The What and Why of the Mexican Real Estate Trust
The reasoning behind the Mexican bank trust for foreign ownership of property in the so-called restricted zones, like so much of life in Mexico, is steeped in tradition. The current Constitution of Mexico was enacted in 1917. It was created in a form to protect all Mexicans from the kinds of foreign invasions they had suffered for centuries. In the spirit of that protection of natural rights, the Constitution forbids the direct ownership of land by any foreigner within 100 kilometers (62 miles) of the national borders of Mexico or within 50 kilometers (31) miles of the seashore.
In olden days, the usual way of conquering someone else’s territory was to encroach upon it and establish a base. Once you set up camps and then settlements where your citizens or armies actually owned property, you could claim that the land was no longer in the possession of the other country, but belonged to you. So, armies often landed on the coasts of Mexico or crossed its border and began this form of conquest by possession. Mexico lost a great deal of its original land mass, won in the war of independence from Spain, in just such a manner. The current Mexican Constitution was designed to ward off this kind of threat.
Over the years, it has become less and less probable that such an outmoded form of military attack would be used to attempt to conquer another country’s territory, especially in North America. Nonetheless, rather than amend the national constitution, the Mexican people through their government have designed a system through which foreigners can and do enjoy all the benefits of property ownership in the highly desirable restricted zone … especially along the sea coasts.
The Mexican Bank Trust is based on a common set of fiduciary principles. Much like a trust in the United States, property owned or controlled by one party is turned over for the benefit of another party, using the stewardship of a trustee – a third party. Your uncle may die, for instance, leaving his estate in trust for the benefit of your widowed aunt for as long as she lives, giving a trustee the responsibility for managing the estate and ensuring that it is used for your aunt’s needs and desires.
In Mexico, a “fideicomiso” is a bank trust agreement whereby the bank, acting as trustee, manages the ownership of the land and improvements for the use, enjoyment and enrichment of a beneficiary. If you are a foreign citizen and you buy property in the restricted zone in Mexico, you arrange with a bank to be your trustee. The bank actually ensures that the closing is legal and appropriate and takes possession of the real estate for your sole use – until you give them instructions to the contrary.
If you decide to sell the property, you must instruct the bank’s trust department in writing to transfer the trust ownership to your buyers. The buyers can either assume your existing trust, or they can initiate a new bank trust with a different bank, if they choose. Bank trusts are typically written for 50 years, and they are renewable for any number of additional 50-year periods. When you set up your bank trust, you must even specifically name your beneficiary or beneficiaries who will automatically own the property in trust if something happens to you. The trustee, that is your bank trustee, is prohibited by the trust agreement and by Mexican law transferring ownership of the property, changing the beneficiary rights or from doing anything else concerning the property without your written instructions.
There is an initial fee to set up the trust. It will be included in your estimate of closing costs. There is an annual fee for maintaining the trust, which is typically only a few hundred dollars a year. Under the trust agreement, you maintain and enjoy the right to occupy, rent, repair, expand (within property building codes) and sell the condo or house at your will.
As you make your decision about owning a home or vacation property in Mexico, relax and enjoy the search, knowing that your acquisition will be yours and yours alone, that you will be able to enjoy it as long as you like, that you can sell it whenever you want and that, if you do not sell it, it will legally pass to your named heirs.
© 2004, 2007 Larry C. Sheldon