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How to Buy (Bank Trust)

A “Fideicomiso” (Bank Trust) 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” (Mexican Coastlines & Borders). Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank, as trustee, has a fiduciary obligation (Bank Obligation) to follow instructions given by the foreigner buyer who is the trust beneficiary. Is it Risky? Not at all. The buyer enjoys full ownership rights and legal protection of a property owner, while the bank holds title to the property. The foreigner buyer is entitled to use, enjoy, rent and even sell the property that is held in trust at its market value to any eligible buyer. Trusts are established for initial 50 years periods and can be renewed indefinitely for additional 50 years periods.

FREQUENTLY ASK QUESTIONS

1. HOW CAN I OWN PROPERTY IN MEXICO’S *RESTRICTED ZONES*?

Mexico’s Foreign Investment Law allows foreigners to purchase residential property in the restricted areas-100 kilometers within any Mexican border and 50 kilometers within any coastline-through a bank trust instrument called a Fideicomiso, administered through a designated Mexican Bank. The 1993 amendment extended the Fideicomiso term from 30 to 50 years, with renewal upon request by the holder(s) of the Fideicomiso, prior to its expiration.

2. WHAT IS A “FIDEICOMISO”=“TRUST”?

One of the most dynamic legal instruments in México, the Fideicomiso is the document used to own property held in a Bank Trust. Article 27 of the Mexican Constitution grants the Mexican Nation ownership of land and water within national territory, and through Section I, grants the State discretionary power to give the same right to foreigners. Title is held by a designated bank with the owner the trust’s beneficiary. This is subject to foreigners agreeing to not invoke the protection of their home governments and to consider themselves Mexican nationals with respect to the property acquired.

3. WHAT DOES THE BANK DO?

It is an important link between the foreigner and the government. The bank accepts full technical, legal and administrative responsibilities and protects the beneficiary’s interests. While the bank is the technical owner of the property, they have a statutory responsibility to follow the beneficiary’s (YOUR) instructions concerning the property. Therefore, the control of the property is in your hands, not the bank’s.

4. WHAT CAN THE FOREIGNER BENEFICIARY EXPECT FROM THE TRUST AGREEMENT?

a) The beneficiary can occupy the property for the life of the trust.
b) Title to the property can be transferred to the foreign beneficiary in the event that he acquires legal capacity to hold such property, or to any legally qualified person he/she may designate.
c) The trust can also be inherited to your family by naming them as substitute beneficiaries in the event of your death.
d) As beneficiary you may occupy, use, sell, rent and build on, or improve the property. You may also mortgage the real estate and instruct the Bank to transfer title to another person or corporation.
e) Beneficiaries are allowed to modify their property construction, in accordance to local zoning regulations, (it is permitted at the owner’s expense).

5. WHO ARE THE PARTIES INVOLVED WHEN SETTING UP A TRUST?

a) The Trustor (Seller)
b) The Fiduciary (the Mexican Bank): acts on behalf of the foreign Beneficiary in all transactions involving the property held in “Fideicomiso”.
c) The Beneficiary (Buyer): retains the use and control of the property and has the right to use, improve, lease or rent without limitations, and sell without restrictions, or pass the property on the names of heirs.
d) The Beneficiary’s Substitutes (the heirs).

6.WHAT IS AN ASSIGNMENT OF RIGHTS (CESIÓN DE DERECHOS)?

When Property is held in an existing Fideicomiso, the transfer of beneficiary rights over the property is usually through as Assignment of Rights under the same Fideicomiso. The buyer acquires the seller’s rights to the Fideicomiso holding title to the real estate property. The seller should make contact with the Fiduciary designated in the existing Fideicomiso in order to follow up with the correct procedure and requirements, so that it is properly and legally put in place.

7. WHAT RIGHTS AND OBLIGATIONS DOES THE BENEFICIARY RECEIVE?

It gives you all the rights of ownership such as the right to occupy, use, sell, rent and build on or improve the property. You may also mortgage the real estate and instruct the Bank to transfer title to another person or corporation. You will be obliged to pay property taxes, utilities and condominium maintenance fees if applicable, and the Trustee’s annual fee which varies from bank to bank.

8. WHO ARE THE PARTIES INVOLVED WHEN SETTING UP AN ASSIGNMENT OF RIGHTS?

a) The Assignor (Seller)
b) The Fiduciary previously designated in the Fideicomiso (the Mexican Bank)
c) The Assignee (Buyer)
d) The Substitutes Assignees (the heirs)

9. WHAT IDENTIFICATION DOCUMENTS WILL I NEED FOR THE FIDEICOMISO/ASSIGNMENT OF RIGHTS?

Legal identification, immigration, and many other legal documents are needed. These documents change from time to time, consult your realtor or notario.

10. CAN A BIRTH CERTIFICATE AND/OR DRIVER LICENSE BE USED INSTEAD OF A PASSPORT?

No, neither of them can be used as valid identification.

