Foreclosure, by definition, is the legal procedure for satisfying claims against a mortgagor in default who has not redeemed the mortgage; satisfaction may be obtained from the proceeds of a forced sale of the property.

There are many reasons why mortgagors may fall into default but historically it happens when the mortgagor loses his job, loses his health, or for some other reason is unable to make his mortgage payments in a timely manner.

Today, the majority of reasons for default are totally different. Many recent mortgagors were able to obtain loans with little or no credit history and little or nothing as a down payment. They received adjustable rate mortgages and if they were ever able to afford their monthly payments, they were no longer able as soon as the interest rate increased and consequently the mortgagee was forced to foreclose on the buyer. As the foreclosure rate in a given region started to increase, so did the availability of distressed property sales. Of course, an increased volume of distressed properties in the neighborhood resulted in a rapid depreciation of the neighboring properties. With the value of a given property well below its mortgage payoff balance, many mortgagors merely elect to abandon their property and walk away from their mortgage; thus the mortgagee is forced to foreclose on these borrowers as well.

This vicious circle of foreclosure events is currently occurring at an unprecedented rate in the US. Headlines such as “US Foreclosures Up 24 Percent in 1st Quarter “,” US Banks Step Up Home Foreclosures “,” Las Vegas Tops Foreclosure List”, “Sun Belt States Lead Q1 U.S. Mortgage Foreclosures” and “Foreclosures May Hit 1.5 Million in U.S. Housing Bust” are seen in the news on a daily basis.

Okay, know that we fully understand the cause for and frequency of the recent foreclosures and knowing it’s a buyer’s market, perhaps, if you still have a little money left over after the recent stock market sell off, you might be considering shopping for a foreclosed property at a distressed sale price in a resort such as Puerto Vallarta, Mexico. If so, you might as well forget it; you’ll not see a foreclosure sign in Mexico!

The following is taken verbatim from Condo.com, one of the major websites dealing in worldwide condo sales:

Mexico Foreclosures – Condo.com is the best way to find free foreclosures listings in Mexico. Find foreclosed condos, foreclosed condos, foreclosure properties and other foreclosure investment opportunities in Mexico. Search bank foreclosures, REO properties, preforeclosures, HUD homes and more foreclosures in Mexico. Sorry! There are no search results found. No For-Sale listings available

Well, that pretty well sums up your opportunities to “steal” a nice condo in PV! There are numerous reasons why foreclosures are essentially nonexistent in Vallarta however the primary reason is that up until just recently, all purchases were done strictly on a cash basis. Mortgages are now available in Mexico but only with a substantial down payment. With a solid credit history and income stream, one might be able to purchase a property in Mexico with only 20% down, however most of the mortgages are with down payments approaching 50%. As you can imagine, it takes an awfully good reason to walk away from a property when you have that kind of investment in it! Consequently, with 98% of the properties owned outright and the remaining 2% with well funded mortgages, there are virtually no foreclosures in Paradise!

Because there are no foreclosures, there has been no significant depreciation of values in Puerto Vallarta. That’s not to say that there’s not been a leveling off in prices or that the developers are not more inclined to “negotiate” today than they were a year ago. To the contrary, prices on newly constructed condos have never been better than they are today and bargains can be found throughout the city. This is to some degree due to over building during the past ten year boom period and partly due to the reduction in prices of steel and other construction materials as well as the decrease in construction labor rates as the Peso recently devalued by 30% relative to the US Dollar.

For the reasons regarding foreclosures outlined above, you should never see your investment value plummet in Vallarta as it has in many desirable locations throughout the US. Because the North Americans have been recently hit so hard financially combined with the fact that the local developers have overbuilt, Puerto Vallarta is a true buyer’s market. There are 1,000´s of new condos currently on the market in PV and with interest rates at an all time low, the time to buy will never be better.

Any North Americans still holding cash will never find a better time or place to invest it; besides, where else can you live in a climate better than Hawaii, 2-4 hours from home, all the amenities of home, as many or more activities than at home, and at a fraction of the price? So, why wait; come on down and explore the possibilities; just don’t look for any foreclosure signs!

Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past twelve years. The mission of his series of more than 70 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico.

