MONEY IN A REAL ESTATE PURCHASE
From Harriet’s VIEWPOINT® in REAL ESTATE series in the PV Mirror
Previously we have talked about the use of US Dollars in our market for the purchase price of real estate. A buyer and seller still become involved with Mexican pesos as part of the transaction. The purchase price can be in pesos, as this is the legal tender of the country.
Below is the process of how and when currency is used to complete the sale and future money requirements.
1. Purchase funds are typically divided into the earnest money deposit after contingencies are removed: 10%. (Canadian buyers will be buying US dollars, and it makes a difference to them what the exchange rates are between currencies.)
2. The remainder of the purchase price, normally 90%, is deposited into the third party escrow several days before closing.
3. Closing costs for the buyer and seller in Mexico will be in Mexican pesos. The buyer can wire US funds, which can be converted into pesos, or he can buy pesos and wire them to the notary.
4. Closing costs of the seller can be deducted from the gross purchase price and the remainder paid to him by check or wire transfer. In order for there to be a disbursement, the buyer and seller must agree by signing a form required by the escrow company. This form is handled by an attorney for one of the parties, or the real estate agents in the transaction.
After sale use of monies:
1. The buyer will need to pay for condo fees, if applicable, and internal maintenance and operation of the property. Here is when some owners can unwittingly take on too much risk. 2. National and international banking laws determine how, when and what method money can be sent between countries. Money laundering and not declaring income or paying taxes are two huge problems for countries throughout the world. Realizing this will make it easier for you to understand and accept what may seem to be unnecessary or cumbersome rules.
3. Your money should stay under your name and not be in someone else’s account. Condo fees need to deposited into a bank account which is legally opened and under the ownership of the owners while abiding by proper accounting and legal procedures. Putting money into one owner’s account to pay bills or an administrator is not correct. None of the above can have a fiduciary or escrow account in Mexico. These are personal accounts and not accounts with fiduciary responsibility for you.
4. You need to open a bank account and wire money into it when you need it for expenses of your real estate. The account will most likely be in pesos. You can have your manager sign on the account, and pay the bills. You should receive regular reports and financials. Because of strict security procedures in the banks, only one person can have the security key to go online to check the balances and reconcile the account. As an owner, you can receive emailed statements and reports from your manager or accountant. This system is not easy sometimes for owners to accept, but right now we don’t know another way to handle it.
5. You can use an ATM to withdraw money from an account in the US or Canada for expenses. It is not a good idea to have a lot of cash around so only consider this when the money can be used immediately. (I don’t recommend this method.)
6. Remember there is a limit to how much cash can be deposited into the bank account in a month. Otherwise, there is a tax charged. The reason for this limit and cost is to deter those who have not declared income or paid taxes. If the money is laundered and not legal, the banks don’t want it either.
This article is based upon legal opinions, current practices and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.