Sat, February 3, 2007
At home in Mexico – Buying property in Mexico requires a trust
By ALAN CAPLAN
BUCERIAS, Mexico — Going way back, formal trusts are a British invention created to protect rich folks’ assets. Over the centuries, though, they were adapted in many diverse forms throughout the world for various reasons.
In Mexico, in the mid-1990s, they became a legal way to allow foreigners to get around severe restrictions on owning land.
In principle, all trusts have two things in common: a trustee and a beneficiary. The trustee is charged with holding assets in the trust and administers them for the sole advantage of the beneficiary.
In 1972, the Mexican Constitution was amended to allow foreigners to purchase land, but it still prohibited foreigners from owning within 50 kilometres of the high tide mark in coastal areas and 100 km from any border or anywhere on the Baja Peninsula.
Since most foreigners wanted to have access to Mexico’s exquisitely sunny beaches or to have property in closer proximity to their home countries, foreign real estate investment ground to a standstill.
It took another couple of decades to find a remedy. That solution was a bank trust system known as fideicomiso (the simple translation is “fiduciary trust.”
The fideicomiso system is a fairly simple premise. An officially registered bank trustee holds the deed for the property in trust for the purchaser. The bank does not own it, nor is it, as some folks think, a lease. The bank can’t use it for its own purposes under any circumstances.
There’s a myth that the fideicomiso system was set up to allow the Mexican government the power of confiscation at the end of the trust term. But the intent of the law is exactly the reverse. It’s a protection for foreign owners.
The beneficiary actually has legal possession, and ownership rights on the land allow him to mortgage, sell, lease or pass to heirs. The 50-year trust term is allowed multiple renewals under law and purchasers can set up a new trust or have an existing trust transferred to them in a purchase transaction.
It’s possible for a family or business to control a property in perpetuity, subject only to local zoning and planning regulations or condominium rules.
Non-residential properties – for instance a hotel or restaurant – actually can be purchased in a fee-simple form similar to holding direct title in Canada, John K. Glaab, vice-president of International Marketing for The Settlement Company, www.settlement-co.com, told me.
The firm was set up to supervise closings and registrations of real estate for non-Mexicans. Unlike the Canadian system, foreigners aren’t buying “real property” at all. They’re actually transferring or acquiring personal property.
“Instead of using the words ‘transfer of title,’ a foreigner should refer to ‘transfer or assignment of trust rights,’ ” according to the company’s founder, Linda Neil.
“The effect is negligible,” she says, “and the foreign owner has the same rights of dominion as any Mexican citizen who has direct title to the property.”
It costs about $500 US to set up a bank trust and there are fairly modest annual fees for administration.
It’s a competitive market (there are a lot of banks in Mexico, some of them foreign-owned, like HSBC and Scotiabank), so it pays to shop around for a fideicomiso contract.
Unfortunately, some banks don’t provide automatic renewal statements. The onus is on the beneficiary to request one at least 90 days before the anniversary of the trust.
Private firms such as the settlement company provide a service to ensure payment is on time to avoid penalties.
Next week, we’ll delve into the role that a unique real estate facilitator, the Mexican Notary Public, plays in the purchase process.