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Understand the Contrato de Compraventa in Mexico

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When it comes to buying real estate in Mexico, making sure you fully grasp the property sales contract is essential.

Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.

We've heard countless stories of people making costly mistakes when signing their property agreement in Mexico. We want to help you avoid the same experience.

We'll give here a very brief overview regarding the property sales contract in Mexico ; if you want a full checklist, please check our property pack for Mexico.

What is the Contrato de Compraventa in Mexico?

In Mexico, a property purchase agreement is known as a "Contrato de Compraventa".

It's a formal contract outlining the terms and conditions agreed upon by both the buyer and seller for the sale of real estate. This agreement is legally binding and serves as a crucial step in the property buying process.

The Contrato de Compraventa specifies details like the property description, sale price, payment terms, and any other conditions both parties agree upon.

It's essential for protecting the interests of both the buyer and the seller. For the buyer, it confirms the seller's commitment to sell the property at the agreed terms, and for the seller, it ensures that the buyer is serious about the purchase.

For international buyers or non-residents, there are specific regulations to consider. Mexico has a Restricted Zone, which is within 100 kilometers of the border or 50 kilometers of the coastline, where direct property ownership by foreigners is restricted.

In these areas, foreigners usually purchase property through a 'fideicomiso', a type of bank trust, or by establishing a Mexican corporation, depending on the property's intended use.

The purchase agreement is typically signed after both parties agree on the terms and before the final deed (Escritura) is prepared and signed.

At this stage, a deposit is usually required. The deposit amount can vary, but it's commonly around 5% to 10% of the purchase price. This deposit shows the buyer's commitment and is usually held in an escrow account until the transaction is completed.

In comparison to other countries, the process in Mexico places significant emphasis on the use of a Notario Publico (a type of specialized lawyer) for the final transaction.

The Notario Publico plays a crucial role in ensuring the legality of the transaction, verifying the property's legal status, and registering the property transfer.

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What should be included in the property purchase agreement in Mexico?

In Mexico, the property purchase agreement, known as "Contrato de Compraventa", must comply with specific requirements set out in Mexican law.

The main law governing real estate transactions is the Mexican Civil Code (Código Civil), which outlines the essential elements and clauses for a valid property purchase agreement.

The mandatory clauses in a Contrato de Compraventa typically include:

Mandatory Clause Description

Identification of the parties

Full names and details of the buyer and seller.

Description of the property

A detailed description, including location, size, boundaries, and registry information.

Purchase price and payment terms

Clearly stated total price and the terms of payment, including any deposit made and the schedule for future payments.

Declarations by the seller

Confirming the legal status of the property, such as no liens or encumbrances, and that the seller has the legal right to sell.

Delivery terms

When and how the property will be handed over to the buyer.

Additional clauses can cover various aspects such as penalties for late payments, terms of property inspection, and responsibilities for taxes and fees.

Conditions or contingencies are common in these agreements. They might include the buyer securing financing, the property passing a structural inspection, or the sale being subject to the buyer selling another property. These contingencies protect both parties if certain conditions aren’t met.

Authentication of the agreement by a Notario Publico is a crucial step in Mexico.

The Notario Publico is a licensed attorney and a public official who ensures the legality of the document, the capacity of the parties to enter into the transaction, and the proper registration of the property transfer. This step is mandatory for the transaction to be legally binding and recognized.

Regarding the role of real estate agents, they often facilitate negotiations and help draft the initial agreement.

However, their involvement doesn't replace the legal requirement of having the agreement reviewed and authenticated by a Notario Publico.

While agents can be instrumental in bringing the buyer and seller together and negotiating terms, they do not have the legal authority to authenticate the agreement.

What's the signing process like?

In Mexico, the signing process of a property purchase agreement, known as "Contrato de Compraventa", involves specific steps and requirements.

The agreement is bilateral, meaning it must be signed by both the buyer and the seller.

Both "the buyer" and "the seller" can be multiple people. For instance, a married couple can be joint buyers or sellers.

The parties typically need to provide identification (like passports or resident IDs), proof of their legal capacity to buy or sell the property, and the property's legal documents (like title deeds and proof of no liens).

The process begins with the drafting of the agreement, which outlines the terms of the sale, payment details, and any contingencies.

Once the draft is ready and reviewed by both parties, they arrange a meeting to sign the document.

This meeting usually happens within a few weeks after the agreement on terms, depending on how quickly the parties move and how complex the transaction is.

Traditionally, signing requires both parties to be physically present. However, with advancements in technology and legal adaptations, remote signing has become more common, especially for international buyers.

