1. 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.
    

2. 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.
    

3. 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.
    

4. 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.
    

5. 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.
    

6. 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.

 
Harriet Cochran Murray
 
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.