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Fideicomiso

Trust contract: a helping hand to real estate foreign investors in Mexico.

The Mexican laws permit foreigners to acquire the rights to use, enjoy and avail of real estate located in the coastal and border areas of Mexico through a trust contract (fideicomiso), the only legal instrument and the most advantageous available, foreigners can acquire land in Mexico for tourist or industrial purposes, having the same rights and obligations that a full ownership property gives.

What is a trustee?

In Mexico, it is a bank which is authorized to open fiduciary accounts and conduct trust operations. The trustee holds legal title to the real estate property during the term of the trust contract, and is also empowered with rights and powers necessary to achieve the objectives of the contractual agreement creating the trust.

What characteristics would a trust contract have?

In the trust deed, the present owner of the land would appear as the settler or trustier (fideicomitente) and would thereby deliver title of the real estate to the trustee who would hold the property during the term of thetrust contract, that is, 50 years with the option to renew the contract.

The buyer (you), would appear as the beneficiary (fideicomisario), that is, the person having the absolute use and avail of the property.

The legal effect of the trust contract is that the trustee keep temporary ownership of the real estate, in so doing it complies with the laws (Article 27 of the Mexican constitution) that prohibit foreigners from acquiring full ownership of real estate located 50 kilometers wide along the coastlines and 100 kilometers wide along the border areas of Mexico. This belt of land is so called the "restricted zone".

While as foreigner you cannot record title to land in the "restricted zone", you can own the beneficial interest to the trust contract. It is, in a way, like owning 100 per cent of shares of the corporation which in turn owns a farm, it is for most practical purposes like ownership.

What requirements are necessary?

You or the real estate seller must provide to the bank the following information (a notary public usually takes care of this):

A copy of the real estate title or deed indicating the exact surface area, merits, and boundaries.
A copy of draft of the property.
The name(s) of the beneficiary(s), nationality, address, and phone number.
The agreed purchase price.

Upon receiving the information and documents, the bank shall proceed to apply at the Foreign Affairs Ministry, for the trust permit; once obtained it shall proceed to execute and legalize the trust contract before a notary public. Notaries in Mexico have far greater legal competence that those in the United States. The notary public is that attorney at law who is authorized by the government to give final formality to the title transfer process in his protocol book. The resulting document taken from this protocol book is registered at the public registry of properties, it will give evidence of title in the name of the buyer.

What rights and obligations does the beneficiary assume upon the celebration of the trust contract?

As the trust beneficiary, you will have the use and possession of the property, that is, you may live on the land, undertake any alterations and improvements. You also have the capacity to instruct the trustee on mortgaging the real estate, renting it, selling, transferring your beneficial interest to another person or corporation, or performing any of the acts that by law derive from the ownership.

If you sell the property to another foreigner, you may assign your beneficial interest to the new purchaser. This assignment of rights must be formalized before a Mexican notary public, prior the payment of the federal and local taxes and fees that arise from the transfer of beneficial rights.

You will have the obligation to pay the duties on land, i.e.: annual property tax, condominium maintenance fees, water, electricity, annual trust fee, etc.

What fees will the trustee charge for this type of trust contract?

The annual fees charged for a trust vary depending of the bank you have as trustee. It also depends on the value of your property.

What happens if the beneficiary should die during the legal period of the trust contract?

The beneficiary has the right to appoint a substitute(s) beneficiary(ies) who will receive all the rights and obligations that arise from the trust contract, if the beneficiary dies during the life of the trust.

With this designation of substitute beneficiaries, your heirs will not need to follow any probate proceeding before the Mexican courts, that could take time and attorney fees. They would only have to give notice to the bank of the deceased and show the death certificate and their identifications. Then the bank will give instructions to a notary public, to protocol these documents and with the resulting deed register them as the new owners (beneficiaries) of the trust property.

What will happen at the expiration of the trust contract?

On December 27, 1993 a presidential decree was issued establishing the new foreign investment law. According to article 13 of this law, the Foreign Affairs Ministry shall allow the renewal of the trusts over the "restricted zones" upon the expiration of their term.

Furthermore, the Foreign Affairs Ministry may authorize a new trust over real estate transferred from one trust to another for a period of up to 50 years when the beneficiaries of the original and the new trust are different.

If you have any questions, we'll be happy to answer them for you.

© Playa Real Playa del Carmen Real Estate
Realtor representing commercial, residential, investment and Mexican beach front real estate for sale in Mexico's Mayan Riviera, Costa Maya, Riviera Maya, Playa del Carmen, Majahual, Cancun, Mahahual, Tulum, Xcalak, Mahahual, Mexican Beaches and the Yucatan. Mexican Caribbean real estate experts. www.playareal.com