Buying In Mexco

Mexican Real Estate History Financing History Capital Gains in Mexico

Manifesting Your Construction

 CAN FOREIGNERS REALLY OWN PROPERTY IN MEXICO?
Yes, Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own property outright within the restricted zone. Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts in buy real estate, they must have a bank act on their behalf, much as a trust is use to hold property for minors because they also can not contract. The following is a brief outline of the law regarding such trust, known as "fideicomisos", but potential buyers should always get advice and have all real estate transactions overview by a licensed Mexican attorney.

WHO'S INVOLVED IN REAL ESTATE TRANSACTIONS IN MEXICO?
Normally, there are three to four players involved in any real estate transaction in the restricted zone: 

         A real estate company 
         The buyer's lawyer 
         A bank 
         A public notary 

 A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of sale. Additionally, an 
attorney can do a title search and point out any problems or alternatives a buyer may have. An attorney can inform the buyer 
regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, 
closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular
circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or
other savings when the buyer eventually sells the property.          

When looking for an attorney it is important to remember that any Mexican attorney can normally handle a real estate transaction.
The buyer is not limited to only the local attorneys where the property is located. All real estate transactions involving a 
trust are governed by federal law.. 

THE RESTRICTED ZONE AND "FIDEICOMISOS"

    The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore 
deposits, natural gas and oil; but that such ownership may be assigned to individuals. The Mexican Constitution prohibits direct
ownership of real estate by foreigners in what has come to be known as the "restricted zone." The restricted zone encompasses all land 
located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline.
However, in order to permit foreign investment in these areas, the Mexican government created the "fideicomiso," which is, roughly 
translated, a real estate trust. This type of trust is similar to trusts set up in the United States, but a Mexican bank must be 
designated as the trustee and, as such, has title to the property and is the owner on record. The Mexican Government created the 
"fideicomiso" to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled 
foreigners,as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the 
laws of Mexico.

A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of 
property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions.
The bank acts on behalf of the foreign buyer, taking title to real property.  The bank, as trustee, buys the property for the foreigner,
then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains
and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell
the property that is held in trust at its market value to any eligible buyer.     In order to allow foreigners to enter into the agreement contained 
in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting
to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up. 
The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real 
property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the use and exploitation of the 
property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be: 

      Mexican corporations with foreign investment 
      Foreign individuals or legal entities 

The law defines "use" and "exploitation" as the right to use or possess the property, including its fruits, products, or any revenue 
that results from its operation and exploitation by third parties or from the bank/trustee. The law does not clarify how trust permits 
will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits "...considering the economic and social
benefit, which the realization of such operations imply for the nation." The basic criteria used to determine such benefits are 
likely to change somewhat with the publication of the new foreign investment regulations. However,it is reasonable to anticipate that 
some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign 
investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand
the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government
has used in the past, to better understand what criteria will be used  by the Ministry in the future. 

The Ministry of Foreign Affairs must grant any petition for a trustpermit that complies with the stipulated requirements within 5 working
days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application
is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired
by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum
period passes with no action by the Ministry, the trust permit or registration are considered authorized.          

The beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use 
or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary 
obligation to respect the rights of the beneficiary. 

A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary 
can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged
in by foreigners.

Heart and Soul

Randy Thompson

 Sales Associate