subject: Buying Baja Real Estate - 8 Questions You Must Answer Before Purchasing A New Construction [print this page] Condominium developers here in Baja are always working on new developments, but is it safe to purchase these new constructions before they are completed? It can be, but it's important to understand the differences between the buying processes you are accustomed to and what is common and legal here in Mexico. This article will help you organize your thoughts, asking invaluable questions that will lead you to the best developers and give you peace of mind about your Baja real estate purchase.
Question #1 - Who is the developer?
Before considering a new construction purchase, you need to find out all you can about the developer. Where is he from? What projects has he delivered and where can I see them? These basic questions will help you identify new builders who may have great intentions, but little or no experience. They may do an excellent job delivering quality units, but this should raise a red flag in your investigation.
There are many excellent developers here in the Baja real estate community with a history of delivering quality units in a timely manner. Some of their developments include Club Marena, Calafia, La Jolla del Mar, La Jolla Real, and Playa Blanca.
Question #2 - Is the developer willing to use an escrow company?
Here in Baja, escrow accounts can be a touchy concept that many developers prefer to avoid. Instead of using escrow, they want your "good faith" deposit placed directly into their bank account. This can work, but it puts the developer in an obvious position of strength over the buyer, leaving the buyer's funds at risk if the project is not completed. A developer who uses an escrow company is usually doing good business, wants a fair playing field for everyone, and is willing to be transparent about his business. If a developer does not want to use an escrow company, this does not necessarily mean he is bad, but should definitely raise another red flag.
Escrow accounts monitor the spending of your deposits during the construction process, so the developer cannot spend your money without fulfilling his contract. This money can be transferred to the developer upon delivery of the unit, after certain phases of construction have been completed, or any other time indicated in the escrow instructions. These instructions are usually drawn up by the buyer's attorney and/or the developer, and should put both parties in positions of equal strength.
Question #3 - How is the project being financed?
Your best bet is to find a developer that uses outside financing and will complete his project with or without your deposit. Here in Baja, developers can legally use buyer's deposits to finance their projects instead of using personal funds or financing, and therefore, do not have to obtain financing before pre-selling. If your developer intends to finance his project in this way, you need to do some due diligence before handing over your deposit. If something goes wrong with the project, or if the developer doesn't receive sufficient funds to complete the project, you may have a hard time getting your money back... now that it's tied up in construction materials.
If you choose to buy from a developer who uses buyers' deposits for construction, you need to make sure he has an excellent track record in delivering units or is willing to use an escrow account to monitor the transfer of your funds to him. You can also check to see if the developer has a bond. This provides an enormous advantage to the buyer as it protects buyers in case the terms of the contract are not delivered.
Question #4 - Does the contract specify when construction will start and what will happen if it doesn't?
Most contracts stipulate that the developer will deliver a completed unit to the buyer on a specific date, but very few stipulate when the construction will actually begin or end. In other words, if construction on your unit starts six months late, you may want to get out of the contract while you still can, especially if you did not use an escrow account. Be sure to include terms in your contract stating that your money can be released to you if you choose before the construction is completed. Otherwise your money could be tied up for years while the project is being completed.
Question #5 - When will you receive title to your new home?
To answer this question well, you need to investigate the legal and financial strength of the developer. Just because he has big projects going up doesn't mean he is doing good business. Some developers do not obtain clear title for their developments before putting their units on the market. In such cases, they may not be able to transfer title to their buyers at closing. Your developer should be able to show your lawyer that he has clear title to the land he is building on before taking your money. If the developer does NOT own the land free and clear or has borrowed money to purchase the land, this is a red flag. He may not be able to deliver title upon delivery of the unit. Be sure your contract assures that you will get a 100% refund if the developer cant deliver title within a specific time frame.
Question #6 - What liens will there be on my unit/building in the next 12 months? Will it be used to finance other projects?
Before signing a contract, you need to make sure the building that houses your unit has no tax liens and will not be used to finance the developer's next project or building. Both of these scenarios make it impossible for you to get title to your home when the keys are delivered, and without title, you cannot finance or refinance your unit. It will also be very difficult to sell your unit without having title unless you agree to sell at a deep discount.
Question #7 - If there are amenities included in the development, when will they be delivered and usable?
If a developer has promised certain amenities for your development, you should find out whether they will be completed for you to enjoy at time of delivery, or if other units will be need to be sold in order to finance their completion. While having this information will probably not affect your buying decision, it will definitely give you more insight into the financial strength of the developer.
Question #8 - Can you review the contract with an attorney before you purchase?
Definitely! This is a must for the savvy buyer. Before obligating yourself to any contract, you should have it reviewed by an experienced Mexican real estate attorney. This attorney will be able to write addendums to the contract that protect you from loss and will assure a full refund of your money if the project doesn't go as planned. He will also be able to show you the pros and cons of the contract and point out any red flags that you may not have found on your own.
