Buying Property in Mexico

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For Americans and foreigners, buying property in Mexico was previously almost impossible. In recent years, strategies have evolved that now make owning and participating in real estate in Mexico both allowable and affordable.

The Restricted Zone and Fideicomiso

Mexican Constitution prohibits direct ownership of real estate in Mexico by foreigners in what has come to be known as the restricted zone. The restricted zone is 100 kilometers (about 62 miles) from the border and 50 kilometers (about 31 miles) from the coastline. However, in order to permit foreign investment in these areas, the Mexican government created the FIDEICOMISO, (FEE-DAY-E-CO-ME-SO) which roughly translated, is a real estate trust.

Essentially, this type of trust is similar to trusts set up in the United States. However, a Mexican bank must be designated as the trustee and, as such, has title to the property in Mexico and is the owner of record. The Mexican Government created the fideicomiso to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the law.

A fideicomiso is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican Bank and the seller of the property in the restricted zone. The bank acts on behalf of the foreign buyer, taking title to real estate property in Mexico. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy and sell the property in Mexico that is held in trust at its market value to any eligible buyer.

In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set up.

The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located in the restricted zone. The Ministry of Foreign Affairs must grant a petition for a trust permit that complies with stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.

There is a common misconception among foreigners investing in property in Mexico once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. Actually, the beneficiary has a contractual right under the trust agreement with the Mexican Bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary. A real estate Trust is NOT a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law.

Information provided by Dennis Peyton of Peyton and Associates. Dennis is a licensed attorney in the USA and Mexico.

Parties involved in Real Estate Transactions in Mexico

The main parties involved in the transaction are the real estate company/developer, the buyer's attorney, a bank and a public notary.

Real estate transactions outside of the restricted zone do not involve a bank as it is not necessary to establish a trust in those areas. Buying property in Mexico is completely different from buying property in the United States, although the credit portion of the application and procedure may seem very similar, even identical.

The real estate and mortgage industry is very highly regulated in the United States. Unfortunately, it is not the same in Mexico. It is very important to work with reputable United States based companies and an attorney preferably licensed in the United States and Mexico to review documents and assist in the real estate transaction. American attorneys are not automatically licensed or qualified to practice law or give council on Mexican Law. Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico