What is the Fideicomiso?
If you’ve ever considered buying property in Mexico you’ve probably encountered the term fideicomiso. Essentially, fideicomiso is a trust held by a bank that allows foreigners to indirectly purchase property and enjoy all the benefits of direct ownership. The fideicomiso is a workaround for expats looking to own property in Mexico’s Restricted Zone, the area that holds much of the country’s most prized real estate. We’re here to help you understand why the fideicomiso exists, how it works, and how it can help you realize your dreams of owning property in Mexico.
History of the Fideicomiso in Mexico
Ready for a history lesson? The story of the fideicomiso begins in 1917, with the drafting of the Mexican Constitution. Mexico had just emerged from a difficult internal struggle, and land ownership was at that conflict’s very center. To protect the working class’s access to resources, Article 27 of the new constitution outlined that all the land within 100 km (62 miles) of Mexico’s borders and within 50 km (31 miles) of its coastline would be protected from direct foreign ownership. This became what is known as the Restricted Zone, and it includes areas like Cancun, Puerto Vallarta, Tijuana, and other desirable places to live within Mexico.
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Foreigners, in line with this constitutional stipulation, still cannot directly own residential property within this area. However, as Mexican economic growth faltered during the late-1960s and early 1970s, the government started to turn toward foreign investment as a means of stimulating economic growth: enter the fideicomiso.
In 1973, the fideicomiso was instituted as a way for foreigners to have all the rights of residential property ownership in the Restricted Zone without technically owning the real estate. Mexican banks own the property in a trust, while the property is not technically one of the bank’s assets. The buyers, as beneficiaries of that trust, have all the rights of outright ownership. They can buy, sell, renovate, etc., as they see fit, The beneficiary is also entitled to all profits resulting from the sale.
Since its creation, the fideicomiso has evolved to be even more friendly and convenient for the foreign investor. Now the beneficiary has the trust for 50 years, and can renew the original 50-year agreement on the same terms indefinitely. In the case of death, beneficiaries can also name heirs to the trust to inherit the property rights.
Buying Real Estate in Mexico Through the Fideicomiso
Not surprisingly, a large percentage of potential buyers of residential real estate are interested in the Restricted Zone. It’s home to some of the most accessible and idyllic areas of the country. The fideicomiso makes this very possible, but it does add a few steps to the process of purchasing your Mexican home.
Consult with an Attorney
First, as in any real estate in Mexico, we strongly suggest you seek the services of a Mexican real estate attorney to help facilitate your residential real estate transaction. A good lawyer will guide you through the purchase process and ensure that you meet all the requirements to move forward in a timely manner. If you’re a U.S. citizen, it’s also suggested that you consult with a U.S. attorney to help facilitate the deal and to explain whatever effects the transaction might have on your financial situation in the United States.
Additional Requirements for a Real Estate Purchase Through a Fideicomiso
It’s important to remember that this is not a lease. The bank does not control the asset and you have the ability to renew your agreement in perpetuity. Therefore, you are completely secure as the beneficiary as long as you abide by Mexican laws and provide necessary payments.
Establishing a trust through which to gain ownership rights is fairly straightforward, but it can be expensive. Consult with a Mexican bank to see which one would be best for setting up your trust. Small banks, since the fideicomiso is not a large percentage of business, might be more responsive to your needs. Different banks also have varying rates for setting up and maintaining your trust, so it’s best to shop around. The nice part is, if the bank goes bankrupt, you bear no risk and your trust simply transfers to another financial institution.
You can expect to pay a trust set-up fee of $2000-$3000 and an annual maintenance fee of $500-$600. It’s not unheard of for banks to charge a fee of around $500 for the initial set-up, but this is not the norm. Falling behind on this annual fee will not result in the loss of your property, but it will lead to fines and interest that you must pay off before selling.
Along the way, don’t let the trust establishment distract from your other basic responsibilities when it comes to Mexican real estate transactions. Like any other transaction, you’ll need a permit from the Secretary of Foreign Relations, or Secretaría de Relaciones Exteriores (SRE Permit). This establishes that you’ll relate to the government in the same manner as a Mexican citizen would, meaning that you won’t appeal to any foreign governments and you’ll submit to Mexican courts should there be any issue. You’ll need to pay for an appraisal, a notary, transfer taxes, and a variety of other expenses before your transaction can become official. An attorney can handle most of the paperwork and preparation for these activities, but it’s best to stay fully aware of the requirements so that everything goes smoothly while purchasing your Mexican home.
Once You Have Established Your Fideicomiso
Congratulations! Your transaction has gone through. You’ve secured your property and you’re in a position to reap the benefits of a renewed life in Mexico. However, your responsibilities to the fideicomiso continue.
Along with paying your annual fees, you’ll need to express to the bank, in writing, any intent to sell the property or name a beneficiary to inherit the property. Remember the bank cannot do anything with the property without your direction, so you are protected from any possible actions that you don’t personally trigger.
In the event that you do become a naturalized Mexican citizen, your trust is nullified and you can own the property by direct Title. Many property owners, though, will not go this route and continue to split time between multiple countries. In this case, it’s important to understand your wire transfer possibilities, or enlist someone like an attorney–to pay your annual fees should you be out of the country.
However you plan on utilizing your Mexican residential property, the fideicomiso provides an avenue for accessing that asset and lifestyle. It’s your vehicle to essentially owning property in some of the world’s most desirable locations. If you have any questions about locating a property, or setting up your purchase through a trust, feel free to contact farhomes below. Our guides are there to make sure that you understand all the nuances of buying and owning a residential property in Mexico.