Many rumors are constantly floating around about foreign investors being scammed out of all their money on Mexican real estate.
Owning land in Mexico is no longer sketchy like it was back in the old days. Due to established and well defined rules regarding non-Mexicans owning land, owning property in Mexico is easier and safer than ever. The rules protect foreign ownership rights, and promote foreign investment.
Over the last decade property in Mexico has become a practical investment strategy. Long gone are “promises and handshakes.” Investors are now protected by U.S. title insurance, bonded escrow accounts, extensive title searches, and “Fideicomisos.”
Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. They can indirectly own property in the “restricted zone” through the use of real estate trusts called "Fideicomisos."
Fideicomisos are the number one way foreign investors are protected. A Fideicomiso is a safe, almost forever renewable Mexican property trust, which was established especially to protect foreign investors.
What is a Fideicomiso?
A Fideicomiso (FEE-DAY-E-CO-ME-SO) is a trust created to enable foreigners to enjoy unrestricted use of land located in the restricted zone without violating the law. It roughly translates to mean a real estate trust. It 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 of record. Foreigners are set up as beneficiaries of the trusts.
There are two ways for foreigners to hold title to property in Mexico. They are a Fideicomiso ( “Trust”) or through a Mexican Corporation.
· What is a trust and who needs a trust ownership?
Since 1973 a constitutional amendment know as the Foreign Investment Law has allowed non-Mexicans to acquire coastal and border property through a “trust” called fideicomiso,established with a Mexican Bank.This trust assures the foreign buyer of all right and privileges of ownership, and is needed to own properties which fall into the “restricted zone” by article 27 of the 1917 Mexican Constitution. As of 1994 the Foreign Investment Law dictates that the trust be established for a term of 50 years, renewable at any time during its existence by simple application
· Why trust ownership?
The trust arrangement was established by the Mexican government as a way of protecting foreigners who own property in Mexico by means of the trust there is an automatic authoritative review of the transaction to ensure it is legal and unencumbered prior to the trust agreement being signed by the purchaser, the bank must confirm the seller’s information; i.e. proper ownership, insurance any liens or indebtedness against the property. All of which provides protection to the foreign owner.
· How does the trust work?
The bank know as the “trustee” holds the Deed for the purchaser, known as the “beneficiary” This property is not part of the Bank’s assets and cannot be subject to a lien or attached to bank obligations. While the bank is the technical owner of the property, they have a statutory obligation to follow the beneficiary’s instructions concerning the property.
· What rights does the beneficiary have to the property?
The beneficiary has all ownership rights to the property and may sell, lease, mortgage, pass to heirs or do any other legal act with the property. The beneficiary may transfer or assign his beneficial interest to any person and keep the profits from the sale of the property subject to applicable tax laws and expenses for the sale. Property held under a trust can be passed on to heirs and there is no inheritance tax. This is accomplished by naming them as substitute beneficiaries in the event of your death.
· How long does the trust last?
Trust are granted and now extended in 50 years periods. The original periods were 30 years and if you purchase property currently held in a trust, a new 50 year period can be established or the existing trust can be assigned. Trusts are renewable at any time by simple application.
· How much are trustee fees?
The costs to establish a fideicomiso trust vary from bank to bank. The typical range is approximately$1,500U.S.to $2,000U.S. for trust set up and about $500 to $550U.S. each year for management of the trust. These fees are paid directly to the bank that has your trust.
· How are these trust established?
The fideicomiso trust are established by a Notary Public following the receipt of a permit by the Ministry of Foreign Affairs. There are a large number of foreign-owned properties in Mexico, especially Cancun standard forms are utilized by local Notary Public.
