Fideicomiso: What Is It?

This article explains that there is an area in Mexico, known as the Restricted Zone, where foreigners are prohibited from directly acquiring real estate. However, there is a way for foreigners interested in investing in real estate in this area to do so.

 

What is the Restricted Zone?

The Restricted Zone is the part of Mexico's national territory that extends 100 km (62 miles) from the borders and 50 km (31 miles) from the coastline. In this area, foreigners cannot buy real estate directly. However, there is a procedure that allows foreigners to invest in real estate in this zone.

 

Can foreigners (whether individuals or legal entities) acquire property in the Restricted Zone?

The answer is yes, but under certain conditions.

To acquire a property in this zone, the foreign buyer must obtain a permit from the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores) to establish a fideicomiso (bank trust).

In addition, the property must be used solely for residential purposes, that is, as a home.

Finally, the foreign buyer will have the right to use and enjoy the property, but will not hold direct title to it or real rights over it.

It is important to note that the cost of the fideicomiso for individuals is different; you can contact an advisor for more information.

 

What are the requirements to set up a fideicomiso?

• Passport
• Personal information, such as proof of address, proof of employment and/or income, phone number, occupation and email address.

 

Who are the Settlor (Fideicomitente), the Trustee (Fiduciario), the Primary Beneficiary (Fideicomisario Titular) and the Substitute Beneficiaries?

Settlor (Fideicomitente): The seller of the property, who may be an individual or a legal entity, and who contributes the property to the trust.

Trustee (Fiduciario – the bank): Holds direct title to the property.

Primary Beneficiary (Fideicomisario Titular): The buyer of the property, whether a foreign individual or legal entity, who exercises the use and enjoyment of the property, that is, indirect ownership of it. The Primary Beneficiary may be one or more people and must name one or more Substitute Beneficiaries.

Substitute Beneficiary (Fideicomisario Sustituto): The person who will take the place of the Primary Beneficiary in the event of death and will acquire all rights arising from the Fideicomiso Agreement.

 

Can a foreigner sell or rent out the property?

Yes, it is absolutely possible to sell to a foreigner or to a Mexican national, as long as the annual trust fees are kept up to date and written instructions are provided to the bank to sign a new public deed (Escritura Pública) allowing the assignment of the trust rights or the termination of the fideicomiso, as applicable. This process requires the involvement of a lawyer and a notary public.

 

What is the purpose of the fideicomiso agreement?

The Fideicomiso Agreement allows foreigners to obtain the right to use and enjoy a property located in the Restricted Zone, while the Trustee retains title to it. Under the agreement, the Trustee is the legal owner, but the foreigner is the beneficiary of the use and enjoyment of the property. The term of the agreement is 50 years; at the end of this period, the permit and the corresponding agreement must be renewed.

 

What is the approximate cost and timeline to set it up?

Banks charge an approximate fee of $2,500 USD for this service, which may vary depending on the bank chosen, and it already includes the first annual fee, which ranges from $800 USD to $1,000 USD per year.

As for setting up the fideicomiso, the Ministry of Foreign Affairs takes 5 to 10 business days to issue the corresponding permit. Once the permit is obtained, the designated lawyer and notary public must coordinate with the bank, the seller and the buyer to carry out the signing of the fideicomiso, a process that takes a minimum of 20 calendar days.

 

When is the right time to set up the fideicomiso for properties purchased in pre-construction?

If a property is purchased in pre-construction through a promissory purchase agreement, the fideicomiso must be set up once the development has its Condominium Property Regime, or once the property has been subdivided or parceled and its measurements and boundaries are defined, along with its Public Registry of Property and Commerce certificate. In other words, when the building is in the final stages of construction.

 

Are there other costs to buy a property as a foreigner?

Yes. The transaction cost can range from 5% to 8% of the property value, depending on its price. This amount includes all taxes, government fees, and legal and notary fees associated with the investment.

 

Where should the money come from?

Payment is made directly from the account of the person or company acquiring the beneficiary rights, who will become the holder of the acquired property.

 

Do I need to be in Mexico?

The buyer's lawyer will keep you updated on the progress of the process and inform you of the signing date. If the foreign buyer cannot travel to Mexico, their lawyer can represent them through a power of attorney issued in Mexico or abroad.

 

What is the difference between a fideicomiso, a public deed and a property title?

There is no difference, as they are the same document. The public deed (Escritura Pública) is the fideicomiso agreement that sets out the terms and conditions, and the foreigner uses it to prove their trust rights.

 

What happens if the trustee bank goes bankrupt?

Mexico's National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) will take the place of the trustee bank if the bank is unable to meet its obligations. This will not affect the property in any way, and it is worth noting that bank bankruptcies are uncommon in Mexico.

 

What happens to the fideicomiso when the foreign owner dies?

The beneficiaries named in the public deed, who may be family members or friends, must present the foreigner's death certificate to the bank in order to obtain a new public deed. It is important to note that the foreigner can change the designated beneficiaries at any time.

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