Ownership in Mexico – Separating Fact from Fiction
The “Gunslinger Days” of buying property in Mexico are over. Banking on the words “That’s the way we do business here!”, and trusting “Thy Seller”, have given way to U.S. Title Insurance and bonded escrow accounts.
During the last ten years, property in Mexico has become a lucrative and viable investment strategy, bringing with it a new breed of sophisticated investors. U.S. title insurance, bonded escrow accounts, and comprehensive title searches are “in”… promises and handshakes are “out”.
Owning property in Mexico is easier and safer than ever because now there are established and well-defined rules regarding non-Mexicans owning land in Mexico. These rules are in place to protect your ownership rights and to promote the sale of real estate to foreign investors. The key is a safe, established, and perpetually renewable Mexican Property Trust called a “Fideicomiso”.
What is a “Fideicomiso” or Mexican Property Trust?
“FIDEICOMISO” THE BANK TRUST FOR OWNERSHIP OF REAL PROPERTY IN MEXICO
Article 27 of the Constitution of the Republic of Mexico prohibits foreign ownership of real property located within 30 miles of any coastline or 60 miles of either border. This is referred to as the prohibited zone.
In 1973, recognizing that many Foreigners would enjoy the rights of ownership, and bring needed dollars to the country, President Echeverria approved the bank trust (in the Spanish language known as Fideicomiso) form of ownership which is available to non-Mexicans. These regulations were further expanded in the Foreign Investment Law of 1989.
Properties located within the prohibited zone, which includes the entire Baja Peninsula, may be acquired by a foreigner through a Mexican Bank Trust naming the buyer of the property as the beneficiary of the trust (in the Spanish language known as Fideicomiso). Fee simple is placed in the name of the bank selected by the buyer, as his trustee. The bank administers the property according to the instructions of the buyer/beneficiary (Fideicomisario).
The buyer/beneficiary (Fideicomisario) has full ownership rights:
A.) He may build on the property;
B.) Tear down existing buildings, modify them;
C.) Rent, lease or sell at any time conforming only to the general laws of the country established for all persons, etc.
The terms of the trust is fifty years and can be renewed. In other words, title to the property may rest in one beneficiary indefinitely, provided that it is renewed within the terms established by the law.
The procedure for establishing the bank trust (Fideicomiso) is as follows:
Application must be made to the Secretary of Foreign Relations by the bank (Fiduciary) which includes a description of the property to be placed in trust; the use for which it is intended, and personal data on each of the beneficiaries, and substitute beneficiaries. Once granted the permit for the bank trust (Fideicomiso) the bank instructs a Mexican State Notary Public to draw up the trust document, which the title is recorded before the Municipal Public Registry office and the land office at the county where the property is located.
This is a trust agreement, much like an estate trust, giving you all the rights of ownership.
The Department of Foreign Affairs in Mexico City issues a permit to a Mexican Bank of your choice, allowing the bank to act as a purchaser for the property. The bank acts as the “Trustee” for the Trust and you are the “Beneficiary” of the Trust. This is not an asset of the bank; they simply act as the Trustee to hold the Trust.
Much like Living Wills or Estate Trusts in the U.S., the Mexican bank, or Trustee, takes instructions only from the Beneficiary of the Trust (You). The Beneficiary has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified owner or bequeath the property to an inheritor. The initial term of the trust is 50 years, and it can be renewed for additional periods of 50 years indefinitely, providing for long-term control of the asset.
You have all the rights of a property owner in the U.S. or Canada, including the right to enjoy the property, sell the property, rent the property, improve the property, etc. This is not to be confused with a “land lease.” The property you buy is placed in a trust with you named as the Beneficiary of the trust – you are not a lessee. If the property you purchase is already held in a Trust, you have the option of assuming that Trust or having the property vested in a new Trust.
How Long Does It Take To Get A Trust?
We work with Federal and State Notaries for all our closings, and to secure your new Trust. (In Mexico, a Notario Publico is much different than in the United States, more like a Clerk of Courts.) On average, we can obtain your Trust within 60 days and in some cases, we have actually transferred title in as little as two to three weeks. We oversee the entire process and make certain you understand each and every step involved. We can even provide you with an English sample Trust for you to review. You would be amazed how many people have only a simple buy/sell agreement between themselves and the seller as evidence of ownership. This is not a safe method of ownership and is not recommended by us.
Rule Number 1: Always get your Trust.
When Do I Pay For My Property?
When you have a clear title, exactly like you would anywhere else. By using our U.S., bonded, third-party Escrow service, and your money is held in an individually numbered, bonded, and insured escrow account until your Trust is complete and the property rights have been transferred to you.
We do not recommend that you release funds to a seller unless you have received your Trust first. Purchasing property without receiving a Trust is simply buying without receiving the title in your name, which is risky and not recommended.
Fact: Until you have received your Trust, and rights to the property have been transferred to you, the legal owner of record in Mexico is still the previous owner.
Fact: You cannot bypass Mexican Taxes or fees by not getting your Trust, even if you sell the property to someone else before you have your Trust in place.
Do I Need Title Insurance?
Whether you buy real estate in the U.S. or Mexico, we recommend U.S. Title Insurance for every property you purchase. You have insurance for your car, your home, and your health; why not purchase it for one of your largest investments, your property. We will not represent or sell any property in Mexico that cannot be covered by a U.S. Title insurance policy.
Fact: U.S. Title Insurance is available for properties in Mexico purchased by U.S. Citizens.
Fact: Just because you have a Trust does not ensure you have a free and clear title.
In a Title property search, the property title is searched all the way back to the Mexican Revolution. Most title searches to secure a Trust only go back to one or two owners of record.
How Can I Own My Property?
In the Trust document, you must name the Beneficiary or foreign owner for the property. This can be you personally, multiple partners, a foreign corporation, an estate trust, a living will, or another entity. The Trustee of the Trust (the Mexican Bank) will take direction from whomever you name as the Beneficiary.
Fact: You can name a U.S. Corporation as the Beneficiary of the Trust. This is perfectly legal.
Fact: If you sell more than 25% of the shares in the U.S. Corporation, you have created a real estate transaction in
Mexico and all Mexican Taxes apply.
(This is Article 151 of the Mexican Revenue Code and is also declared in the International Tax Treaty between the U.S. and Mexico. If this is done, and you do not pay the Mexican Taxes, you will have created a tax burden over the property for the new owner.)
Fact: You can own a property in a Mexican Corporation and take a title fee simply only if the property is for development or investment purposes.
Fact: You cannot own property through Mexican Corporation to bypass the Trust process.
Fact: It is against the law for a foreigner to own property in a Mexican Corporation for residential purposes.
We are recognized real estate leaders in Los Cabos. We pioneered the use of U.S. Title Policies and the U.S. bonded third-party escrows in Mexico for all our transactions. We understand the local laws regarding ownership of the real estate in Mexico by foreign investors, and we will put this knowledge to work for you… making sure your investment is secure.
If you are considering a real estate purchase in Baja, make sure everything is done right by allowing us to work for you. We are an independent brokerage, assuring our only interest is representing you in a real estate transaction that is safe, solid, and secure. Our strength is in our commitment to safeguard the interests of our clients. We offer no properties that cannot secure a U.S. Title policy. No other real estate firm in Los Cabos is more dedicated to ensuring a safe, secure transaction for both buyers and sellers.
- We never forget it’s your money and your investment… it’s our job to protect it.
- We know the rules, we know the laws and we know Baja. We are the safe, secure way to buy real estate in Mexico.