Mexican Trust

Foreigners may acquire direct ownership of property in the interior of Mexico; however, the Mexican Constitution regulates land ownership and establishes states that “…in a zone of 100 kilometers (about 62 miles) along any border or 50 kilometers (about 31 miles) along the coast, a foreigner cannot acquire direct ownership of this land.” This zone is known as the “restricted zone” or “prohibited zone.” Foreigners must use a trust to buy property within this zone. A real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts to hold title to real estate in the restricted zone, they must have a bank act on their behalf.

Foreign investment in these restricted areas is possible through the use of a “fideicomiso” (fee-day-e-co-me-so), which is a Mexican real estate trust that was created by the Mexican government. The “fideicomiso” has been a legal document since December 28, 1989. A Mexican bank must be nominated as the trustee and is required to hold the title to the property. The Mexican Government created the "fideicomiso" to resolve the problems involved in developing the restricted zone and to attract foreign capital. Now foreigners, as beneficiaries of the trusts, can finance land located in the restricted zone without violating the law. The trust agreement is executed between a Mexican bank and the seller of the property in the restricted zone. The bank acts on behalf of the foreign buyer, taking title to the real property. The bank, as trustee, acquires the property for the foreigner, and then has a fiduciary obligation to comply with all instructions given to the bank 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, rent, remodel, profit (an example of this would be selling crops), and even to sell the property to any eligible buyer. Typically, the trust has a fifty (50) year term renewable indefinitely with annual fees of about five hundred fifty United States Dollars ($550 USD). There is a common misconception among foreigners investing in Mexico that once the trust term expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. 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 has an obligation to respect the rights of the beneficiary. All foreigners are required by the Mexican government to obtain a permit from the Ministry of Foreign Affairs; even though this is executed by the bank and trustee it is recommended that a foreign buyer obtain the permit before finalizing any legal binding contract. This permit can be obtained in a few days. The bank is also expected to obtain a permit from the Ministry of Foreign Affairs. The reason for this is to ensure the trust’s beneficiary is granted the right of use concerning the property.