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FOREIGNERS
BUYING & OWNING PROPERTY IN MEXICO
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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 to buy real
estate, they must have a bank act on their behalf, much as a trust
is used to hold property for minors. The following is a brief outline
of the law regarding such a trust, known as "fideicomisos",
but potential buyers should always get advice and have all real
estate transactions overview by a licensed Mexican attorney.
Besides formalizing your real estate transaction, an attorney can
be very helpful in saving you money. This is because attorneys are
involved in many different transactions and have contacts with banks,
notaries, and the Mexican government on a regular basis. Because
of this they are aware of the most competitive cost and fees involved
in a transaction and can make sure that the buyer is given the best
possible prices. An attorney can also 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. This means that all such transactions are carried
out the same way regardless if the property is in Cancun or Los
Cabos.
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," (FEE-DAY-E-CO-ME-SO)
which is, roughly translated, a real estate trust. Essentially,
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 of 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 law.
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.
Given the changes made for 1997 in the foreign investment Law, and
the fact that a buyer can now apply for and obtain a trust permit
in a matter of days, it is always better to secure the trust permit
from the Ministry of Foreign Affairs before entering into any contract.
There is a common misconception among foreigners investing in Mexico
that once the trust expires, the beneficiary loses all rights and
benefits of the sale of the property held in trust. This is not
the case. On the contrary, 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.
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