Many foreign would-be buyers of real estate in Mexico have decided to put off purchasing or investing in the real estate market in Mexico, either because of real or perceived risks to their safety in the country.
There are a number of good-will ambassadors doing their best to bring back tourism to Mexico, one high-profile individual happens to be Anthony Bourdain, who has done more than his share to dispel the over-sensationalized media barrage on Mexico’s security. The fact remains that Mexico is a huge country, and under normal circumstances, you will find trouble if you are doing something beyond the law or are befriending people who are.
During recent years, the importance and the of foreign investment to the economy of Mexico has widened since Congress made a number of bold structural changes, among others, to allow foreign investment in energy and infrastructure.
Due to the above, today, foreigners have expanded opportunities to purchase or invest in Mexican real estate. In much of the inland portion of Mexico, the purchase of real property by foreigners has the same legal basis as in the United States. As you may be aware, the Mexican Constitution of 1917, prohibited foreign ownership of residential real property within approximately 50 kilometers on any coastline and 100 kilometers of its natural borders. The entire Peninsula of Baja California is considered a “constitutionally restricted zone.” In 1971 (further expanded in 1989 and 1993) provisions were made for a mechanism that would allow foreigners to own property in the “restricted zone.” A foreigner would purchase the beneficial interest in real property through a bank trust or “fideicomiso.” In this bank trust, the buyer of the property, designated as the “fideicomisario” or the beneficiary of the trust.
While the legal title is held by the bank, (specifically the trustee of the trust or the “fiduciario”) the trustee must hold the title in accordance with the instructions of the buyer (the beneficiary of the trust). It must be noted that the entrusted property is not an asset of the bank and the trustee is obligated to follow every lawful instruction given by the beneficiary to perform legal actions, i.e. lease it, make improvements, sell encumber it, etc.
The Bank Trust is also a very effective tool for Estate Planning because, as with any other trust, the buyer can designate the person or persons who will be the beneficiaries in case of death. As the beneficiary of the trust, the buyer may have substitute beneficiaries who would assume beneficiary status upon the death or incapacity of the buyer without the need for probate proceedings.
All new trusts have a time period of 50 years and these trusts are almost always renewable for another 50 years. A foreign owner of a property in a restricted zone of Mexico may exercise the same rights as a Mexican national with regard to the use of his property as long as he does so through the Trustee or Fiduciario. Make no mistake, and contrary to common unfounded hearsay, this is not a lease or anything similar to it, after 1971, many people owning property in the restricted areas tricked good faith buyers into signing 30 year leases thus the lessee built a house in the landlord’s property and some of those leases have expired and now the landlord’s and/or their successors are strong-arming the lessees (and/or their successors) to sell their home or renew a lease for outrageously low prices.
In summary, virtually all property in Mexico is available for purchase by foreigners, keeping in mind that the fideicomiso, or bank trust, must be used when acquiring property within the restricted zone, unless the property is 2,000 square meters or larger in which case people may rather create a Mexican corporation or LLC to own the property as an asset and avoid the Mexican government forcing the owner to invest 250 thousand dollars within 24 months from the time the trust is signed.
On another subject, this topic has been going around for too long now, based on misinformation circulating regarding the proposal by a member of Mexican Congress a few years ago to eliminate the property trust system. Let’s set the record straight now. A bill was presented in Congress to eliminate the existing fideicomiso/trust system for foreigners who wish to purchase real estate in the Restricted Zone. That bill came with restrictions and was not a blanket elimination of the system. In addition, Congress did not approve the bill because it elected to focus its attention on amending the constitution to allow foreign investment in the energy industry. So, in spite of what you may have heard, this is NOT currently law and the fideicomiso/trust system was NOT eliminated! Even if it had passed, if you were using your property for anything other than your personal residence, and its intended use is commercial or merely vacation use and renting such, you would still be required to have the property held in a fideicomiso.
About the author:
Rafael Solorzano is a corporate attorney with practice located in Tijuana, Mexico, a former Fiduciary and foreign legal consultant in San Diego, with over 35 years of professional experience in cross border-business with a strong background in Real Estate Law and fideicomisos.
The Law Offices of Rafael Solorzano.
Successfully advising U.S. and Canadian Expats and business people in Mexico since 1988.
Former Fiduciary for Banco Nacional de Mexico.
Registered in the attorney list for the U.S. Consular District for Baja California
Real Estate Law, Closings, Real Estate Trusts (Fideicomisos), Due Diligence, Company Formations, Estate Planning, Asset Shielding, legal Guardianship, litigation, family law, leases, issues with ejido property, landlord-tenant disputes, eviction protection, contracts, labor law, etc.