With forthcoming changes in the Mexican government, the revival of its economy and a saturation of inventory south of the border, owning property in Mexico may again be an attractive option to many foreign investors.
The question is, can a non-Mexican citizen own real property in Mexico? The answer: a resounding yes. The Mexican Constitution delineates a "Restricted Zone" which includes any land within a strip of 100 km along the borders and 50 kilometers along the coasts, and prohibits private foreign citizens from directly owning property located within that area. Naturally, this provision generates much confusion and many misconceptions about a foreigner’s ability to own property in Mexico, but fortunately the inquiry does not end there. The purchase of real estate by non-Mexicans is regulated by the Foreign Investment Act of 1993 (as amended), which provides that foreigners may purchase property in the Restricted Zone for residential use through a Fideicomiso.
If a non-Mexican individual wishes to purchase property located within the Restricted Zone he/she may do so by entering into a fideicomiso or trust contract with a Mexican bank. The bank serves as the trustee of the trust created by the fideicomiso contract and has a fiduciary duty to hold the property on behalf of the foreign citizen for a statutory 50-year term, which can be renewed for an indefinite number of additional 50-year terms. The transfer deed for the property shows the bank, as fiduciary, is the owner of the property with reference to the fideicomiso contract. The foreign citizen and any other named persons he or she specifies will be designated as the beneficiaries of the trust, with beneficial rights to the trust property. As beneficiary, the purchaser will have full rights to use the property as he or she wishes – the land can be developed (in accordance with local planning regulations), leased, sold, or gifted.
The trust may also enable the beneficiary to name a subsequent beneficiary upon death, and does not require a Mexican Will for the beneficiary’s wishes regarding the trust to be executed. In many cases a foreign buyer may wish to enter into a fideicomiso using an LLC or other US or Mexican corporate vehicle as the beneficiary of the trust, which is accepted in Mexico. In other circumstances, buyers seek to use a US Revocable Trust or some other estate-planning vehicle existing under US law. Such transactions may face hurdles in Mexico based on the notion that under Mexican law a "trust" is a contract and not a separate legal entity. Unlike a US "trust", a Mexican fideicomiso does not have legal standing as a separate "person". Rather, a fideicomiso is a contractual agreement between two or more parties, one of which is a regulated Mexican financial institution acting as "fiduciary" for the benefit of one or more parties. Under a typical land holding fideicomiso, the bank acting as Fiduciary holds title to property for the benefit of the foreign beneficiary according to the terms of the fideicomiso contract.
The transfer of the property to the purchaser by means of execution of the fideicomiso contract must be carried out in the presence of a Mexican Notary Public. In contrast to notaries in the United States, Mexican Notaries Public are attorneys who have a special commission from the government with authority to authenticate and register deeds and other legally binding documents, including fideicomiso contracts, with the Public Registry. It is important to remember that though the Notary is an attorney, he does not represent any one party’s interest, instead he or she supervises the process for the transfer of property, but does not advocate on behalf of any one party. As such, it is often advisable that the foreign purchaser retains an attorney to represent him or her and interface between the seller, the bank, and the Notary.
While the structure of ownership and the process of closing the purchase of property in Mexico may differ considerably from the structure and process in the United States, with accurate advise and expectations, the transaction can be smooth and results rewarding.
Written by Juan Zuniga and Angela Gonzales of Cross Border Law Group, P.C., with acknowledgement and thanks to Lic. Mariano A. Trinidad H.