11. WHAT DO I NEED IF WE ARE GOING TO HAVE OUR LLC AS BENEFICIARY OF THE FIDEICOMISO/ASSIGNMENT OF RIGHTS?

In order to have a LLC, you need to submit a copy of the articles of incorporation, a certificate of good standing and the operating agreement of the LLC; all documents must be notarized and to have them “Apostilled”. The legal representative of the LLC must also submit a copy of his/her passport and Mexican immigration visa.

12. CAN I PUT THE FIDEICOMISO/ASSIGNMENT OF RIGHTS UNDER MY USA LIVING TRUST?

The Ministry of Foreign Affairs will certainly issue a trust permit under a U.S.A. family/living trust, although it is not recommendable to set up a trust under a U.S.A. family/living trust due to the exiting differences in between the practice of Law in between the Mexican Laws over the U.S.A. Laws. Other reason why it is not advisable to set up the Fideicomiso under a U.S.A. family/living trust is because its content would be only under U.S.A. jurisdiction, which we are not familiar with, neither would have any validation under the Mexican Law.

13. WHAT HAPPENS TO THE TRUST IF I SELL MY PROPERTY TO E MEXICAN CITIZEN?

If the property is sold to a Mexican, the Trust can be terminated and it can be owned directly.

14. WHAT HAPPENS IN CASE OF DEATH OF THE BENEFICIARY/ASSIGNEE?

The Beneficiary/Assignee has the right to appoint a substitute beneficiary (ies) who will receive all the rights and obligations that arise from the Trust if the Beneficiary should die. The heirs will not need to follow a probate trial proceeding before the U.S.A or Mexican courts. All heirs would need to provide the Bank/Trustee with a copy of a valid ID. Also, they have to accompany ID’s with the beneficiary’s death certificate, notarized and apostilled. The Bank will register them internally as the new Beneficiaries of the Trust without any cost.

15. WHAT ARE THE CLOSING COSTS?

Real Estate Transaction involves expenses for both parties (seller & buyer) such as acquisition and capital gains taxes, broker’s commissions, appraisal and registration fees, title expenses and legal fees, among others. These fees are based on the property’s value and should be estimated by the Notary designated, also depending on agreements made with all the parties involved.

16. WHEN BUYING OR SELLING A PROPERTY IN MEXICO, WHO PAYS THE CLOSING COSTS?

It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary’s fees and expenses, while the seller pays his capital gains tax and the broker’s commission.

17. WILL ALL LEGAL DOCUMENTS BE DRAFTED IN SPANISH AND IN ENGLISH AS WELL?

The Fideicomiso will be in Spanish. In order to obtain a translation of the Fideicomiso you would have to request services of a Legal Interpreter.

18. DO I RECEIVE A COPY OF THE TITLE-ESCRITURA OF THE FIDEICOMISO/ASSIGNMENT OF RIGHTS?

Yes, once it has been properly recorded under the Public Registry of Property you’ll receive an original copy of the document.

19. WHAT IS INVOLVED AND WHAT IS THE PROCESS FOR OBTAINING THE TITLE-ESCRITURA OF THE FIDEICOMISO?

Once the Seller and Buyer have submitted all the requirements previously discussed, first the bank must obtain the trust permit from the Ministry of Foreign Affairs in Mexico City, which will take 5 days. They will send it to public notary for him to draw up the trust agreement and so when it is revised and approved by the Trustee, he will inform all parties when it is ready to be signed -stating the final closing costs. Once it’s signed by all parties, the notary public gets the necessary documents (bank appraisal, certificate of non-fiscal liens, certificate of non-encumbrance and pays the taxes due in order to have the Fideicomiso recorded under the public registry of property. The notary public than gives the original Fideicomiso to the bank and also the beneficiary obtains an original copy of the document.

20. HOW LONG WILL IT BE UNTIL I RECEIVE MY TITLE-ESCRITURA OF THE FIDEICOMISO/ASSIGNMENT OF RIGHTS?

Once it has all the signatures, the process for its recording may delay approximately 6-10 weeks.

21. WHAT DOES THE MEXICAN PUBLIC NOTARY DO AND WHAT ARE HIS FUNCTIONS?

In México a public notary is an attorney appointed by the State Government whose function is quite different from those powers and faculties of the U.S.A. Notary Public, or the system known as Common Law, where the Notary Public is just a certifier of signatures and not of the contents of documents. Different from the U.S.A. Notary Public, the Mexican Notary Public must be a lawyer, with integrity, and proved professional experience, and furthermore, he/she has to compete with other candidates in order to get a Notary License. It is something that does not happen with the U.S.A. Notaries, who might be not lawyers, and just require a payment of fees in order to be appointed as Notaries. A Mexican Notary Public is a law professional, an expert in this area, a protector of legal procedures and formalities; a counselor, a guide, a protector of the interests of those parties engaged in a transaction, whatever it is. He/she is also a representative of the government, and by means of them, legal value and security is given to all acts or transactions held before them. Their intervention in diverse legal transactions can guarantee the legal security of it for all the parties involved; in other words, the Mexican Public Notary drafts documents, provides legal advice, settles disputes and archives documents. They are authorized to validate the title transfer process thru a Fideicomiso (among other documents) and the resulting document is registered at the Public Registry of Properties.