HOW CAN I AS A FOREIGNER OWN PROPERTY IN THE RESTRICTED ZONE IN MÉXICO?
To own a property in the Restricted Zone a trust, called a ‘Fideicomiso’ can be set up, with the foreigner as the beneficiary.
Another way to own a property in the restricted Zone is by creating a Mexican Corporation.
WHAT IS A FIDEICOMISO AND WHY DO I HAVE TO USE IT TO BUY A PROPERTY?
THE RESTRICTED ZONE AND “FIDEICOMISOS”
In an attempt to avoid some of the problems Mexico had to deal with in the past with regard to its territorial rights, the 1917 Mexican Constitution enacted restrictions on property ownership by foreigners. Basically the law declared 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 50 kilometers (about 31miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the “fideicomiso”, which can be roughly translated as a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but in this case 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.
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. Since foreign buyers do not have the legal capacity to enter into a normal real estate sales contract, due to Constitutional restrictions, the bank acts on their behalf.
The bank, as trustee, buys the property for the foreigner, and has a fiduciary obligation to follow instructions given by the beneficiary. The beneficiary of the trust retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is the beneficiary of the trust and is entitled to use, enjoy and, if he or she should decide to, even sell the property held in trust at its market value to any eligible buyer.
In summary, the following parties are involved in a real estate trust:
– The seller of the property, or trustor (el fideicomitente) who irrevocably transfers title to the property to the bank.
– The bank, who acts as trustee (el fiduciario) and holds title to the property and is obligated to administer the property only for the benefit of the buyer or beneficiary.
– The buyer, or beneficiary (el fideicomisario) who is entitled to use, enjoy, lease, or sell the property held in the real estate trust without limitation whatsoever.
– excerpted from “How to buy real estate in Mexico”
(c) 1994 by Dennis Peyton
IS THERE ANY RESTRICTION ON THE SIZE OF THE LAND I´M PURCHASING BY MEANS OF A FIDEICOMISO?
Yes, according to article 14 of the Foreign Investment Law. The Ministry of Foreign Affairs shall determine the permits required for setting up a Bank Trust on a piece of land over 2000 square meters according to the economic and social benefit of that trust to the Nation. In other words, they require a commitment letter from the beneficiary of the trust to invest a certain amount of money on the property in order to grant the permit for the Fideicomiso. Again, this is for pieces of land over 2000 square meters.
WHAT ARE THE REQUIREMENTS FOR THE CREATION OF A TRUST AGREEMENT?
A Trust Requires:
The authorization from the Secretary of Foreign Affairs that is provided by article 11 of the Mexican Foreign Investment Law.
A trustee bank.
A deed attested and certified by a Mexican Notary, who is obligated to assure the authenticity and lawfulness of the transaction.
WHAT IS THE SUBJECT-MATTER OF THE TRUST?
The Subject-Matter of the trust is constituted by real estate property transferred by the trustor to the trustee (institution), as well as the construction, buildings and improvements, if appropriate, made by and on account of the beneficiary.
WHAT IS A CORPORATION?
Like in many of the countries worldwide, a corporation is a legal entity for commerce purposes, and has legal life apart from their individuals (shareholders). In Mexico, corporations are not allowed to be fully owned by one single individual. To form a corporation in Mexico, there is need of at least of two stockholders (or shareholders). The type of corporation depends on the type of business.
DO I NEED A MEXCIAN PERSON TO BE A PART OF THE CORPORATION TO FORM IT?
No, people tend to think this, but it is just misinformation. A corporation can be formed by 2 or more persons (physical or moral), of any nationality, with the condition that later on they get their residence cards.
WHAT ARE THE DIFFERENCES BETWEEN THE MEXICAN CORPORATION SYSTEM AND THE BANK TRUST SYSTEM?
Either way is a legal way for foreigners to acquire property in Mexico’s protected zone, but there are limitations for the creation of the Trust.
A Mexican corporation, wholly owned by foreigners, can be the Mexican entity required by the Constitution to own property in the Restricted Zone. Foreigners can own a Mexican corporation and hold all the papers to it. Your Mexican corporation holds the deed, which means you get to personally possess the deed. You no longer need to go through the bank to get approvals to build, sell, or improve your property and there are no bank fees.
An added benefit to establishing a Mexican Corporation is that your corporation can own more than one property. You do not need to form a separate corporation for each property, as is the case with the Bank Trust (fideicomiso) system. Also, if you should decide to sell your property in the future, you can sell your entire corporation, all of your stock, sell part of it, some of your stock, or sell just the property out of it, and keep your corporation.
WHAT DO I HAVE TO DO BEFORE I BUY A PROPERTY?
We recommend our clients to request that we perform a thorough Title Search and as the case may be, we recommend that we perform a Due Diligence on the property.
HOW ARE THE PROPERTIES ZONED?
As in the United States and other countries, zoning in Mexico varies from one area to another. Easy Legal Mexico, at your request, can verify the zoning of the property you plan to purchase before the agreements are signed, so that you can be sure of the permitted use of each property prior to closing.
WHIAT IS THE ROLE OF THE NOTARY PUBLIC IN MÉXICO?
The Notary Public is the most important person you will deal with when you make a property investment in Mexico. Do not confuse the role of the Notary Public in the US or UK with its counterpart in Mexico: they are quite different. In the UK for example, almost anyone can become a Notary Public. Not so in Mexico, where the role is appointed directly by the State Governor (the highest seat in State Public Office).
The Notary Public has the power to witness and certify important business documents which require absolute authenticity. The appointment also holds responsibility for the management and secure storage of original records. Notary Publics must be Mexicans, they must have a degree in Law, have work experience at a Notary Public office and they must pass a stringent exam. Those who pass, in time, are appointed as Notary Public by the State Governor.
Under Mexican Law, the deed to the property must be prepared by a Notary Public.
The Notary Public will ensure that all documentation and permits are in order so that the transaction can proceed.
Easy Legal Mexico work with the best Notaries in the Yucatan Peninsula, so you can be sure that all your transactions will be safe.