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 can 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 100kilometers (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 you, then has a fiduciary obligation to follow instructions
given by you who is the trust beneficiary. The trust beneficiary retains
and enjoys all the rights of ownership while the bank holds title to the
property. You are then entitled to use, enjoy, and even sell the property
that is held in trust (for any amount) to any eligible buyer.
In order to allow foreigners to enter into a legal agreement, Mexico requires
all foreigners to apply for land 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. Any
Mexican legal representative familiar with real estate transactions can
take care of all the details for you.
The Ministry of Foreign Affairs must grant any petition for a trust permit
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.
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. 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.
The following information is provided as a general and informative background
to Mexico. Wherever possible you are encouraged to utilize the services
of a professional.
Q: Are the permits that Article Twenty Seven requires of foreigners hard
to get?
A: The foreigner applying for permission to buy land must prove his immigrant
status in Mexico. Non-residents and tourists can buy land through a trust.
If the foreigner resides in Mexico, he can acquire directly the property
as long as it is not within thirty-one miles from seashores or sixty-two
point five miles from the borders.
Q: What about condominiums or houses located in Acapulco, Puerto Vallarta,
Cancun, or any of the resorts of Mexico'?
A: The Constitution forbids direct ownership by foreigners inside thirty-one
miles from the sea or sixty-two point five miles from the borders. However,
they have always been permitted to buy on a trust basis. In this type of
purchase, a bank is the trustee, or owner, of the real estate. The beneficiary,
having all the rights to use, enjoy and sell the property and any assets
on the property.
Q: What happens if a foreigner decides to sell after some years?
A: He may do so, and he may profit by an increasing value.
Q: Can the foreigner rent or sublet his apartment in these condominiums
or trusts?
A: Yes, he may rent to anyone he desires, keeping the rent for periods not
exceeding ten years.
Q: What happens if the beneficiary dies?
A: At the time the trust is set up, a substitute beneficiary is named. This
person has the same rights as the first beneficiary in case of his death.
Q: How is a trust set up?
A: The trust agreement is drawn up before a notary public. The participants
in the transaction are the seller who must have clear title to property,
the bank as trustee, and the buyer or beneficiary or his legal representative.
Q: How much does it cost to buy properly in a trust?
A: There are expenses for the authorization from the Ministry of Foreign
Affairs, the registration in the Registry of Foreign Investments, and the
fees of the notary public. The bank charges one percent of the amount of
the transaction for the preliminary studies and the drawing up of the agreement.
Q: What are the responsibilities of the beneficiary?
A: He must pay the trust annual fees punctually. Also, he must pay property
taxes, water, and other utility bills when due.
Q: Is it true that the new law that regulates foreign investment is against
new investments?
A: Not at all. The new law is not only fair, but even positive in the sense
that now everybody knows where he stands. In the long run, it is going to
create a better atmosphere for mutual respect and understanding. Prospective
foreign investment from now on will require permission from the Commission
of Foreign Investments.
Q: Can foreign investors come to Mexico and buy an established industry?
A: As long as they acquire forty-nine percent (49%) of that corporation,
there is no required permit.
Q: What should you do when buying a home?
A: After you make the decision to buy an attorney or legal professional
can help you select a first-class notary public and one that has an excellent
reputation. It is customary for the buyer to select the notary public. The
Public Registry of Property has to be checked to ascertain if the property
in question has any liens or encumbrances and if the title is in good legal
standing. The notary does this and also presents the application to the
Ministry of Foreign relations when a foreigner is the buyer. It is also
recommended that you hire an attorney to review the contract.