CAN
FOREIGNERS REALLY OWN PROPERTY IN MEXICO?
Yes, Americans and other foreigners may obtain direct ownership of
property in the interior of Mexico. However, under Mexican law,
foreigners cannot own property outright within the restricted zone.
Instead, a real estate trust must be set up to hold title for the
foreigner. Since foreigners are not able to enter into contracts in buy
real estate, they must have a bank act on their behalf, much as a trust
is use to hold property for minors because they also can not contract.
The following is a brief outline of the law regarding such trust, known
as "fideicomisos", but potential buyers should always get advice and
have all real estate transactions overview by a licensed Mexican
attorney.
WHO'S INVOLVED IN REAL ESTATE TRANSACTIONS
IN MEXICO?
Normally, there are three to four players involved in any real estate
transaction in the restricted zone:
- A real estate company
- The buyer's lawyer
- A bank
- A public notary
All
four are helpful in their respective areas in assisting with real
estate transactions. Transactions outside of the restricted zone do not
involve a bank since it is not necessary to establish a real estate
trust in those areas. Otherwise the transactions are much the same.
Because of the similarities of real estate transactions in general, it
is easy to assume that the basic terms and principles which are
familiar in the United States also hold true in Mexico. This assumption
becomes easier to make when United States real estate terminology is
adopted for transactions in Mexico. Much of the paperwork is similar,
if not exactly the same, as that used in the US. Although, there are
many aspects of Mexican real estate transactions that are identical to
procedures carried out in the United States, there are many aspects
that are completely different. As a rule, a foreigner should assume
nothing.
Mexican real estate transactions are not carried out in the same manner
as United States real estate transactions. The buyer must retain
professionals to assist in the transaction. Mexico has yet to regulate
real estate transactions. Real estate agents and brokers are not
legally licensed in Mexico. Consequently, a foreign buyer cannot always
depend on the normal safeguards that would be applied to real estate
transactions in the United States. The old saying "let the buyer
beware" is very appropriate. Anyone can set up a real estate company in
Mexico. There are no special requirements or brokerage licenses to
obtain. A would-be real estate agent merely has to establish a Mexican
corporation, obtain a work visa, and he is in business.
There are good reasons why the real estate industry in the United
States is highly regulated. Until the real estate industry is regulated
in Mexico, there will always be some real estate companies who prefer
that buyers know as little as possible about real estate transactions.
After all, a buyer cannot ask questions if he does not have any
knowledge of the laws.
Currently there is nothing similar to a Real Estate Commissioner or a
Department of Real Estate in Mexico. Some states are beginning to look
at some kind of real estate legislation, but it might be some time
before this is a reality. The American Embassy and the American
consulates in Mexico are good places to start when trying to determine
if a real estate company is reputable. Some of the real estate
companies have established quite a reputation for themselves at some of
the Consulates.
A Mexican attorney should be involved to draw up contracts and to
review the conditions and terms of sale. Additionally, an attorney can
do a title search and point out any problems or alternatives a buyer
may have. The buyer should always have his or her own attorney rather
than using the attorney of the seller or some attorney used by a real
estate company free of charge. As the old saying goes, you get what you
pay for, and usually if someone's services are offered free of charge
you are probably paying for them in some other way.
Legally, only a licensed Mexican attorney should provide advice on the
law. If an attorney is licensed in Mexico he should be able to produce
a "c�dula profesional." This document is a registered license to
practice law in Mexico and includes a photo of the attorney and his
signature. To be sure that an attorney is licensed in Mexico, a foreign
buyer should ask to see the attorney's license, or have the attorney's
license number included in a retainer agreement before employing any
services.
American attorneys are not licensed to practice law in Mexico and
should not give advice on Mexican Law. I should clarify, here, that I
am referring to individuals who are licensed to practice law in the
United States, and not merely individuals who are citizens of that
country. There are currently very few Americans who are licensed to
practice law in Mexico. The fact that a person is licensed to practice
law in the United States in no way allows him or her to practice law in
Mexico: Mexican or United States law.
Besides formalizing your real estate transaction, an attorney can be
very helpful in saving you money. This is because attorneys are
involved in many different transactions and have contacts with banks,
notaries, and the Mexican government on a regular basis. Because of
this they are aware of the most competitive cost and fees involved in a
transaction and can make sure that the buyer is given the best possible
prices. An attorney can also inform the buyer regarding his or her
legal options and by doing so can make sure that no opportunities are
missed: tax planning considerations, closing costs which should be paid
by the seller, and ways of taking title to the trust rights which make
sense for the particular circumstances of a specific buyer. Very often
one piece of good advice can save the buyer thousands of dollars in tax
savings or other savings when the buyer eventually sells the property.
When looking for an attorney it is important to remember that any
Mexican attorney can normally handle a real estate transaction. The
buyer is not limited to only the local attorneys where the property is
located. All real estate transactions involving a trust are governed by
federal law. This means that all such transactions are carried out the
same way regardless if the property is in Cancun or Los Cabos.
THE RESTRICTED ZONE AND "FIDEICOMISOS"
The law declares that the Mexican nation has original ownership to all
land and water in Mexico, as well as minerals, salts, ore deposits,
natural gas and oil; but that such ownership may be assigned to
individuals.
The Mexican Constitution prohibits direct ownership of real estate by
foreigners in what has come to be known as the "restricted zone." The
restricted zone encompasses all land located within 100 kilometers
(about 62 miles) of any Mexican border, and within 50 kilometers (about
31 miles) of any Mexican coastline. However, in order to permit foreign
investment in these areas, the Mexican government created the
"fideicomiso," (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a
real estate trust. Essentially, this type of trust is similar to trusts
set up in the United States, but a Mexican bank must be designated as
the trustee and, as such, has title to the property 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
property in the restricted zone. Foreign buyers cannot own real estate
in the restricted zone due to Constitutional restrictions. The bank
acts on behalf of the foreign buyer, taking title to real property. 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 even sell the property 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.
Given the changes made for 1997 in the foreign investment Law, and the
fact that a buyer can now apply for and obtain a trust permit in a
matter of days, it is always better to secure the trust permit from the
Ministry of Foreign Affairs before entering into any contract.
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 within the restricted zone. The purpose of the trust
is to allow the trust's beneficiary the use and exploitation of the
property without constituting real property rights. The beneficiaries
of the trust (fideicomisarios) may be:
- Mexican corporations with foreign investment
- Foreign individuals or legal entities
The
law defines "use" and "exploitation" as the right to use or possess the
property, including its fruits, products, or any revenue that results
from its operation and exploitation by third parties or from the
bank/trustee.
The law does not clarify how trust permits will be issued. Article 14
of the law states that the Ministry shall decide on issuing the permits
"...considering the economic and social benefit, which the realization
of such operations imply for the nation." The basic criteria used to
determine such benefits are likely to change somewhat with the
publication of the new foreign investment regulations. However, it is
reasonable to anticipate that some of the unwritten rules used by the
Mexican government in the area of real estate trusts will be included
in the new foreign investment regulations. It is also possible that
some of the confusing elements will be eliminated. It is important to
understand the application of the current regulations, even if they are
going to be replaced, as well as some of the unwritten policies the
government has used in the past, to better understand what criteria
will be used by the Ministry in the future.
The Ministry of Foreign Affairs must grant any petition for a trust
permit that complies with the 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 period 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 Mexico
that 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. On the contrary, 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. Generally, the law allows most activities
engaged in by foreigners.
Information provided by
Dennis Peyton of Peyton
and Associates.
Mexonline.com Directory of
Real Estate Agents in Mexico
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