Escrow in Mexico: Is it mandatory?

When buying real estate in the U.S. or Canada, it is a common practice to have an impartial third party safeguard the purchase price until the required documents are executed on the closing date. This practice is not common in Mexico and the concept of an escrow account is relatively new for us and to Mexican legislation.

An escrow contract as such is not specifically regulated under Mexican law, even though for years we’ve had a rather similar concept called the “Conditioned Deposit” or Depósito Condicionado in Spanish. Furthermore, it is not a legal requirement to have a deposit in escrow to make a valid offer on a property here in Mexico.

What are the benefits of using an escrow account in Mexico?

At closing, several concepts have to be paid so the transaction can be completed, such as the Capital Gains Tax on behalf of the seller, commissions to realtors, and any other disbursement required by the seller. The benefit for the buyer is the simplicity of performing the payment at closing by just signing the disbursement instructions jointly with the seller. However, this requirement of the signatures of both buyer and seller in the disbursement instruction can represent a problem for you as buyer in case the deal falls apart or if the seller backs away from the sale, since it can leave your money in a deadlock.

If I put money in escrow, how can I be protected from a deadlock?

Your escrow agreement should include a clause that states that if closing does not take place within a certain period of time, the escrow company will automatically return the funds to the buyer. This way you can be protected against any circumstance that may complicate the purchase process and against having to negotiate with the seller to try to get your money back.

Innovative tools can bring many benefits in real estate transactions herein Mexico. However, when there is no specific regulation for such tools, you should have a contract that protects you against legal loops and safeguards your investment.