BajaNomad

seller financing

pauldavidmena - 2-16-2017 at 03:53 PM

I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the latter would work - whether it's common practice or is considered risky or controversial. Does any one have any experience with seller financing for real estate? I may be a Nomad yet...

ranpar01 - 2-16-2017 at 04:01 PM

I'm in a similar boat. Can't help with your original question about seller financing, but I did recently find out that I can borrow against my 401K which might be an option for you as well depending on your situation. Just tossing it out in case you hadn't considered it. Best of luck!

pauldavidmena - 2-16-2017 at 04:08 PM

Thanks for the quick reply. I asked my financial adviser about borrowing against my 401K, and he explained that I would have to collateralize it, and that doing so would prompt the IRS to see it as taxable income - even if I didn't withdraw a penny of it. The resulting tax bill would make going this route prohibitive, so I'm back to a choice between a HELOC and seller financing.

stiladam - 2-16-2017 at 04:36 PM

Not sure about owner financing in Mexico but I've heard of it being done so I'm sure someone will chime in.

Consider a home equity loan rather than a HELOC

The difference between a home equity line and a home equity loan, the line has a floating interest rate and the loan has a fixed interest rate.

Generally HELOCs are best used for home improvements or for people wishing to use their homes as an ATM. (Remember those days - yikes!)

http://www.clark.com/the-only-time-to-take-out-a-heloc-loan

There's plenty more out there about this if you research one versus the other.

Good luck on the dream!!

pauldavidmena - 2-16-2017 at 04:42 PM

Thanks for the reply. We've owned our home for over 20 years, but have never taken out either a home equity loan or line of credit, so this is new territory for us. The original plan was to wait until I retired - and we sold the house in Massachusetts - to buy in Baja, but this opportunity seems to good to pass up.

MMc - 2-16-2017 at 06:35 PM

Remember the first rule of Buying Property is Mexico. Never buy more then you are willing to walk away from.
Third rule Rent before you buy.
Having said that I have owned 2 properties in Mexico and loved them both.

pauldavidmena - 2-16-2017 at 07:09 PM

We've rented several properties in Todos Santos and El Pescadero, but your admonition is well-taken. That's why we're trying to do our homework about the pros and cons of different financing options.

BigBearRider - 2-16-2017 at 07:10 PM

Quote: Originally posted by pauldavidmena  
Thanks for the quick reply. I asked my financial adviser about borrowing against my 401K, and he explained that I would have to collateralize it, and that doing so would prompt the IRS to see it as taxable income - even if I didn't withdraw a penny of it. The resulting tax bill would make going this route prohibitive, so I'm back to a choice between a HELOC and seller financing.


I don't think this is correct advice. I suspect that you will not be able to borrow against your 401(k) outside of the 401(k), but many 401(k) plans allow you to borrow against your balance up to a certain amount. You pay the interest to yourself. A drawback is that if you leave your job, you have to repay the entire debt quickly.

pauldavidmena - 2-17-2017 at 07:29 AM

I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a home equity loan or line of credit over either option.

I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from either buyers or sellers.

mtgoat666 - 2-17-2017 at 07:46 AM

Quote: Originally posted by pauldavidmena  
I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the latter would work - whether it's common practice or is considered risky or controversial. Does any one have any experience with seller financing for real estate? I may be a Nomad yet...


Yes, seller financing is done in Mexico. But first question to ask, does the seller want to do it? Doesn't matter what the nomad peanut gallery thinks if seller is not interested in that type of deal?

pauldavidmena - 2-17-2017 at 07:58 AM

Quote: Originally posted by mtgoat666  
Quote: Originally posted by pauldavidmena  
I'm a few years away from retirement but stumbled upon a great house that my wife and I would like to buy now. The problem is that most of our money is tied up in our current house, and we only have enough cash on hand for about half of the asking price. Our options are either taking out a home equity line of credit on our current house or trying to persuade the seller to finance the balance of the purchase price. I know nothing about how the latter would work - whether it's common practice or is considered risky or controversial. Does anyone have any experience with seller financing for real estate? I may be a Nomad yet...


Yes, seller financing is done in Mexico. But first question to ask, does the seller want to do it? Doesn't matter what the nomad peanut gallery thinks if seller is not interested in that type of deal?