Remote signing would involve a power of attorney or use of digital signatures, as permitted under Mexican law.

There's no fixed deadline for signing; it's subject to negotiation between the buyer and seller.

The duration of the contract validity is also negotiable and should be specified in the agreement. It usually aligns with the payment schedule or completion of contingencies.

After signing, the contract must be formalized in a public deed ("escritura pública") by a Notario Publico.

The Notario Publico then registers the transaction with the Public Registry of Property. This step is crucial for the legal transfer of the property.

Once signed, any amendments to the contract require consent from both parties. These amendments also need to be documented and possibly notarized, depending on their nature.

The timeframe for completing all necessary paperwork and approvals can vary. It generally takes a few weeks to a few months, depending on the complexity of the transaction, the speed of the parties in providing necessary documents, and the efficiency of local authorities.

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How is the payment handled when signing a property purchase contract in Mexico?

Understanding the financial aspects of a property purchase agreement in Mexico is crucial to navigate the transaction smoothly.

When you sign the sales agreement, you typically need to pay a deposit or down payment. This amount varies but is often around 5% to 10% of the purchase price.

The typical down payment for a property sale in Mexico is about 30% of the total purchase price.

However, this can vary based on the seller's requirements and the negotiation between the buyer and seller.

In addition to the down payment, there may be upfront fees for legal services, notary fees, and possibly a brokerage fee if a real estate agent is involved. These costs vary and should be clarified at the beginning of the transaction.

Payments are commonly made to an escrow account rather than directly to the seller. This ensures security for both parties. The escrow service holds the funds until all conditions of the sale are met.

The down payment is usually due upon signing the agreement.

The remaining balance is typically paid at the closing of the sale, which occurs when all legal formalities are completed.

There are tax implications for both the buyer and seller.

The buyer is usually responsible for paying acquisition tax (Impuesto Sobre Adquisición de Inmuebles), which varies by state but is generally around 2-6% of the property value. The seller is responsible for capital gains tax if applicable.

The down payment amount can be negotiated with the seller. It's part of the overall negotiation of the sales terms. The down payment may be refundable under certain conditions, like a failed inspection or financing contingency. These conditions should be explicitly stated in the contract.

If the sale falls through due to the buyer backing out without a contractual contingency, the down payment may be forfeited.

Whether you can use a mortgage loan for the down payment depends on the terms of your mortgage.

Typically, the down payment comes from personal funds, but some loan arrangements may allow for this.

An attorney or real estate agent can guide you through the payment process, ensuring all legal and financial protocols are followed. They can also help negotiate the terms, including payment schedules.

You should always request a receipt or confirmation when making payments, especially for the down payment. This serves as proof of transaction and is important for your financial records.

The buyer must consider acquisition tax and ongoing property taxes. The seller must consider potential capital gains tax.

What are the potentials risks and pitfalls?

You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Mexico.

In real estate transactions in Mexico, understanding the risks and pitfalls associated with the property purchase agreement is essential to avoid potential problems.

Both the buyer and seller can theoretically withdraw from the agreement, but this is subject to the terms of the contract.

Typically, the ability to withdraw and the consequences thereof are outlined in the agreement itself.

Unlike some countries, Mexico doesn't generally have a statutory cooling-off period for real estate transactions. Once the contract is signed, it's legally binding. Any cooling-off period would be a negotiated term within the contract itself.

If a buyer or seller withdraws without a valid reason as defined in the contract, they may face penalties.

A valid reason could include contingencies specified in the agreement, like the buyer's ability to secure financing.

If a buyer is unable to secure financing and this was stipulated as a contingency in the contract, they can usually back out without penalty.

However, if there’s no such contingency, the buyer might lose their deposit or face other penalties.

If one party fails to fulfill their obligations, consequences depend on the contract terms. Penalties can range from financial compensation to the forfeiture of deposits.

In many countries, real estate transactions often have a statutory cooling-off period, allowing parties to back out without penalty.

In Mexico, transactions rely more heavily on the Notario Publico for legal verification, which isn't the case in all countries.

One risk is failing to conduct thorough due diligence on the property, which might reveal legal or financial encumbrances.

Another risk is misunderstanding the terms of the contract, especially for foreign buyers unfamiliar with Mexican law.

Disputes aren't uncommon, especially regarding property boundaries, legal status of the property, or fulfillment of contractual obligations. Resolutions often involve renegotiation, mediation, or, in some cases, legal action.

The process usually involves negotiation and mediation. If these fail, legal action may be necessary. If defects are discovered post-signing, recourse depends on the contract terms and Mexican law.

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.