A straight‑talking look at how seller financing is evolving in Cabo San Lucas. Learn why some sellers are using this tool to attract buyers, how to protect yourself against default, and which questions to ask before signing any documents.
Seller Financing Is Gaining Traction, But It’s Still a Niche
Seller financing—where the seller acts as the lender and lets the buyer pay for the property over time—has been common in the United States for decades. In Mexico it’s still rare, but that’s slowly changing. More property owners are offering it to attract buyers, widen their pool of prospects, and sometimes secure higher sale prices. With local banks tightening lending requirements and the cost of capital rising, seller financing can make your listing stand out.
The mechanics are straightforward: the buyer makes a significant down payment (often 50 %) and agrees to pay the remainder over an agreed period, typically three to five years. The seller collects monthly instalment's and may charge interest. In a slow market this approach can shorten days on market and give sellers a better chance of achieving their asking price without dropping the listing price.
Why a Guarantee Trust Is Better Than a Simple Contract
In Mexico you can protect yourself with a retention‑of‑title clause, but there’s an even stronger mechanism: the fideicomiso de garantía or guarantee trust. It’s a variation of the standard bank trust used by foreigners in the restricted zone.
Here’s how it works:
-
You place the property into a trust administered by a Mexican bank. You remain the primary beneficiary until the buyer finishes paying. The buyer is named as the secondary beneficiary and only gains full rights once the financing is complete.
-
The property itself is held as collateral inside the trust. If the buyer defaults, the trustee bank executes the warranty per the terms of the trust. You don’t need to sue or wait for a court order.
-
The trust agreement and the warranty are notarized and included in the official deed from day one. This means there’s a clear path to recovery with no litigation.
A guarantee trust offers faster execution and eliminates months or years of legal uncertainty. You stay first on title until you’re paid in full, so your risk of losing the property during a dispute is minimal.
Benefits for Sellers
-
You’re protected if the buyer stops paying. The trustee can reclaim the property quickly without a lawsuit.
-
Clear procedures for default mean you know what will happen and when.
-
You remain the first beneficiary, so you can sleep at night knowing your investment is secure.
Benefits for Buyers
-
Buyers can acquire property without paying the full amount upfront.
-
Terms are transparent and negotiated directly with the seller.
-
The trust structure assures buyers that once they fulfil the payment schedule, they will gain clear and uncontested title.
Because of these advantages, guarantee trusts are becoming more common in Los Cabos real estate transactions.
How to Structure Seller Financing Safely
Seller financing isn’t just about convenience—its success depends on how well you set it up. A poorly structured deal can leave you chasing payments or fighting legal battles. A well‑structured deal protects your equity and gives the buyer a clear pathway to ownership. Here’s how to do it right:
1. Do comprehensive due diligence on the buyer. Start by verifying the buyer’s identity and legal status. Ask for two years of tax returns, three months of bank statements and an employment or income verification letter. Under the 2025 Anti Money Laundry reforms, buyers must also prove the lawful origin of their funds and identify any beneficial owners. Obtain credit reports from their home country and check for derogatory marks or high debt levels. Finally, confirm that the buyer has the funds for the down payment and understands the ongoing payment obligations.
2. Agree on a realistic down payment, interest rate and term. The down payment is your primary protection against default. In Mexico, seller‑financed deals commonly require 40%–50% up front, with the balance amortized over five to ten years at interest rates between 6% and 9%. Some transactions use an even higher down payment (30%–80%) to further reduce risk. Choose a term that matches the buyer’s ability to pay and your own timeline for receiving full value. Shorter terms (three - five years) reduce exposure, while longer terms (up to ten years) widen the buyer pool but keep you on the hook longer. Set an interest rate that compensates you for the risk and reflects local lending conditions. Remember that seller financing often carries higher rates than bank loans.
3. Spell out the payment schedule and penalties. A simple “monthly payments” clause is not enough. Your agreement should specify the exact payment amount, due date, interest accrual method and any balloon payment at the end. Define late payment penalties and grace periods. Make clear what constitutes a default and what remedies will follow. Including these details in writing reduces ambiguity and prevents disputes.
4. Secure the transaction with a guarantee trust (Fideicomiso de Garantía). Instead of relying on a promissory note, transfer the property into a bank‑administered trust and name yourself as the primary beneficiary. The buyer becomes a secondary beneficiary and only receives full title after completing the payment schedule. If the buyer defaults, the trustee can execute the warranty and return the property to you without a court process. This non‑judicial foreclosure right gives you far more control than a standard note. Keep in mind that guarantee trusts involve additional legal fees and annual trust maintenance costs—so factor those into your calculations.
5. Engage experienced legal and tax professionals. Work with an independent attorney who understands Mexican property law and the 2025 AML reforms. They will draft the purchase agreement, the trust deed and any ancillary documents. A notario público must also formalize the transaction; their role is to validate title, certify the trust and ensure the deal complies with Mexican law. Don’t rely solely on the buyer’s lawyer or developer’s counsel—retain your own representation to avoid conflicts of interest.
6. Plan for contingencies and exit strategies. Consider requiring the buyer to carry insurance and keep taxes and maintenance current. Include clauses addressing what happens if the buyer sells, transfers interest or passes away before finishing payments. Decide whether you will allow early payoff and under what terms. If you plan to sell the note or the property before the buyer finishes paying, ensure that the contract allows assignment without violating the trust structure. Finally, think about your own exit—seller‑financed properties can be harder to sell on the open market, so factor that into your timeline.
Is Seller Financing Right for You?
With a guarantee trust, seller financing is no longer the risky last resort it used to be. It’s a viable strategy to sell your property faster and reach a broader market without sacrificing security. That said, it still isn’t for everyone. You need to be comfortable collecting payments over several years and willing to do thorough due diligence. If you need your cash immediately or don’t want the administrative responsibility, a cash buyer may still be the better option. But if you’re open to structured payments and like the idea of earning interest, seller financing through a guarantee trust is a powerful tool that protects your interests and gives buyers a path to ownership.
Before you offer or accept seller financing, ask yourself and the other party the right questions: How strong is the buyer’s financial profile? What down payment is realistic? Who will act as trustee? Are the documents drafted by an experienced attorney? Do the terms comply with the 2025 Anti Money Laundry reforms? By addressing these points and insisting on a guarantee trust structure, you can reap the benefits of seller financing without sleepless nights.
Need More Guidance?
This overview covers the essentials, but every property and buyer profile is different. If you’re considering offering seller financing or want to explore whether a guarantee trust makes sense for your situation, reach out to me directly. I’m happy to walk you through the process, answer your questions and help you structure a deal that protects your interests from start to finish.
US +1 480.264.1006
