Back home you could close a cash deal in 48 hours. We know cuz we did it once. Alas things here in Mexico are so bureaucratic that 6 weeks is typical. No idea what takes so long. But the deal did hit a snag. What follows is what we eventually unraveled really happened – though this unraveling took us a couple of weeks.
The first thing we started to hear was that we were going to have a 4 to 6 week delay because “someone that had to sign paperwork” didn’t have a US passport. As an American in Mexico, you need a passport to do anything. You want to buy a phone? You need a passport. Essentially anything that would require ID – because they don’t know what all the US IDs like state driver’s licenses look like. So they rely on passports. And as it would happen, due to COVID, the US is taking 4 to 6 weeks to do expedited passports. And you can only go to an in-person appointment if getting a passport is a life-threatening emergency.
This led to us wondering who the person was that needed to sign. Detective Melissa was on the case. The title to the property is held by Serene Properties LLC. That LLC was formed by, and is managed by North Point Trust Co. North Point is a company in the US that manages trusts for mega rich people. The condo owner has a descendants trust that he hired North Point to manage. North Point then decided that the real properties should be inside an LLC, hence the formation of Serene Properties. Catch is that in California (where Serene Properties was formed) has rules that when an LLC is managed by managers instead of by the owners, the owners no longer have signature authority to do transactions in the name of the LLC. So when the owner signed the original deal, he probably didn’t have the authority to do so.
Now, that might lead you to conclude that we didn’t have a deal. Untrue. Because the owner had apparent authority to sign, and we relied on that apparent authority and put our $75K in escrow. That means Serene needs to honor the deal. They are bound by it whether they like it or not. This is akin to an employee signing a contract that they didn’t have signature authority to sign. Company is still bound by the actions of the employee. All the company can do is fire the employee. In this case, given that it was the owner that signed the deal – nothing to be done but honor it.
Problem occurs when it comes to closing the deal and transferring the title. The title company wouldn’t do it without proper signatures from the LLC, and the guy that manages the LLC on behalf of North Point didn’t have a passport. That put us in a position where the seller was unable to close on time.
At that point the seller asked for a two-month extension to end of March, which would have put us in a position to not be able to enjoy the condo much if at all this season. Additionally, the deals down here are two way when it comes to risk. The original agreement said that if the seller didn’t execute by the deadline of Feb 8, that he would owe us $75K, same as we would owe him if we didn’t carry through on the transaction.
We didn’t want to threaten the seller with this though. Mega millionaire might just say “fine see you in court for the next three years” because Mexican courts down here are notoriously slow. So we decided to appeal to his sense of fairness before bringing in the big guns. A few days before the official ask for an extension from the seller, but when the handwriting was on the wall, we sent a personal letter to the seller explaining how much we loved his condo and how committed we were to buying a place down here. We pointed to a number of facts including our purchase of a car and some furniture. This was a setup for the second move which was when the request for extension came, we said “this makes us very sad, but no – we don’t want to miss the entire season”. We went on to say that we would be happy to carry on the deal if the seller was to rent to us while the transaction was in the closing process. But if they are unwilling to do that, then we will walk away. We did not point out that technically if we walked away the seller would owe us $75K. We could only hope that the selling agent was sharp enough to realize this and point it out to the seller. This move was a bit of a leap of faith. We really really wanted the condo. But this delay was 100% the seller’s fault. We didn’t want to get walked on so we decided to say “the line is here” and hope they would do the fair thing.
We were ready to make the third move in this chess game if they came back and refused to give us early access to the property. We were going to then say, “then pay us the $75K”. We planned to demand our $75K in escrow back first so that they couldn’t tie up our escrow funds before making the demand on them to pay the $75K.
Fortunately, we never had to pull the third chess move. The seller came back and agreed to give us early possession of the property in exchange for an extension. What they agreed to was that we would deposit the remaining funds to close in escrow, and in exchange give us the keys. This amounts to nearly zero risk to either side. We don’t lose our funds until the seller grants us full title. The seller knows we can’t back out because the entire amount to close is in escrow.
