Coldwell Banker Encantado Realty

Bank Trusts


The Real Estate Trust or "Fideicomiso"

(Fee-day-koh-mee-so)

 

Mexican 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," which is, roughly translated, a real estate trust. It is commonly referred to simply as a 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 the rights of ownership 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. Because 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, 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 obtain a Fideicomiso, 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. 

 

There is a common misconception among foreigners investing in Mexico that once the Fideicomiso 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.

 

It is important to understand that a Fideicomiso is not a lease of any kind. 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.

Thonda K. Oliver
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