Foreigners can own property fee simple in the interior of Mexico, including valuable sites in such tourist micas as Guadalajara and Cuernavaca and the Capitol of Mexico City. The property referred to as the “Prohibited Zone” runs along Mexico’s coasts and borders is a restricted area, which was established under the Mexican Constitution and extends 100 kilometers (about 62 miles) inland along the coasts. This means that virtually all of Baja California is included in the “Prohibited Zone”. The Rosarito Beach / Ensenada / Cabo San Lucas type areas require a Mexican Bank Trust for a Foreigner to enjoy legal ownership of a home in “The Baja” or on the coasts of mainland Mexico such as Cancun, Acapulco, Puerto Vallarta, Mazatlan, etc.

Five Ways to Hold Property in Mexico

Mexican Bank Trust ~ Fideicomiso (Pronounced Fed-e- co-mi-so)

Mexican Land Lease

Federal Zone Concession

Commercial Property

Mexican Corporation

The Mexican Bank Trust Deed

The Mexican Bank Trust was created in the early 70’s to promote tourist and retirement investments along popular coastlines by Mexican President Echeverria, which authorized the 30-year Bank Trust program. This is the most secure method to hold real estate on Mexico’s coasts. Your Bank Trust must be established at an authorized Mexican Bank in their Trust Department. In 1989 President Salinas mandated the 30 year Trust be extended for
an additional 30 years. Then, December 27, 1993, President Salinas extended the Trusts from 30+30 year arrangement to the new 50+50 year time period. The property you hold in a Bank Trust is yours to improve, build, sell, leave to your estate, etc. You’ll enjoy all the same rights you have in your U.S. fee simple real estate
via the Bank Trust. Your Family Trust in the USA can also be the deeded owner of the Bank Trust if you so desire, however; that can be additional costs because your Family Trust must be officially translated to Spanish and many times those Family Trusts are quite lengthy at $20.00 a page for certified translation. There are several Subdivisions in the area that were set up as a Master Bank Trust by the developers 37 years ago. Two of those subdivisions were San Antonio Del Mar and Las Gaviotas. They both had the original 30-year Trusts, which expired March 2003. All the owners requested their new 50 + 50 Year Bank Trusts and those new Trusts have now been issued. When you decide to sell your home, often times another foreign person will be purchasing your Bank Trust Rights. You will sign a “Letter of Instruction” to the Bank holding your Trust that will advise the Bank of your new Buyer’s names and beneficiaries. The new Buyers can assume the remaining years of the Bank Trust or they can apply for a new 50 + 50 year Bank
Trust. It is the Buyer’s choice. If there is 40 years remaining on a 50 year Trust, most likely you would just make a name change on the existing Trust. If you sell your Trust Rights to a Mexican National, he has the option to take title with your existing Trust or remove the property from the Trust and take title in “Escrituras” (Mexican National form of Ownership). There will be a fee charged by the Bank to cancel the Trust. Sometimes the Mexican National will opt to pay the annual Trust fee and stay within the Trust, especially, if his most likely buyer would be another foreigner.

A Land Lease for More than 10 years is not Legal and never has been!

The Mexican Land Lease Nearly every day clients ask, “Can I get a 99 year land lease?” A land lease for more than 9 years and 11 months is not legal and never has been. Nor is the 10 + 10 + 10 year arrangement, either. If you enter into a 10 + 10 + 10 agreement with a Mexican landowner and at the end of the Lease term (allowable by law) the landowner decides he does not want to recognize that second ten-year lease you thought you had, he does not have to do so. You have no recourse, because you entered into that agreement which was designed to circumvent Mexican Law, thereby giving you no legal status to use the Mexican Court System. If you lease land, the lease should be 9 years and 11 months to stay with in the lease land laws. It is possible and perfectly legal for the Mexican land owner to give you a new 9 year 11 month lease at the end of your first 9 year 11 months and so on. I only suggest Lease Land arrangement if you are #1. Limiting your second home to a smaller total purchase amount rather than a Bank Trust purchase and #2. Only if you can obtain a 9 year 11 month lease. Just be sure the total investment you are willing to pay for the structure on lease land is an amount you can average over a 10-year period and be willing to “walk away” from at the end of your first lease period of 9 years 11 months. That may not be the case, but know it could be the case in the future. 3. DO NOT CONSIDER THIS TYPE ACQUISITION “AN INVESTMENT”. Lease Land Fees Land lease rents run about $250.00 to as much as $800.00 per month. Most leases have a “cost of living adjustment” at the end of your lease for the next lease term. Usually there’s 3 to 10 % fee when you sell your structure that goes to the landowner and your buyer will probably have a nominal increase in the rent as well. Usually a 10% increase.

