by Julie Kershner
You’ve probably heard that foreigners are unable to own property in Mexico. That is untrue, and in most of Mexico, foreigners can own land through fee simple title, the same kind we have in the United States. Only in the restricted zone—50 km. (31.05 miles) from the ocean and 100 km. (62.1 miles) from the borders—is it true that foreigners can’t hold fee simple title. Baja Peninsula is considered a “Restricted Zone”. This land is restricted through the Mexican Constitution.
To encourage foreign investment in real estate without infringing on the Constitution, Mexico changed its foreign investment laws in 1971 and developed the bank trust (fideicomiso), as a way for foreigners to buy residential property in the restricted (coastal) area. The terms Bank trust and fideicomiso are used interchangeably.
Mexican nationals also have the option of using the fideicomiso to acquire real estate or other assets. To understand why this might be advantageous to a Mexican citizen, as well as a foreigner, let’s examine the various parties to the fideicomiso.
The buyer of the property is the beneficiary of the fideicomiso. The beneficiary can be a person, a couple, a family, an LLC or a trust. The buyer/beneficiary has all rights of ownership: the right to buy, sell, lease, use, bequeath, improve, transfer, and encumber.
The seller is the grantor. With the sale of the property, a seller relinquishes all rights of ownership.
The Mexican bank is the Trustee and has a fiduciary responsibility toward the buyer, which means the bank must act in the best interest of the beneficiary. A foreigner is unable to purchase a property in the Restricted Zone without a fideicomiso. The bank actually holds title to the property. This is an important advantage in that the trust acts as a protection against third-party claims against the assets within the fideicomiso. In simple terms, a party is unable to attach a lien on a property held in a trust/fideicomiso.
The fideicomiso allows for substitute beneficiaries to be added during the creation of the trust. In the case of the death of the beneficiaries, the substitute beneficiaries may avoid Mexican probate—another important advantage.
Although the bank has title to the property, it’s a title without benefits. The property is not considered an asset of the banks. The bank cannot sell, rent, or receive any benefits from the property, because they don’t control the property. If the Trustee goes bankrupt, the fideicomiso transfers to another Mexican bank.
When the foreigners choose a property, the bank will be instructed to purchase the land as Trustee by seeking a permit from the Ministry of Foreign Affairs. The bank, as Trustee, ensures the terms of the trust are fulfilled, assuming the technical, legal and administrative supervision of the agreement for the Beneficiaries protection.
The fideicomiso generally has a legal limit of 50 years, and it is possible to renew trusts for additional 50 year increments. It costs about $1500 usd to set up a bank trust and between $400 and $600, annually, to maintain the trust. Another advantage of the trust is that it’s transferable and in most cases does not have to be re-created when the property is sold.
There has been recent talk about a change to the Constitution allowing foreigners to purchase real estate in a fee simple manner in the restricted zone. Personally, I like the protection the bank trust offers and will continue using the fideicomiso as the manner in which I hold title to properties in Mexico.