Contents - Los Cabos Magazine

“You did WHAAATTT???” “Are you INSANE???” These are just a few of the comments well-meaning, but uninformed, friends and family may have when you go home and tell them you got yourself the ultimate souvenir: a vacation home in Los Cabos. You’ll need to explain what a safe and secure investment you’ve made. Here is what to tell them.

Safe … And Secure

Foreigners can own property in Mexico. That right is guaranteed by Article 27 of the Constitution of the United Mexican States. However, they must ask permission of the government and, if the property is within 50 km of an ocean or 100 km of the international border, they must hold the property in trust with a Mexican bank. That trust (in Spanish known as a Fideicomiso), will contain something known as the Calvo Clause. This clause states that the government grants you all the rights, privileges and benefits of a Mexican citizen as pertain to this property. In return, you promise to consider yourself Mexican as pertains to this property. Stated more clearly, this means they cannot do anything to you or your property that they wouldn’t do to a native born citizen. And, in return, you won’t do anything a Mexican wouldn’t, for example ask the U.S. or Canada to interfere in Mexico’s affairs. An illustration of this would be that if you have a complaint against the developer or your neighbor, you will resolve it through the Mexican judicial system. And no one can harass you, or treat you differently, just because you’re not a national. That is guaranteed to you in the Constitution and applies to all non-Mexicans, regardless of country of origin. In addition, Chapter 11 of NAFTA (the North American Free Trade Agreement) offers additional protection for U.S. citizens and Canadian citizens.

If you’re thinking that seems like a pretty safe bet, you’re right. But things get better from here. When you make your offer, you will be either offered title insurance, or your real estate agent will write in a clause referencing it. You also should have seen a Good Faith Estimate of your closing costs that included a title search and title insurance premium. Title insurance is available from several companies, and although not required by law, should never be skipped. It is your promise that you actually own the property you’re buying. “Our main purpose is to assure the buyer that their investment is safe,” explains Homero Castañeda, General Manager of Stewart Title Los Cabos. Castañeda adds that once the company has done their due diligence, they have confidence that the title is clean. If a claim arises at any time the policy holder owns the property, such as an unknown heir, or any other hidden risk, the company is liable for the full value of the policy. In addition, Castañeda states that if a claim is made, the company has the option to litigate on the owner’s behalf (at no expense to the policy holder), settle the claim, or buy the policy holder out for the full value of the policy. Always insure your property at the full value, and if the value of the property changes significantly, adjust the value of the insurance as well. The major U.S. carriers, including First American, Fidelity and Stewart Title, all offer title insurance in Mexico. Insurance companies are notoriously risk-averse. If there was any doubt about your right to this property, you can be sure that no such policy would be offered. They would not underwrite a policy if there was any question.

Your Other Partner

Bankers are probably the only professionals more risk-averse than insurance companies. And now they are actively participating in the Los Cabos real estate market. “When we issue a loan on a Cabo property, we’re basically becoming 70% partners with the buyer,” explains Michael Houston of MexHomeLoans, “We’re not going to invest that much unless we’re sure it’s a safe venture.” In fact, financing your purchase is one way to be sure that every single i is dotted and every t crossed in your paperwork. The mortgage lenders active here in Mexico are very meticulous about protecting their investment, and thus protecting the client as well. The loan products being offered now include fixed rate mortgages secured by the Mexican property at very competitive rates. At press time, most mortgage brokers are getting their funding through either GE Money or GMAC Financial. Since they cannot compete on rate, they are very competitive on service. Your real estate agent can recommend a few who have given good service to clients in the past. In fact, it is wise to select your mortgage broker before you shop for property. By getting a pre-qualification you’ll know just how much home you can afford and take one possible contingency out of your offer. There is nothing as nerve-wracking as falling in love with a vacation home, then sweating out the loan company’s decision about whether or not you can have it.

Your last layer of protection is the Notario Publico. Although the words sound familiar, it would be misleading to refer to this person as a Notary Public. In Mexico, the Notario is a government-appointed attorney who has gone through intensive additional training, testing and apprenticeship and is charged with presiding over a number of legal transactions, including real estate sales. Your agent may have explained that your transaction will be formalized before the Notario, but it’s not as simple as that. The Notario is charged with tracing the history of ownership of the property, its physical properties, confirming that it’s registered properly with the civil authorities, certifying that there are no liens or legal encumbrances on it, identifying all parties of the transaction, collecting taxes due, and ensuring that all paperwork, including the trust is being done properly and in accordance to law. No small task! And no wonder that signing before the Notario is considered a big event. The last two words of most trusts sum it up: Doy Fe, or I Give Faith. The Notario’s blessing is your further assurance that this transaction is safe, secure and your rights are being protected according to law.

Your friends and relatives who question your investment are only looking out for your best interests. But they’re missing the point: most Cabo properties are appreciating rapidly. Not only will you and your family have years of enjoyment of your vacation home, you will find it is a solid, well-performing part of your investment portfolio. And after all, isn’t the best investment the one you make in yourself? But, do it the right way: use a reputable and experienced real estate agent, third-party escrow when possible, get title insurance and don’t skip the Notario. These parties are your team and here to protect you. So your friends don’t have to worry about anything, other than when you’re going to invite them down to visit.