COMMERCIAL PROPERTY IN MEXICO Commercial Property (Fee Simple Ownership)
Commercial property like the Ford, Sony, Zenith, Toyota and Sharp facilities are allowed to own their commercial piece of property as fee simple. This exemption was made to encourage the large investment for these type facilities that employ many Mexican Nationals. You, as a foreigner, can also own a piece of land/building and business such as a restaurant, hotel, store, etc., WITHOUT A BANK TRUST! You no longer need a Mexican National to own 51% of the Mexican corporation or your commercial property. You can obtain a Work Permit Visa, as a foreigner, to operate the business and provide jobs for the Mexican people. For a Mexican corporation you need 2 shareholders & they can be from any country. A 99% and 1% partner is allowed. This law changed n the early 1990’s.
Do you have a Mexican Parent?
Many of the Buyers these last few years are Mexican American persons that are residing in the USA. If they have one or both parents with their Mexican birth certificate, the children have a window of opportunity to obtain their Mexican Birth Certificate, which would allow them to OWN their property fee simple as a Mexican Citizen. This opportunity is only good for one generation. This is a real benefit that eliminates the Annual Bank Trust fees, which costs about $330
to $550.00 per year; depending upon the Bank you select and the permit from the Foreign Relations office in Mexico would not be required which is about $1400.00.
Property Taxes, Trust Fees and Homeowner’s Insurance Annually:
The annual property taxes are so low that when we tell buyers that a home or condo with a value of $450,000 is $400.00 a year, they think we’re nuts! It’s true. There is a one-time property tax that is paid at closing that is an acquisition tax that are part of your closing fees. Your annual fees on a $450,000 home would look something like this: Annual Bank Trust fee @ $550.00, Property Tax @ $400.00, Homeowners insurance @ $350.00, and HOA maintenance fees at an average $250.00 a month for an annual expense of $4,300 FOR THE YEAR! HOA fees are the variable in this calculation.
How does a Mexican Property Purchase Closing Work? The laws in Mexico provide very well for Foreign Buyers. The system is clear and there are a lot of checks and balances that are in place to protect your real estate investment. When an offer is made and accepted by all the parties, then we set about to obtain the survey, current appraisal, Letter of Instruction from the Seller to the Bank that holds the Trust to place in the new Buyer’s names, which includes naming their beneficiaries. We open the file with a Notary. A Certificate of no Liens is required at closing, a letter from the bank stating the Bank trust fees are current, the property tax receipt for the current year and a letter from the Home Owner’s Association that all those fees are current and there are no pending assessments with the Association or the Federal Zone, if the Federal Zone applies. The Notary verifies the “Chain of title” and will not sign the document until all the required documents are in order and are within the required dates of no longer than 6 months old for the appraisal and survey and Certificate of no Liens.
Who is a Notary in Mexico? A Notary in Mexico is NOT the same as a Notary in other countries. The Mexican Notaries are held in high esteem and are the only non-government official who has the right to use the Official Seal of Mexico. All Notaries must be an Attorney. Frequent Continuing Education courses are required for all Notaries by the Mexican Government to maintain their continuing educational requirements. There are only a few Notaries per capita and they must “sign off” on every marriage, will, real estate transaction, etc. When you close a transaction with a Notary, the fees are paid to his office and after Buyers and Sellers sign the Deed and the Seller is paid, then the recording of your documents are completed by the Notary both in the local municipality and in Mexico City. The Notary pays the acquisition tax on the Buyer’s behalf and when your Trust Deed is finished by the Notary, all the documentation that was required for your closing is bound in a legal size book for your safe keeping including the tax return showing your taxes were paid as required by law. THIS IMPRESSIVE DOCUMENT IS YOUR BANK TRUST DEED also known as your “Fideicomiso”. The same type document for Mexican Nationals applies, which is their Escritura.