My understanding from the realtor is that seller financing wouldn't be his first choice, but with the house on the market for a year or so he is willing to go that route. Sensing his reluctance (and having some of our own), we're looking into a home equity loan at the same time.

bajaguy - 2-17-2017 at 08:15 AM

Make sure the "seller" actually owns the property

pauldavidmena - 2-17-2017 at 08:22 AM

Quote: Originally posted by bajaguy  
Make sure the "seller" actually owns the property


I've heard of some nightmares about this sort of thing. We'll walk away if anything smells fishy.

bajaguy - 2-17-2017 at 08:30 AM

Demand written proof, then double check
Quote: Originally posted by pauldavidmena  
Quote: Originally posted by bajaguy  
Make sure the "seller" actually owns the property


I've heard of some nightmares about this sort of thing. We'll walk away if anything smells fishy.

BigBearRider - 2-17-2017 at 08:50 AM

Quote: Originally posted by pauldavidmena  
I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a home equity loan or line of credit over either option.

I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from either buyers or sellers.


Ok. You can likely borrow up to $50k (or half of your balance) through your 401(k).

I don't think you can borrow against your IRA. Did your financial advisor tell you that you could?

pauldavidmena - 2-17-2017 at 08:55 AM

Quote: Originally posted by BigBearRider  
Quote: Originally posted by pauldavidmena  
I should clarify: I have a 401K against which I can borrow, and an IRA that I would have to collateralize in order to borrow against it. I'd prefer a home equity loan or line of credit over either option.

I guess my question still stands regarding seller financing. I've received one reply via private message (thank you!) but would love to hear more from either buyers or sellers.


Ok. You can likely borrow up to $50k (or half of your balance) through your 401(k).

I don't think you can borrow against your IRA. Did your financial advisor tell you that you could?


My financial adviser said that I couldn't borrow against my IRA, which is where the majority of my retirement savings is. Due to my company recently being acquired by another one, my existing 401K was rolled over to an IRA and my new 401K doesn't have enough of a balance to borrow against. So we're back to the choice between a home equity loan or seller financing.

BigBearRider - 2-17-2017 at 09:05 AM

Ok. Now it makes sense. No collateralizing of the IRA. One option which may be of interest is to take an early withdrawal from the IRA. It's subject to penalties and taxes, depending in your situation.

I suspect a home equity loan or owner financing is a better option.

Martyman - 2-17-2017 at 09:22 AM

At age 59 1/2 you can take money out of the IRA with no penalty, but of course you pay taxes.

pauldavidmena - 2-17-2017 at 09:27 AM

Quote: Originally posted by Martyman  
At age 59 1/2 you can take money out of the IRA with no penalty, but of course you pay taxes.


I'm 2 years from that particular milestone, so it's not an option for the immediate future. I'd also prefer to save the money for when I'm there, rather than using some of it to get there. In any case, we'll have to see what happens with the home equity loan or owner financing.

DENNIS - 2-17-2017 at 10:04 AM


Make sure you use a notario for contracts of any kind. All parties must be legal in Mexico if you expect protection in Mexico.

J.P. - 2-17-2017 at 11:39 AM

Quote: Originally posted by DENNIS  

Make sure you use a notario for contracts of any kind. All parties must be legal in Mexico if you expect protection in Mexico.






There's Notario's and then There's Notarios there's only Two Federal Notario's in Ensenada.

BigBearRider - 2-17-2017 at 11:51 AM

I'd use a reputable lawyer, and have the lawyer suggest a good notario. Where are you looking? Pescadero?

[Edited on 2-17-2017 by BigBearRider]

pauldavidmena - 2-17-2017 at 12:47 PM

Quote: Originally posted by BigBearRider  
I'd use a reputable lawyer, and have the lawyer suggest a good notario. Where are you looking? Pescadero?

[Edited on 2-17-2017 by BigBearRider]


Yes, the house is in Pescadero, BCS.

