| 000103 Visit since
Escrow
accounts in Mexico Registration of Property  To
hold purchase funds in an escrow account is more rare in Mexico than you would
think. In the past, the seller received a deposit and the balance of the funds
directly. It has been against the law for a third party to hold funds for another
(escrow) unless the party has a permit from the government to hold such funds.
Escrow account numbers are issued on an individual basis,
and take time to be set up. Certain Mexican banks and American title companies
are licensed to hold escrow funds for Mexican purchases. US dollars are held in
the United States or in Mexico, depending on whic company is handling the escrow.
There is a specific, detailed escrow contract, which must be signed before the
account can be opened. The seller is the beneficiary of the account.
It is wise to negotiate time-lines in an offer, which allow sufficient days to
open an escrow account. You need to be able to wire the funds within the deadline
agreed upon. Mitch Creekmore, Stewart Title Insurance,
on Mexican Escrow: "If a purchaser is willing to give money to the seller
or the agent in a real estate acquisition, be prepared not to get it back! There
can be no truer words to live by in Mexico. Unfortunately, it is a sad reality.
To the well-buying public, this truism and catastrophic consequence, the unthinkable
event, has reared its ugly head in Mexico in 2002. Purchasers in a particular
Mexico market - the particular market not being the issue - deposited funds in
good faith and entrusted these moneys to the agent's "broker trust account."
One would think that the term trust would imply some sort of confidence and security
in the deposit vehicle, yet in this case, it was an oxymoron. The stark reality
is that the money is gone, and it's a huge amount of money we're speaking of.
The agent is gone as well, having fled Mexico and leaving these unprotected "good
faith" buyers to ponder what now. Their sole remedy and recourse to date
has been to file complaints with Mexico's consumer protection agency, "PROFECO."
The likelihood that any of them will recover any of their money is slim and none,
and slim already left Mexico! The best and most favorable
manner to handle earnest money and escrow deposits involving Mexican real property
transactions is with a U.S. title insurance company who has a fiduciary obligation
and responsibility as the "escrow agent." Some agents and developers
in Mexico do not like to utilize escrow accounts in the United States for one
simple reason: they do not control the money! Understanding that there is a total
lack of construction financing in Mexico, an overall level of illiquidity in lending
of any type, and the subsequent upfront deposits required by many developers to
begin construction notwithstanding, there is still no reason why third party escrows
should not be used to protect the foreign buying public. Or for any buyer! The
prevailing concept of "passing the money" when the seller and buyer
enter into a promissory agreement is antiquated, self-serving, and at best a huge
risk for purchasers. As in the United States, consideration or the purchase price
due - less any earnest money deposit - should be paid when a buyer is able to
receive a protocolized deed by the notario publico and the transfer of the real
property interest. It should not be when the buyer can get the keys to the condo
or "possession" of it. The ultimate benefit
of third party escrow is the basic fact that an escrow agreement exists, fully
negotiated and mutually agreed upon between the seller and the buyer. It is a
"stand alone" document that instructs the escrow agent precisely in
the manner in which the escrowed funds are to be deposited, handled and ultimately
disbursed. The escrow agent is bound to the stated terms of the agreement and
has a fiduciary obligation to follow the letter of the agreement. It is not subject
to interpretation or conjecture, nor is the escrow required to interpret how money
will be handled per a purchase contract. Moreover, the
escrow deposit can be put in a federally insured depository with the establishment
of a money market interest bearing account. The subsequent accrued interest can
be designated for the benefit of the seller or the buyer. But at all times, the
parties know where the money is. It is verifiable once the account has been opened
and it is always referenced directly to a guaranty file as maintained by the escrow
agent with full disclosure of all salient facts and account numbers. If
a dispute arises between the parties concerning the disposition of the escrowed
funds, the escrow agent has the responsibility and obligation to "interplead"
the funds with a court of competent jurisdiction. But at no time will the money
be released to anyone without the written mutual consent of the parties.
The new buzzword floating around the market suggesting the concept of "bonded
escrow accounts" is just that: a buzzword that has no meaning or existence.
Title companies may bond an individual that works for the company as a title officer,
but they do not bond individual depositor accounts. At the end of the day, escrow
accounts tied to executed escrow agreements are the most secure, negotiable and
protective manner in which to insure the integrity of any purchaser's deposit.
" Note: Mexican bank trusts operate in the same general
way as described below. Linda Neil with the Settlement
Company on publicly registering a purchase of real estate in Mexico: Unwarranted
Assumptions "Mexico has a complex and complete
legal system and a court system based on models that go back for centuries. Many
U.S. and Canadian citizens, however, have a very poor understanding of how the
Mexican system works and make assumptions about the process of buying real estate
that can lead to costly and troublesome errors. Some of these are: ·
Giving money for the purchase of property to a complete stranger without an office
or established business
· Trying to buy property in a restricted area
without securing a fideicomiso (bank trust)
· Purchasing a property
not registered in the local public registry or land titles office.
Registration
The
purchase/sale document signed by buyer and seller is generally legally valid between
the parties to the transaction. It does not, however, provide valid notice to
third parties unless it is recorded in the Public Registry Office of the municipality
in which the property is located. Many foreign buyers, not realizing the importance
of registering their purchases, mistakenly leave their property in the name of
a developer, a Master Trust owned by a development company, or a seller. This
can happen because some Mexican banks believe that having the transfer of property
recorded by them is sufficient. Or sellers who sell with a down payment and the
balance to be paid over a term of years may prefer to keep the title in their
names and transfer it only when the entire price has been paid. But unless the
deed is recorded, purchasers may have no legal remedy if a company goes bankrupt
or a seller dies; their investment may be lost. Here is where an escrow company
could help by making sure recording takes place in all cases. According
to Linda, anyone buying with financing should insist upon a transfer of title
and registration of a mortgage or pledge, which gives rights in the property as
security for payment of the remaining purchase price. If the buyer defaults, the
seller conducts a proceeding similar to a judicial foreclosure in the U.S. or
Canada. It is troublesome, as is any foreclosure in any country in the world.
This procedure protects the buyer and seller, and also the lender, who will have
an established legal remedy in case of default." This
article is based upon legal opinions, current practices and my personal experiences
in the PuertoVallarta-Bahia de Banderas areas. I recommend that each potential
buyer conduct his own due diligence and review. Linda Neil, Mitch Creekmore and
John Fleming have supplied information in this article. Harriet
Murray, Broker
For additional information on properties for sale
or lease within the bay, please call or e-mail me at: harriet@pvmirror.com
Thanks and until next week. Archives
by date | 
Current
Weather Report