Alas there were still more paperwork fiascos in store. The original agreement expired on Monday Feb 8. The seller agreed on Tuesday Feb 2 to give us early possession, and we were promised we would get all the docs on Wednesday Feb 3. They didn’t show up till late Thursday Feb 4 and then with numerous mistakes. Wrong amount to put in escrow, wrong escrow file number. Sheesh. Getting all that fixed took till Friday Feb 5, at which point one document was still missing. Additionally, we realized that the extension of the closing date to March 31 wasn’t actually referred to in the amendments. This left quite a quandary – because the originally offered extension had already been signed by the owner, but the amendment giving us possession had not yet been signed by the seller, that left the potential if we signed all the docs that they would just never sign the amendment giving us possession but giving them the extension. Leaving us to then argue that the extension wasn’t signed by an authorized party. Messy. The extension needed to reference the amendment to tie them all together. We requested a change in the documents to fix that loophole.
On Friday Feb 5, this left us in a quandary about deposit of the remaining $675K in escrow to close. Technically the only signed documents were the original agreement saying we would close Monday Feb 8. If we didn’t deposit the remaining funds, the seller could claim we were both in breach of the agreement. So we decided to go ahead and move the funds to escrow. Again, a gutsy move that made us a bit nervous, but we believed would preserve our right to collect the $75K in penalties for breach if the seller didn’t make good on the deal.
The seller’s agent said she would meet us at noon Monday Feb 8 at her office to sign all the docs and give us the keys. At this point the seller’s signature wasn’t on them. We (inwardly) rolled our eyes. But at this point, our position was that the seller, through their agent giving us the keys had acted on the amendment giving us possession. That made it near to impossible for them to back out, or to change the paperwork if they didn’t like the language. Maybe they had already seen a draft of the documents and approved. But the way this has all gone – doubtful. Additionally, at this point they had decided an amendment to the closing date was not necessary. Dave and Melissa look at each other – both thinking the same thing. This is worse for them than for us. The documents still say Feb 8 as the deadline. They kinda executed by giving us possession but kinda not because they didn’t actually give us title. In a court battle, if they don’t close in a reasonable amount of time the lack of extension probably hurts them more than us.
That brings us to the “how they do business in Mexico” topic. If our agent back home had seen how this all went she would be having a total conniption. Meeting the selling agent to sign the documents without our agent present? And every email about the deal had our agent, the seller’s agent and us on it. The usual thing you do in the US – talk to your agent who in turn discusses with the agent on the other side – never happened. They are both very sweet and just trying to make everyone happy – consistent with Mexican culture. Additionally, the seller’s agent is the manager of the HOA for the condo. Conflict of interest to be sure because she has to preserve her relationship with us going forward, but is trying to make the seller unhappy meanwhile. We believe that the seller who had a long time relationship with the condo manager wanted to give her the commission. And as a mega rich dude – didn’t really prioritize the conflict of interest issue.
On the up side, we were impressed with the bank/title company. They were on top of whether the seller had signature authority. This gave us great comfort in a sense to know that they are being so very picky about transfer of title. Ultimately all the issues encountered had more to do with US LLC law than Mexican bureaucracy.
In the end, everything worked out fine. Would it have worked out if we hadn’t been sharp on all things legal, real estate, and corporate? Dunno. A special thanks goes out on this to Melissa’s brother Kelly, an attorney, who was on speed dial this entire exercise to help us think it through. What we would say in the end is – buying real estate in Mexico still seems like a good investment and a great lifestyle choice. But if you are going to do it – be sure to have an attorney you can access when the paperwork or negotiation gets complicated.
After we got the keys, we unpacked as much as we could. Melissa organized the kitchen and the closets. Dave worked on the WiFi. When we were semi-settled, we opened a bottle of champagne to celebrate! And then off to the hot tub for a soak. We were both sore and tired from all the lifting and carrying!