US or Canada.
The
Mexican notario determines
if the seller has the authority
and ability to transfer
his property. The notario
obtains a no lien certificate
before closing. The notario
determines if a seller has
capital gains and calculates
the amount, if tax is owed.
The notario can also collect
the tax at closing.
The notario
does not have the responsibility
to take care of the purchase
price funds. The notary fees,
which are collected from
the buyer, include the cost
of the no lien certificate,
the bank trust (fidecomiso)
in the case of a foreigner,
the property transfer tax,
the permit from the office
of foreign affairs, the tax
appraisal, and fees for the
work by the notary and his
office.
The notary
is required to file the
fidecomiso or deed with the
public registry. The notary
is a neutral party to the
transaction. The notary;
however, should inform a
buyer or seller if there
are material issues he is
aware of, which may cause
harm to one of the principles
of the real estate transfer.
- Notary
liaison: An outside
attorney, authorized and
paid by the notary can
perform the tasks of searching
the title, preparing the
deed, ordering the required
reports/permits and being
the official translator at
the closing. This attorney-
facilitator may work for
several different notaries
instead of one. Each closing,
however, will be with one
specific notary for a specific
buyer and seller.
The attorney-facilitator
may collect the notary closing
fees and pay the appropriate
expenses of the transaction.
The signing of the deed
by the seller and the buyer
must be done in the specific
office of the notary who
has the responsibility for
the transfer. I have found
that the attorney-facilitator
is a valuable member of
our team.
- Capital
gains tax and tax planning
within the current law.
The beginning of 2004 brought
with it further emphasis
on the issue of capital gains
tax owed upon sale of real
estate. I think it would
be fair to say that the entire
community of nationals and
foreigners owning real estate
were concerned about how
the application of the law
was to be applied. The "notario
publico" community had the
responsibility to determine
how to proceed with the application
of the law. A number of real
estate sales were stuck in
the system until guidelines
could be applied.
After what
seemed to be an eternity,
but was actually a number
of weeks, procedures were
developed at the notary offices
and work continued.
There
were two important lessons
from this recent experience.
When purchasing a property,
the buyer should understand
enough of the law to realize
that he/she wants to declare
as high a value in the deed
as possible. The declared
value becomes the basis from
which the tax is computed.
The
second lesson is that the
buyer needs to become aware
of the important of tax planning
for the future possibility
of selling. If permanent
improvements are made to
the property, this record
should be properly registered
with the tax authority. Manifesting
improvements can raise the
basis of the property and
reduce the percentage of
capital gains due.
The buyer
will also want to receive
and keep the factura given
by the notary showing the
amount of closing costs paid.
This factura or formal receipt
can become a deductible expense
against capital gains when
the property is sold. The
sales commission with factura
is a deductible expense to
the seller, also.
- Use
of escrow accounts for
purchase funds. To be
legally able to hold money
in an escrow account for
purchase funds of a property
in Mexico, the escrow company
should have a proper permit.
The funds can be held in
US dollars in an escrow in
an approved Mexican bank
or approved escrow account.
In addition to certain Mexican
banks, there are title companies
with offices in Mexico or
the United States, who are
authorized to hold purchase
escrow funds.
Why use an escrow?
In my opinion, this is the
safest place to keep the
purchase funds until they
are transferred to the appropriate
parties upon signing of the
deed.
In my experience, I
have found that the most
efficient method of handling
the money is by bank wire
transfer. Escrow company
or bank checks can still
be problematic in one country
or the other. Signatures
on checks can be disputed
by the bank, and slow down
the payment of the proceeds.
- Hold
back for unpaid bills.
If the seller is not
current on expenses of
the property on the date
of closing, the problem
develops of how he will
be pay expenses. Outstanding
balances of utilities
such as electric and phone
are a common problem.
If the
seller has not pre-paid enough
on his account in advance
of final prorations, the
question becomes of how much
money should be left in a
reserve and who should hold
the funds for later payment.
Payment of seller expenses
is not the responsibility
of the notary. It is the
responsibility of the seller.
In
a recent experience, we had
a written and signed agreement,
which stated that the administrator
for the seller would take
care of any outstanding balances
of the seller after disbursement
of the purchase funds.
We did not check as to how
much money was in the account
of the seller before disbursement
of the purchase funds. We
learned later that there
was not enough money in the
account to cover all the
seller expenses that became
due after closing. The seller
did not send enough funds
to cover the outstanding
balance.
The buyer was then
stuck with bills he should
have not had to pay to keep
the utility accounts open.
The correct solution may
be to withhold from the final
sales proceeds, additional
money from the seller.
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
conduct his own due diligence
and review.
Harriet
Cochran Murray
For
additional information on
properties, for sale or lease
within the bay please visit Harriet
Murray website, call
or e-mail me at: harriet@casasandvillas.com
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