HOW TO PURCHASE, OWN MEXICAN PROPERTY...KNOW HOW
LEGAL OWNERSHIP OF PROPERTY IN MEXICO
Foreigners are legally permitted to own property in México. The Mexican Constitution only prohibits the foreign acquisition of land in the “restricted zone”, which encompasses all land located within 100 kilometers (about 62 miles) of a border, and within 50 kilometers (about 31 miles) of the coast. Property outside of the restricted zone may be held fee simple by foreigners. For all intents and purposes, fee simple ownership of property in México grants you nearly the same bundle of rights you receive when you purchase property in many parts of the world.
FIDEICOMISO aka "BANK TRUST"
Due to the popularity with foreigners wanting to invest in the Mexican coastal destinations, of which all reside in the restricted zone, the Mexican government created a vehicle permitting foreign investment in these areas. The vehicle created is the "Fideicomiso," (FEE-DAY-E-CO-ME-SO). This real estate trust is constituted to administer the ownership of property in the restricted zone. The foreigners, as beneficiaries of the trusts, are able to enjoy unrestricted use of land located in the restricted zone without violating the law. The Foreign Investment Law created in 1973 and revised in 1994 defines the Fideicomiso process requirements. Current law does not allow a Fideicomiso for properties larger than 2000 square meters without a rather large additional investment required within a very short time period after acquiring the property.
In Mexico, the only Fiduciaries allowed by law are banks that meet the strict requirements established by the Mexican Federal Government to act as a Fiduciary or Trustee. This is the reason that a bank that meets these requirements is involved in the process. In the United States a Fiduciary could be anyone designated by the beneficiary but in Mexico and much of Latin America this isn’t the case.
The Fideicomiso is very similar in structure to a “Deed of Trust” used in some states in the U.S. because there are three parties involved. The difference between a deed of trust in Mexico and in the U.S. is that in the U.S., a deed of trust is typically used to secure a mortgage. In Mexico while the parties involved are the same, they have different roles in the process.
The three parties involved in the Fideicomiso are:
- The trustor (the original owner of the property);
- The trustee (the bank); and
- The beneficiary (the buyer)
The parties of the Fideicomiso and their responsibilities are named and memorialized in the deed or “Escritura”. The Escritura is the actual document that is recorded in the Registro Publico or Public Registry. Once it has been registered in the Public Registry, it establishes the legal basis by which the bank holds legal title to the property in order to act on the behalf of the foreign buyer or “Beneficiary”. This trust deed assures the foreign buyer of all rights and privileges of ownership. The Foreign Investment Law allows the trust to be established for a term of 50 years and is renewable any time during its existence in perpetuity.
The following information is required to make application for the Fideicomiso:
- Name and nationality of the beneficiary and the substitute beneficiaries;
- Name and nationality of the person to sign for the trustee;
- Name and nationality of the trustee;
- The measurements and boundaries of the property;
- The distance of the real property from the Federal Maritime Zone and the national border of Mexico; and the designated use of the property.
When establishing the trust, the bank (through the Notary Public) is required to check ownership, insurance, and liens against the property. At the time of purchase, the existing beneficial rights of an established trust deed may be assigned or a new 50 year trust created. The bank holds the trust deed for the beneficiary. The property is not part of the bank's assets and cannot be liened or attached for any other obligations.
YOU the purchaser are the beneficiary and have all rights of enjoyment of the property including the ability to remodel, lease, mortgage, will the rights to your heirs or sell the property at any time. Any construction must of course be in accordance with local zoning regulations and permitting requirements. Legal right to rent the property requires approval from the ministry of foreign affairs. This approval can be built into the original trust document or added to the trust deed later by an attorney.
Trusts are renewable at any time by simple application. The cost to establish a Fideicomiso varies from bank to bank. The range is generally between $1,500 to $2,500 U.S. dollars for the trust set up. Maintenance of the trust generally costs between $400 to $600 U.S. dollars for each year. The maintenance fees are paid directly to the bank that holds the trust.
Bank trusts are established by a Mexican Notary, following the receipt of a permit by the Minister of Foreign Affairs. This procedure is routine due to the large number of foreign property owners. The forms are standardized and the entire process is usually completed by the Notary as part of the closing procedures.