BFS - 2-17-2017 at 01:16 PM

You can purchase the home with owner financing in a trust that protects both the seller and the buyer, with all of the terms called out in the trust and both parties appearing on the title document.
Once the seller meets all of the terms (payments over however many years are on the document) the seller is removed from the title. So yes it can be done legally and safely. However many sellers are very hesitant to finance so the seller of this home may not be keen. The best way to find out is to present an offer with your financing terms through your broker.
Good luck!

pauldavidmena - 2-17-2017 at 01:39 PM

Quote: Originally posted by BFS  
You can purchase the home with owner financing in a trust that protects both the seller and the buyer, with all of the terms called out in the trust and both parties appearing on the title document.
Once the seller meets all of the terms (payments over however many years are on the document) the seller is removed from the title. So yes it can be done legally and safely. However many sellers are very hesitant to finance so the seller of this home may not be keen. The best way to find out is to present an offer with your financing terms through your broker.
Good luck!


Our realtor has mentioned the concept of a Fideicomiso de Garantía, which sounds like the type of trust you're describing. I'm confident in his ability to get the various parties and pieces together, but it's all brand new to me.

Lee - 2-17-2017 at 05:57 PM

Quote: Originally posted by BFS  
You can purchase the home with owner financing in a trust that protects both the seller and the buyer, with all of the terms called out in the trust and both parties appearing on the title document.
Once the seller meets all of the terms (payments over however many years are on the document) the seller is removed from the title. So yes it can be done legally and safely. However many sellers are very hesitant to finance so the seller of this home may not be keen. The best way to find out is to present an offer with your financing terms through your broker.
Good luck!


I might do it this way. A Rent to Purchase Option Agreement. Small down, say $5,000.00 and monthly payments all of which apply to the purchase price at the end of a year. At that time, a balloon payment for the balance is due. If you decide not to buy, seller keeps funds, you walk away. If you do buy, pay off the balance with outside money.

As safely and legally you might be protected, you do not want to test the Mexican court system after hiring a lawyer.

Another option is an offer 20-30% below asking. Offer includes all furniture, and/or vehicles that might around. Pay cash with outside money.

Find out what list price was a year ago. Might be time for a huge discount.

I advise not being a real estate partner with someone who has a lien on a property you've bought (owner carry).

Lastly, agent works for the seller and has a fiduciary responsibility (ha ha) to the seller. At least that's the way it should be. Seller is paying the commission. No reason for you to trust the agent, ever, but anyone playing both sides is really not to be trusted.

J.P. - 2-17-2017 at 06:20 PM

Quote: Originally posted by Lee  
Quote: Originally posted by BFS  
You can purchase the home with owner financing in a trust that protects both the seller and the buyer, with all of the terms called out in the trust and both parties appearing on the title document.
Once the seller meets all of the terms (payments over however many years are on the document) the seller is removed from the title. So yes it can be done legally and safely. However many sellers are very hesitant to finance so the seller of this home may not be keen. The best way to find out is to present an offer with your financing terms through your broker.
Good luck!







I might do it this way. A Rent to Purchase Option Agreement. Small down, say $5,000.00 and monthly payments all of which apply to the purchase price at the end of a year. At that time, a balloon payment for the balance is due. If you decide not to buy, seller keeps funds, you walk away. If you do buy, pay off the balance with outside money.

As safely and legally you might be protected, you do not want to test the Mexican court system after hiring a lawyer.

Another option is an offer 20-30% below asking. Offer includes all furniture, and/or vehicles that might around. Pay cash with outside money.

Find out what list price was a year ago. Might be time for a huge discount.

I advise not being a real estate partner with someone who has a lien on a property you've bought (owner carry).

Lastly, agent works for the seller and has a fiduciary responsibility (ha ha) to the seller. At least that's the way it should be. Seller is paying the commission. No reason for you to trust the agent, ever, but anyone playing both sides is really not to be trusted.









Speaking as a former Broker R.E. Law is written to protect the unscrupulous acts of the Agency. NOT THE CLIENT.:lol::lol:

Lee - 2-17-2017 at 06:44 PM

One more thing. I know someone locally I'd hire as a Buyer Agent. Write the contract including your Agent's commission -- guessing the list agent will have to split his commission. Whatever the split is, the seller pays the commission.

Personally, I would not buy in the Cerritos area. I'm biased.

And I'd only buy where I had water and power. That would be a deal breaker.

pauldavidmena - 2-17-2017 at 07:12 PM

Quote: Originally posted by Lee  
One more thing. I know someone locally I'd hire as a Buyer Agent. Write the contract including your Agent's commission -- guessing the list agent will have to split his commission. Whatever the split is, the seller pays the commission.

