Buying in Mexico
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 "cédula
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:
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,
Amador & Connell
