This Guide:
Acquiring Real Estate in Mexico through a Bank Trust (Contrato de Fideicomiso) at the Restricted Zone
Introduction
We would like to provide a general overview on acquiring real estate in Mexico by addressing a broad range of issues foreigners have encountered. Focussing more narrowly on acquiring/ buying property in Mexico through a Contrato de Fideicomiso/ Bank Trust.
The idea of having a second home in Mexico or even retiring in Mexico starts taking shape once you have been there. By then, it is time to secure more permanent access to Mexico.
The first step is to start talking with real estate brokers, friends, and others who have experience acquiring (purchasing) real estate in Mexico.
The second step for you to learn is that you cannot own title to a beach or border (restricted zone) home directly. It is usual to hear about the Contrato de Fideicomiso, or bank trust (hereafter "Fideicomiso"). The realtors and the developers mention a Contrato de Fideicomiso, or bank trust, and tell you that is a normal and legal Mexican procedure, but you are suspicious.
To foreigners faced with acquiring (purchasing) property in the restricted zone in Mexico, the Contrato de Fideicomiso is a total mystery.
Foreigners may not understand:
- When are they required to buy through the Contrato de Fideicomiso
- The implications and particularities of not buying or selling at the restricted zone but acquiring rights or doing a cession of rights as beneficiaries
- How is the Contrato de Fideicomiso created
- Which rights they have acquired over the real estate
- Who is the trustee
- Which costs are involved
- How long it lasts
- And whether the buyer can direct the trustee to sell or transfer the real estate held in the Contrato Fideicomiso
- Ultimately, what foreigners want to know is whether the arrangement is secure.
Characteristics of the Contrato de Fideicomiso
As stated above, foreigners acquiring (purchasing) real estate in the Restricted Zone for residential purposes must acquire ( purchase) through a Contrato de Fideicomiso. As detailed in Article 381 of the General Law of Commercial Certificates and Credit Operations (the "LGTOC"), the seller (the "Grantor") transfers title to the real estate to a Mexican financial institution (the "Trustee") in trust to be used for the purposes designated by the grantor, for the benefit of the buyer, or the person(s) or entity(ies) designated by the buyer (the "Beneficiary or Beneficiaries"). The LGTOC provides the general legal framework, parties to any Contrato de Fideicomiso agreement must enter to the terms and conditions of the agreement provided by the banks.
The Grantor/ Fideicomitente
The Grantor transfers title to the real estate to the Trustee to be held in trust for the benefit of the Beneficiary(ies) under the Contrato de Fideicomiso agreement. The agreement should expressly state that the Contrato de Fideicomiso is irrevocable and that the seller reserves no rights. Otherwise, the Grantor might retain some rights under the Contrato de Fideicomiso during or upon expiration of its term.
The Trustee / The bank
The Trustee administers the Fideicomiso as fiduciary for the Beneficiaries, and is responsible for carrying out the terms of the agreement. In Mexico, only authorized Mexican financial institutions can act as Trustees. The Trustee can resign only for good cause, and then only after a Mexican judge has confirmed that good cause exists. The Trustee cannot do anything with the property other than what is allowed by the agreement. The Trustee is liable for loss or damage suffered by the Beneficiary as a result of the Trustee's negligence.
The Trustor/Beneficiary (Buyer)
The buyer typically is the Beneficiary of the Trust. However, the buyer designates other Beneficiaries as second beneficiaries. In fact, we recommend that the Contrato de Fideicomiso agreement, in case we have two beneficiaries is stated that if one passes away the other will stay with the total rights of the property; and, also is recommended to provide for substitute Beneficiaries the percentage for each one, so that if the initial Beneficiary dies, the right to use and enjoy the real estate will pass to the substitutes without the need for probate. Those rights generally include the ability to use, rent, or improve the property, as well as to transfer, cession, and, in general, undertake, with the Bank approval in writing.
Fideicomiso Agreement, Registration, and Costs
The Bank must obtain a permit from the SRE to acquire the real estate in trust if the Beneficiaries are foreigners. The Contrato de Fideicomiso agreement must be executed before a Mexican notary, who will register it in the Public Registry of Property. While the costs of establishing a Fideicomiso and closing on the acquisition vary depending on the value of the property, the Trustee, and the location of the real estate, costs range from 5% to 10% of the purchase price. Typical costs include the Bank fee, permit fee, a no lien certification, appraisal fee, notary fees, and real estate transfer tax. The Bank also charges annual fees, which may range depending on the Bank and the value of the property, and additional fees in the event of a later transfer. Must remember that, capital gains taxes are also included.
The Mexican Constitution
The Article 27 of the Mexican Constitution states that national banks have the faculty to request a permit for ownership rights to lands in the Restricted Zone in Mexico in which the foreigners are the beneficiaries of the rights and also foreigners agree before the Secretary of Foreign Affairs (SRE) to consider themselves as Mexican nationals with respect to such property, and not to invoke the protection of their own government in matters relating to the property under penalty of forfeiting the property if they fail to comply with this provision. Furthermore, Article 27 establishes an outright prohibition against foreigners acquiring direct ownership of real estate within 100 kilometers of the national borders or 50 kilometers of the coastline (this zone is now known as the "Restricted Zone"). These constitutional restrictions have been softened by Mexico's foreign investment laws and regulations.
Mexico's Foreign Investment Law
In 1993, Mexico enacted the Foreign Investment Law (the FIL) liberalizing land ownership for foreigners in Mexico. The FIL (as amended) and its regulations dictate how foreign investors may acquire land in Mexico. If the real estate is not within the Restricted Zone, foreigners can obtain permission to acquire direct ownership of the property by simply notifying the SRE of their agreement to abide by the Calvo Clause. There are a few types of real estate (e.g. agricultural lands) that have specific rules.
For real estate within the Restricted Zone used for non-residential activities (i.e. tourism, real estate development, commercial or industrial purposes), foreigners may acquire the land through a 100% foreign-owned Mexican legal entity (a Mexican corporation or limited liability company) that is authorized to have foreign ownership by the SRE and whose bylaws contain the Calvo Clause. If the land is located within the Restricted Zone and is used for residential purposes, foreigners may only acquire the rights to use and enjoy the land through a Contrato de Fideicomiso, but may not acquire an outright title to it. Any disputes as to whether property lies within the Restricted Zone are reviewed and resolved by the SRE.
Residential versus Non-residential
Article 5 of the 1998 regulations to the FIL lists some activities that will be considered non-residential. These include those:
- Subject to a time share;
- Intended for some industrial, commercial or tourism activity, and which may be used simultaneously for residential purposes;
- Acquired by credit institutions, financial brokers, and credit auxiliary organizations, repossessed to recoup debts in their favor;
- Used by legal entities to fulfill social objectives that may consist in the transfer, urbanization, construction, and all other activities inherent in the development of real estate projects until they are commercialized or sold to third parties; and
- Real estate assets used for commercial, industrial, agricultural, livestock, fishing, forestry uses, and for rendering of services.
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please do not hesitate contacting us here
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