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Mexico Real Estate Myths
There are a number of misconceptions and myths surrounding foreign ownership of real estate in Mexico.
In the article on this page, you will learn how foreigners can legally own property in Mexico. Please take the time to read this article. It explains the legal framework for foreign property ownership and outlines the steps necessary to secure your investment in Mexican Real Estate.
Please feel free to call our office or email us if you have any questions about this process.
Toll free: 877-276-2275
Buying Real Estate in Mexico Through a Bank Trust (Fideicomiso)
BY: PATRICK J. KELLY & LUIS G. RESÉNDIZ
The Mexican Constitution
Article 27 of the Mexican Constitution states that foreigners may have ownership rights to lands in Mexico provided that foreigners agree before the Secretary of Foreign Relations (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 (this provision is known as the "Calvo Clause"). 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, which are not covered by this article.
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:
Characteristics of the Fideicomiso
As stated above, buyers purchasing real estate in the Restricted Zone for residential purposes must purchase through a Fideicomiso. As detailed in Article 381 of the General Law of Commercial Paper 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"). While the LGTOC provides the general legal framework, parties to any Fideicomiso agreement are free to negotiate most of the terms and conditions of the agreement.
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 Fideicomiso agreement. The agreement should expressly state that the Fideicomiso is irrevocable and that the seller reserves no rights. Otherwise, the Grantor might retain some rights under the Fideicomiso during or upon expiration of its term.
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 buyer typically is the Beneficiary of the Trust. However, the buyer may designate other Beneficiaries. In fact, we recommend that the Fideicomiso agreement provide for substitute Beneficiaries, 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, cause its sale or transfer, and, in general, undertake, with the Trustee's participation, all the activities performed by any real estate owner.
Fideicomiso Agreement, Registration, and Costs
As stated, the parties can negotiate most of the terms and conditions of the Fideicomiso agreement. The Trustee must obtain a permit from the SRE to acquire the real estate in trust if the Beneficiaries are foreigners. The 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 fee to obtain a certificate of no liens, appraisal fee, notary fees, and real estate transfer tax which, depending on the State, ranges from 2% to 4% of the appraised value of the property. The Trustee also charges annual fees, which may range from $300 to $2,000, and additional fees in the event of a later transfer.
Steps to Closing
Other than the fact that the buyer is purchasing through a Fideicomiso, the purchase transaction is essentially the same as any other real estate transaction in Mexico. The buyer must make sure that:
Term/Termination of the Fideicomiso
The maximum initial term of a Fideicomiso is 50 years, which may be extended upon application to the SRE. Upon the termination of the Fideicomiso (and provided that the Grantor reserved no rights under the agreement), the real estate will be transferred to the person designated by the Beneficiary, provided that person is qualified to acquire the title (e.g., that the transferee is not a foreign national or entity that cannot acquire real estate in the Restricted Zone).
While purchasing real estate through a Fideicomiso may seem
complicated, the process should not be an impediment to purchasing your
dream beach house. Fideicomisos have been tried and tested over time.
There is an enormous amount of foreign investment flowing into Mexico
now through foreign residential real estate purchases in the Restricted
Zone. The Mexican government does not want to lose this source of
foreign investments. In fact, it is likely that the process will get
easier in the future.