Seller Financing for Buyers of Baja Real Estate

by Mario Restrepo

Since the end of 2010 through 2012, many buyers have come off the bench to buy as the Baja real estate market has reached such a low point. Some of these buyers are actual owner users and some of these buyers are investors who have purchased several properties as a long term rent and hold. In fact, even Jim Cramer of Mad Money, the stock investor on television, has even purchased several properties in Mexico.

The caveat in purchasig real estate in Mexico, is that if you don’t have cash, you have to look to borrow money from banks or owners to make a purchase. Bank loans are available from Mexican and USA banks to purchase property in Baja, but these institutional lenders still have strict lending criteria considering the recent market making it nearly impossible for the majority of buyers to get financing from banks.

So, if buying via a lender is not an option for you, consider some of the sellers who are offering owner financing. Some sellers are willing to sell with as little as 20% down. These sellers are happy to earn an interest on the remaining amount of equity due for any number reasons; with the number one reason being is that there are not that many safe alternative investments for their money. Many sellers would rather keep their ocean front Baja property as a safe investment even though they are no longer enjoying the use of it.

A buyer of property here in Baja looking for owner financing has to have a strategy to close on the property in a short amount of time. Hardly ever are there sellers willing to carry for 15 to 30 years. As this year closes, most terms call for a balloon payment within 2 to 5 years.

At my office I get many phone calls from potential buyers telling me that they have a property in such and such state, and it is paid off, but they just need it to sell to come up with enough cash to make a purchase. Then they ask if there are any sellers willing to offer financing for a short amount of time to allow their property to sell state side to be able to cover the remaining amount owed.

Common terms for seller financing that we have seen this year are 20% to 50% percent down at closing, 5% to 7% interest rate, principal and interest payments amortized over 30 years, with a balloon payment due in 2 to 5 years.

One important detail about owner financing is how title is held during the term. Title has to be marketable in order for a real estate transaction to occur, and in today’s market, the only kind of title that is marketable is title that can transfer to the buyer at the closing of the transaction, usually within 60 days after escrow has opened. Therefore with common owner financing scenarios today in Baja, the seller becomes the 1st lien holder on title.

A real estate attorney, or the notario, can draft the contract that subjects the property as collateral. This contract is a part of the purchase agreement signed by both the seller and the buyer. The terms of this purchase agreement will then be used to draft the bank trust, fideicomiso in Spanish, in which the buyer will hold title, with the seller remaining in first position.

As part of the closing, the notario will record the bank trust with the owner financing in place at the public registry to protect both the buyer and the seller. The 1st payment is usually due 30 days after the closing. The buyer owns the property, and the seller is earning interest.

Below are the listings of all properties currently for sale in which the owner will offer partial or complete financing.

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