What happens to my Bank Trust Property if I die? Your beneficiaries are named in the Bank Trust document when the Bank Trust is placed in your name. When you apply for your Bank Trust, you name each beneficiary and list the percentage of ownership of each heir within the document. Should something happen to you, your heirs will need to take an official copy of the Country of Origin death certificate and have it translated into Spanish. You will then send those two documents to the Secretary of State from your State and request an Apostle which is an Internationally recognized document that the attached death certificate is authentic and will be recognized by the bank to place the Bank Trust in your heir’s name(s). This Apostile fee is $26.00 in California & in Arizona it is $3.00. This can be accomplished via Internet and prepaid Fed-Ex returns. You can also have a Mexican Will for other assets such as the contents of your home, cars, etc.
Am I Going to Lose My Property in Mexico? If you’re considering making an investment in Mexico, use all the means available to assure your purchase is secure. As real estate professionals, we hear concerns raised by buyers because of the publicity of the 14-year battle in the Punta Banda situation. Those Buyers did not use the LEGAL SYSTEM available in Mexico to acquire their property the legal way. One Buyer at Punta Banda said, “I thought we had a Bank Trust”. My question is, when you buy a piece of property in your country, do you “Think you have a Deed OR do you KNOW you have a Deed”? Common sense should prevail in any real estate transaction in ANY country.
Should I Hold My Property in a Mexican Corporation to save Trust Fees? Not in my opinion. Certainly, I am not an attorney, but for personal residential investments, I recommend your title to be held in a Bank Trust. IT IS POSSIBLE for a foreigner to own a Mexican Corporation. With that, comes monthly and annual filings with the Mexican I.R.S. and you lose your “capital gains exemption benefit” that you receive with the Bank Trust for residential property, when you meet the Capital Gains Requirements. These requirements are that you have the Deed in your name, proper ID and the electric bill in your name with normal usage. Depending upon the price point of your property, you can receive a zero capital gains exemption when you sell. It is imperative that your make your “Capital Gains Clock” start ticking as soon as possible to receive these allowed benefits. The fees for a Bank Trust and the benefits thereof, far outweigh the ownership in a Mexican Corporation, EXCEPT in instances where you may be opening a Bed and Breakfast or other ongoing business ventures within that corporation. Corporations are expensive to create in Mexico and so you must seek professional legal advise to really understand your individual goals for making a choice of “Mexican Corporation Ownership” verses “Bank Trust Ownership”. If you are planning to use a Mexican Corporation to own ONE HOME with the goal of not paying Bank Trust fees, then I see “negative benefits”. You must calculate your cost of Mexican corporation verses Bank Trust fees and decide if giving up your “Mexican Capital Gains Tax Exemption” is really worth it. SEEK LEGAL COUNCIL WITH A MEXICAN REAL ESTATE ATTORNEY! As they say, pay now or pay later in ANY COUNTRY! SEEK LEGAL ADVISE ON YOUR CAPITAL GAINS TAXES BEFORE YOU TAKE TITLE TO YOUR PROPERTY WITH YOUR MEXICAN LAWYER OR NOTARY, IN ADVANCE OF YOUR CLOSING, TO KNOW YOUR BEST POSITION WHEN YOU SELL YOUR PROPERTY. Revised 1-1-09

In Puerto Vallarta real estate prices of recently built condos have dropped by anywhere from 20-35% during the past year. This reduction in value was caused mainly by the global recession, however the swine flu scare and the media hype over the border town drug war (1,200 miles away!) were also contributing factors. With an overstock of unsold new condos recently introduced to the market by developers combined with the many condos that were purchased at pre-construction prices by speculators now just trying to recover their investment, PV is now more than ever a  buyer’s market.

Last year you could buy a $400,000 condo with all the amenities and breathtaking views for 10% off list price or for $360,000. Today, you’ll have no problem finding that same condo offered at $300,000. Okay, that seems like a pretty nice savings of nearly 17% but remember, these Mexican condos are all priced in US dollars; Canadians must now evaluate these costs in terms of Canadian dollars! A year ago when the Canadian dollar was worth $.77 US, $360,000 US dollars was equivalent to $468,000 Canadian dollars. Today, with the same condo selling for $300,000 and the Canadian dollar worth $.96 US, it will cost only $315,000 Canadian dollars. That’s a savings of $153,000 Canadian or 32.7% (as opposed to the apparent 17%) in just one year!

Contact me today to learn about best deals on the market!