Mexican Beach Developers

John Fleming 

The state of Sonora is attempting to accommodate foreign investors in the real estate industry. In concert with U.S. title companies, banks, and appraisers, it is simplifying the process of determining property values, which will make it easier for buyers to purchase property and for lenders to make loans.  

Regularization
In 1990 the Sonoran state government decided to regularize the situation in Cholla Bay, and since the bank trust was now available, Sonora started working with the original Mexican landowners and with the Cholla Bay residents to have them all become legal owners. By 1997 this was almost accomplished. About 90% of the residential units had bank trusts issued, and another 5% allowed themselves to be bought out. Apparently the great majority were satisfied with the regularization of their ownership. 

Financing
Real estate loans have not been widely available in Mexico, although some large developments have provided their own financing. There are two main reasons for this. One is that lenders have had no feasible way of protecting their interest in the event of default. Judicial foreclosures have been available but because the courts were involved in the process, they could take years. But now an instrument called a title guaranty trust is becoming more widely used. The other is that title insurance has not been available, and banks have been unwilling to take the risk of lending without it. But now several U.S. companies are making loans in Mexico, using the guaranty trust described below. 

Guaranty Trust
In the U.S., judicial foreclosure on a mortgage used to take up to two years. To remedy the problem, Arizona and California legislators designed the deed of trust, which speeded up the process and is now widely used. With a deed of trust, in case of default lenders can take back a property in 90 days. Now Mexico has a similar instrument called the title guaranty trust, which can be used both by Mexican banks and U.S. lenders for loans to U.S. citizens on Mexican properties. This will make real estate financing more available to citizens of both countries. The buyer and seller must designate a Mexican bank to act as trustee. If the buyer defaults on loan payments, the seller notifies the trustee, who has the authority to sell the property without resorting to a judicial sale. The process takes about 6 months. If buyers are obtaining financing from outside Mexico they are required to have title insurance in order to obtain a guaranty trust. Because of the greater ease of enforcement, guaranty trusts are expected to be more widely used in the future.

Title Insurance
It is now possible to get U.S. title insurance on some Mexican properties. While this costs more and takes longer, it may be worth it to American buyers to ensure peace of mind.  Title searches in Mexico are usually done through a Mexican law firm. The attorneys verify the owner and search for liens, encumbrances, and anything else that could affect the title. Since Mexico's registries are not automated, this can be a lengthy process, taking approximately eight to ten weeks, as opposed to one to five days in the United States. After the search is completed, the Mexican law firm prepares its legal opinion of status of title, which will include owner of record, easements, liens, restrictions, and anything else pertinent to the property ownership. The closing of the transaction is done in the office of the notario.

Computerized Property Valuation
Access to public records is taken for granted in the U.S., but comparable sales are not readily available to the public in Mexico. The state of Sonora and the city of Puerto Peñasco are holding discussions with some American title companies to develop a public registry and a computerized system for recording data on property sales. This should make it possible in the future for real estate agents to do comparative market analyses and determine fairer and more consistent pricing. The PPAREA MLS is building up a database of SOLD properties, so it will become easier to do market analyses in the future.

Buyer's Brokerage
The concept of buyer's brokerage is becoming increasingly familiar in the United States. To understand it fully, we need to go back and look at some history in the real estate industry there.  Most cities in the U.S. have what's called a Multiple Listing Service (MLS). This is a group of real estate offices who contract to share listings and commissions. When sellers list a property for sale with any one of the members of MLS, they are agreeing that any of the other member agents can also sell it and receive a commission. The contractual agreement is between seller and real estate broker, and between broker and other brokers. It has been a typical arrangement until fairly recently. What many buyers never realized was that under this system, the real estate agents who helped them buy property were actually sub-agents of the sellers' agent. Thus their primary loyalty was to the seller, not the buyer, no matter how helpful they were or how involved they became with the buyer. So sellers had one primary agent and a host of sub-agents representing their interests, but no one was officially representing the interests of the buyer, even though agents are ethically obligated to treat all parties fairly in a transaction.  The real estate community in the U.S. has become increasingly aware of the problem of lack of representation for the buyer and so in many places has instituted the practice of buyer's brokerage. Under this arrangement, buyers contract with an agent who agrees to represent their interests exclusively.  In Mexico buyer's brokerage is even more important than in the U.S. since purchasers are dealing with a different culture, a different language, a different legal system, and different expectations. I usually charge buyers 10% of the purchase price to represent them. This is not too much to pay, since representation educates them, protects them, and ensures a high level of service.