ESCROW, TAXES, INSURANCE AND FINANCING
It is the Notario Publico who, in effect, acts as a “Holding agent” for the involved parties and for this reason there are few escrow companies in Mexico. At the present time, there is no general use of title insurance in Mexico, although some American companies are providing coverage in some resort areas of the country. On the other hand, insurance companies do provide full home coverage-throughout Mexico.
NOTARIO PUBLICO OR NOTARY PUBLIC
The Notario Publico is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer.
Furthermore, all powers of attorney, the information of corporations, wills official witnessing, etc. are handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all taxes involved. In connection to real estate transactions, the Notario Publico, upon request, receives the following official documents, which, by law, are required for any transfer:
- A certificate of no leans from the Public Property Registry based on a complete title search.
- A statement from the treasury or Municipality regarding property assessments, water bills, and other pertinent taxes that might be due.
- An appraisal of the property for tax purposes.
COST OF THE FIDEICOMISO
Based on a present tariff, the bank charges the person requesting a fideicomiso an initial fee (approx.$500.00US) for the drawing up of the agreement and establishment of the trust, plus a percentage according to the value of the property. In addition, the bank charges an annual fee (depending on the value of the property) to cover its services as a trustee.
It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the Notario fees and expenses, and the seller pays his capital gains tax and the broker’s commission.
Since January 1, 1996, the federal law regarding the real estate transfer tax, which was 2% for all the Republic of Mexico, was modified in order to allow each of the Mexican States to determine its own tax. The range may be from 1-4%, of the tax appraisal value, generally less than the sales value.
The rest of closing costs, which excludes the transfer cost mentioned above, may vary from 3-5% of the appraised tax value or more, depending on each particular State. These percentages are applied to the highest value of the following:
- The amount for which the property is sold.
- The value of the official tax appraisal.
- The value designated by the property assessment authorities.
A policy of title insurance is a contract with an insurance company in which it agrees to indemnify (compensate or reimburse) the insured against a loss sustained as a result of defects in the title, other than those outlined as exceptions. The title policy may insure the owner, a lender, a mortgage holder, a holder of any interest, as indicated by the buyer of the policy. The title insurance company agrees to defend, at its expense, any lawsuit affecting the title which is based upon defects insured in the title policy.
Property taxes are very low in Baja Sur. Known as ‘Predial’ — the mil rate is .08% of the assessed value, paid every bimester. Values are determined at the time of every sale as one of the requisite documents needed for a legal closing is the assessment tax appraisal which is completed by a competent and licensed appraiser specializing in these valuations. Property taxes have historically been low in Mexico because they have never been considered to be a significant source of governmental income.
Various types of insurance — including vehicle or property, liability, damage, and earthquake — are all readily available in Mexico, at reasonable rates.
Real estate purchases in Mexico are virtually all-cash transactions, with limited cases of owner financing available. Most individuals arrange financing in the country of origin based on their existing assets in that country. Banks in the US and Canada are restricted by law from lending on foreign property.