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Mexican Trust – Fideicomiso

By far the most asked question during the process of purchasing real estate in Mexico. Don’t let legal terms confuse you. You rightfully and legally own your property. It is very simple actually, and no, it is not a 99-year lease. The concepts and processes are pretty straight forward. As a foreigner, two ways you can own real estate in Mexico are:

FIRST OPTION: MEXICAN CORPORATION

A Mexican corporation is incorporated and owned in a fee simple title to property, regardless of size, location, value, or purposes of it. This is generally recommended for investors that are looking to develop and/or acquire more than one real estate transaction.

Mexican corporations work in a similar way to American corporations, and there is no limit as to the number, citizenship, or nature of the shareholders. Check with your legal representation as there are multiple corporate structures and some of which are more beneficial to foreigners.

Also, for tax purposes, developing and/or commercial expenses are better deducted through a corporation than through a Trust.

SECOND OPTION: MEXICAN TRUST OR “FIDEICOMISO

This method is the most utilized for a private investor or a residential piece of property, without commercial purposes.

Mexican law provides that foreign individuals and/or entities (including foreign trusts) may own fee simple title to land in all of Mexico, except in the so-called “Restricted Zone”, which is the strip of land that goes along the shores (50 kms. inland) and the borderlines (100 kms. inland). Therefore, when land is purchased directly or indirectly by foreigners through foreign entities or trusts, it is typically bought through a Mexican trust or “fideicomiso”.

The following three persons are listed in the fideicomiso:

The Mexican owner of land that originally conveys the property into the trust

The Mexican financial institution that holds title to the property

The individual(s) or entity(ies), national or foreign, of the Trust: that has the authority to instruct the Trustee in connection with the property

The purchase of property through a trust works in a very similar fashion as a regular purchase and sale transaction: the seller (‘Trustor’ or ‘Settlor’) shall execute a trust agreement, whereby a trust is created and title is conveyed to a Mexican bank (‘Trustee’) for a purchase price, and the Mexican bank accepts such conveyance, in the understanding that (i) the purchase price is paid by a third party (normally a foreigner), who is appointed Beneficiary of such Trust, (ii) the bank acquires title, acting on behalf of such third party and, therefore, (iii) the bank is not allowed to take any act or decision regarding the property unless it is instructed in such sense by the Beneficiary, who has all decision rights.

Then, in practice, although the bank has the nominal title to the property, they do not get involved at all in the maintenance or management of the property. The Beneficiary of the Trust is the person deciding about the development, lease, sale, mortgage or whatsoever regarding said property.

Typically, the bank has no activity, except in case of litigation, when the Trustee shall grant the Beneficiary’s attorneys a special Power of Attorney to appear in court on behalf of the Trustee, nominal owner of the property.

In addition, the property held in trust is kept in a “Fiduciary Division”, so it is never considered an asset of the bank, so no creditor of the bank may go after the property, ever.

When the property to be purchased is already in a trust, the buyer may elect on whether to continue on said trust (by assuming the existing trust rights of the selling beneficiary) or to terminate the existing trust and have the property conveyed into a new trust.

These trusts have a 50-year life, with the option of an immediate renewal for another 50-year period; thereafter, the property should be sold to a person with capacity to acquire title (however, the trend is to liberalize the ownership, so most likely, such requirement will be eliminated in some years).

A specific permit from the Foreign Relations Secretary is required to set up a trust and the relevant Trust Agreement needs to be contained in a Deed, signed by the parties thereof in front of a Mexican Notary Public, and should be recorded at the Cadaster Offices, at the Public Registry of the Property and at the Foreign Investment Registry. Your closing attorney will help with this process as they are regular activities for 60% of real estate that is closed in Los Cabos.

Thereafter, no further permit or notice is required, unless one or more of the parties thereof vary, or the properties subject to the Trust are modified, either by purchase of additional land, merger, subdivision, etc.

On average trustee bank charges an annual fee of around $550.00 US dollars.

This article was written by RODRIGO GOMEZ, for informational purposes only and are not legal advice or a substitute for legal counsel. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not rely or act upon this information without seeking professional counsel.

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