Personally, I would not buy in the Cerritos area. I'm biased.

And I'd only buy where I had water and power. That would be a deal breaker.


This particular property is in Pescadero Heights and has both power and water. I'm not against being off the grid in principle, but I'm thinking that any sort of adventure should wait until I'm living in Baja full-time.

mtnpop - 2-18-2017 at 11:10 AM

Keep in mind that any changes to a Fidei, there is a fee of some kind to do so...
So if you pay off the loan and you need to get the seller's name off the fidei, there will be a Notario fee....
This is what we have experienced in the past, Have friends that needed to get a spouse name off and the fee was almost like getting a new fidei.
Might just be the Notario, but just be aware..... and if the seller should go to tthe happy hunting ground before paid off then signiatures might be a problem....
Does not work quite like the old title insurance system up north....
It might work out for you or others may have had better experiences than many we know of...

pauldavidmena - 2-18-2017 at 12:01 PM

Quote: Originally posted by mtnpop  
Keep in mind that any changes to a Fidei, there is a fee of some kind to do so...
So if you pay off the loan and you need to get the seller's name off the fidei, there will be a Notario fee....
This is what we have experienced in the past, Have friends that needed to get a spouse name off and the fee was almost like getting a new fidei.
Might just be the Notario, but just be aware..... and if the seller should go to tthe happy hunting ground before paid off then signiatures might be a problem....
Does not work quite like the old title insurance system up north....
It might work out for you or others may have had better experiences than many we know of...


Given that the seller has moved back to the States on account of health issues, the whole idea of a joint fideicomiso made me a bit apprehensive. This is why we're leaning toward a home equity loan and are exploring that avenue in parallel.

MitchMan - 2-19-2017 at 01:13 PM

Lee is spot on. Didn't realize that the seller is an American until your last post; thought it was a Mexican fee title holder. I wouldn't trust a Mexican fee title holder to abide in good faith to a complicated transaction involving carrying back a loan. Even a lease to buy arrangement wherein you pay $5,000 USD up front doesn't seem very safe.

One big caveat that I religiously abide by now, after all my experiences in Baja over the last 12 years is "Do not pay for anything up front" in Mexico.

Suppose your seller decides not to sign anything or deliberately neglects to do anything at all when it comes to the time when you want to go forward with the actual purchase; what are your options then? He still owns the property and has possession of your $5,000. Your legal remedies would be very expensive and take a long time to resolve, if in fact they could actually be resolved. Jurisprudence for a foreigner is not what it should be at all, not even close to that in the USA. If you are going forward on the assumption that forcing contractual compliance in Mexico as a foreigner is the same as it would be in the USA, well, it is not even close. Not to mention that you probably need a Residente Permanente visa status to enforce contractual rights in Mexico. I have been told by legal representation that a visitors visa does not entitle you at all to legal Mexican rights. This is something that Americans that have an interest in Mexican real estate via a fideicomiso should understand.

You cannot enforce your rights in a fido unless you are a Residente Permanente. An FMM visa is just a "visitors" visa and doesn't entitle you to the protection of contractual rights in Mexican courts in the holding of an interest in real estate via a fideicomiso.

pauldavidmena - 2-19-2017 at 03:56 PM

@MitchMan - You have a good point regarding legal standing in Mexico, as we will be coming in under an FMM for the next few years at the very least.

The way I see it, I have two issues - not being able to be in Mexico for more than a week or so per year, and not having ready access to enough cash - with the same root cause, namely that I haven't retired yet, and I don't have a job that would allow me to work remotely for long stretches of time. The question is whether or not the issues are enough to be deal-breakers.

MitchMan - 2-20-2017 at 10:55 AM

I have had a vacation home in La Paz for about 9 years and I go about every other month for about 2 weeks at a time. That has worked for me as a home owner their (fido). The trick is to have a home near the airport and to be in such a big city as La Paz that has everything that a home owner needs within 3 miles of the house. I originally wanted a place in Loreto, but I do not know how that would have turned out as flights there are not cheap nor are they as regular as they need to be for me and I am not so sure about the ability to address maintenance issues there, not to mention other things like supplies and food availability at competitive prices and good variety. Cost, supply and maintenance availability, and competitive fight prices are all important for an absentee owner like me. La Paz does the trick on all counts.