Escrow services in Mexico
Simply put, escrow services in Mexico are used to ensure that funds from a real estate transaction change hands at closing.
That is not the legal definition of escrow, but it is the rationale for its use. If you are a buyer, you want your funds in the seller’s account only after the deal is closed, not before. If you are the seller, you want your money when the deal is closed, not after. An escrow company is the neutral entity that holds and disburses the funds, only; until the shutdown is complete.
Escrow services are a type of trust that is used to hold funds until both parties agree on the terms of the deal. There are many types of escrow services, but they all have one thing in common – they are all based on trust.
As an investor, it is vital to consider how your payment or deposit will be held during the completion of mutual obligations in any contract. Escrow services provide a neutral third party which holds the funds in compliance with the instructions of all the parties to an agreement. Neither party may access the funds until all of the obligations of the parties are satisfied.
The escrow service is a tool that helps to manage the transaction of digital assets between two parties; typically either buyers or sellers. The asset is held by the escrow service until both parties have fulfilled their obligations and if one party does not fulfill its obligation then it can be recovered from the escrow service.
Escrow services in Mexico
The use of escrow services in Mexico was “imported” from the US as a safe and efficient way to transfer funds between a buyer and a seller. Prior to the use of escrow, it was common in Mexico for buyers to pay sellers directly a property down payment of between 10% and 30% of the total sales price at the time of signing a simple preliminary purchase-sale agreement. These initial payments would go directly to the seller’s account, prior to the start of any closing proceedings or due diligence to be conducted.
This business practice works, as long as there are no conflicts or problems with the transaction. However, when problems arise during a closing proceeding and the seller has the buyer’s money, applying for a return of funds can be a hassle.
Why using escrow sercives?
When escrow services are not used, and a seller has 10-30% of the buyer’s money, the seller may feel less motivated to resolve any title or closing issues. Unfortunately, we have often seen buyers have to clear title issues from the seller when escrow is not used. Buyers’ options in these cases are: 1) pay to clear the seller’s title problems, 2) back out of the down payment, or 3) file a lawsuit. In most cases, buyers find it cheaper to clear the title. When funds are in escrow, the seller must ensure that the seller’s title is in good standing and the deal is closed before receiving the funds.
Sellers also like to see that buyers are serious about depositing funds with a reputable escrow company, which often goes toward a property purchase, or in the event of default, serves as a contractual penalty. Buyers also don’t have to worry about sellers keeping the down payment and then not selling the property.
The use of escrow services in Mexico is relatively new, and until recently was not commonly accepted by real estate professionals. In recent years, brokers and real estate agents have seen the benefits of using escrow, since its use; motivates both buyer and seller to move efficiently through the closing process. Furthermore, brokers and agents know that when a deal is closed, their clients will get what they agreed to and, more importantly, the agents will get their fees. Before the use of escrow, brokers and agents had real risks of default when funds went directly from buyer to seller. Too often, sellers wanted to renegotiate the agent’s fee after the deal was closed, resulting in the agent having to agree to a lower rate, or filing a lawsuit and having to pay legal costs.
Escrow companies in Mexico
Escrow companies based in Mexico are not regulated by Mexican law. US-based escrow companies providing services in Mexico are generally regulated by the laws of the State of domicile. Regardless of whether you use a US or Mexico-based escrow company, ask to see their insurance policies for errors and omissions, crime, and cyber fraud coverage. Call the insurance provider and confirm that the policy is valid and up to date. If the escrow company isn’t insured, or you can’t verify your insurance, this should be a red flag.
Buying a property in Mexico
Buying a property in Mexico might seem like a daunting task, but it doesn’t have to be. There are a few things you should know before you buy your dream vacation home or investment property.
First, you must understand that there is no legal protection when buying a property in Mexico. You are responsible for any legal issues that may arise with the property and the transaction itself.
Second, escrow is not always required when buying a property in Mexico. However, if you are going to use an escrow service to hold your funds until the purchase is final then this will be your best option for peace of mind and security.