by Julie Kershner - Cabo Sales Manager REmexico Real Estate
BUYING PROPERTY IN LOS CABOS can seem like a daunting task, however by dispelling some myths the process is not unlike buying property in the United States, with obvious differences in terminology.
Our market in Los Cabos continues to improve in terms of strength and security. Our real estate association has worked tirelessly in developing strict standards of practice and adopting the Code of Ethics from the National Association of Real Estate. We have a comprehensive Multiple Listing Service, with accurate information.
Foreigners Can’t Own Property in Mexico
NOT TRUE. In most of Mexico, foreigners can own land outright with a fee simple title, which is the same as in the United States. Only in the restricted zone—50 kilometers (31.05 miles) from the ocean and 100 kilometers (62.1 miles) from the borders—is it true that foreigners can’t hold fee simple title. The entire Baja Peninsula is considered a “Restricted Zone.” When a foreigner buys property in the “Restricted Zone,” title to the real property is transferred to a Mexican bank, which holds it in trust for the foreign buyer as the beneficiary. Foreign buyers, however, have all the rights of ownership. What they own under a bank trust (known as a Fideicomiso) is the right of ownership rather than the real estate itself. It is good to be aware of this legal distinction, although in practice it makes virtually no difference. The beneficiaries of a bank trust may buy, sell, lease, use, bequeath, improve, transfer, and encumber the property.
A Bank Trust (Fideicomiso) is a Lease Agreement
NOT TRUE. Under a bank trust (Fideicomiso) the beneficiary (buyer) has all the rights of ownership: the right to buy, sell, lease, use, bequeath, improve, transfer, and encumber. A lease grants only the right to use.
The Mexican Government can take away Foreigner’s Property at any time
NOT TRUE. The bank trust is established by the government and gives foreigners the same rights of ownership as Mexican citizens. The only difference is that they never receive the actual fee simple title. It is held in trust for them by a bank, for a term of 50 years, renewable in increments of 50 years.
Several years ago, the U.S. media featured a group of Americans in Baja California Norte who complained that they were being “evicted” from their property. They had “purchased” homes in an upscale development in 1986. What had happened was that a certain group of landowners got their boundary lines redrawn, then “sold” the land thus acquired to an unscrupulous American developer, who built the homes and offered them for sale to other Americans. These buyers went ahead with their purchases even though many had been warned that the developer’s title to the land was in dispute and that litigation was pending. The courts eventually decided in favor of the Mexican landowners, and the Americans were dispossessed. In the U.S. it was reported that “the Mexican government” had taken away their land. In fact, it was simply the law being enforced.
What is FIDEICOMISO?
With the advent of the North American Free Trade Agreement (NAFTA), the Mexican government recognized that it was crucial to make foreign investment in Mexico safer and easier for non-Mexican citizens. Because the Mexican Constitution prohibits foreigners from purchasing or owning real estate within 60 miles of the U.S. international border, or within 30 miles of the Mexican coast, an innovative and secure method of holding title was created. This method allows foreign ownership through a Mexican property trust called a Fideicomiso. This is a trust agreement, much like an estate trust in the U.S., which gives the Purchaser all of the rights of ownership.
In order to obtain the rights of ownership, the Department of Foreign Affairs in Mexico City issues a permit to the Mexican bank of the Purchaser’s choice, allowing the bank to act as Purchaser of the property. Essentially, the bank acts as the “Trustee” for the trust and the Purchaser is the “Beneficiary” of the trust. The trust is not an asset of the bank; the banks simply act as the Trustee to hold the trust.
Much like living wills or estate trusts in the U.S., the Mexican bank, or Trustee, takes instruction only from the Beneficiary of the trust (the Purchaser). The Beneficiary has the right to use, occupy, lease and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified Purchaser, or bequeath the property to an Inheritor. The initial term of the trust is 50 years, however the trust can be renewed for additional periods of 50 years indefinitely, providing for long-term control of the asset.
The Purchaser holds the same rights as a property owner in the U.S. or Canada, including the right to enjoy, sell, rent, improve the property, etc.
This is not to be confused with a land lease. The property purchased is placed in a trust with the Purchaser named as the Beneficiary of the trust — the Purchaser is not a lessee. If the property purchased is already held in a trust, the Purchaser has the option of assuming that trust, or having the property vested in a new trust.