Understanding Fideicomisos and Why They Are Required to Buy Beach Front Or Border Property in Mexico

A Little History

The people that wrote the Mexican Constitution were vehemently against foreigners owning property in Mexico.

They knew that foreign real estate investors and home buyers, coming mainly from the United States were deeply inclined toward purchasing property on the Mexican side of the US/Mexico border, as well as vacation homes and property in beautiful coastlines and on islands throughout the country.

The Birth of the Restricted Zone

Therefore, they came up with a plan and decided to make it unlawful for a foreigner to own a piece of property within 100 kilometers of the Mexican border or within 50 kilometers of any coastline. And they put it in writing within their constitution so that it would be very difficult to overturn by later generations.

But Mexicans are not dumb people! They knew that there was lot’s of money to be made if they could only sell their properties to the people who were willing to pay the most. Thus, lobby efforts started in order to change the law or find ways to allow foreigners to buy and own property within what became known as the “Restricted Zone.”

The Rise of The Fideicomisos Loophole

In order to attract foreign investments a later Mexican government created what is currently known as fideicomisos. This is basically a legal loophole permitting foreigners to buy property within the restricted zone through the use of a real estate trust fund which is managed by a Mexican bank. The bank legally owns the property but it is fully controlled by the foreign investor whom has full authority and power over anything dealing with the property and reaps all of it’s gains and losses as well as being able to sell it at any point without restrictions.

In order to qualify as a fideicomiso, a Mexican bank or corporate legal entity must first get a permit from the Mexican Ministry of Foreign affairs which allows it to set up a real estate trust fund. Before the purchase is complete, the buyer should also apply for a permit to buy Mexican Real Estate through the same Ministry of Foreign affairs.

These permits are issued in accordance to what is known as the Calvo Clause which requires the foreign national to waive any rights he/she may have had to pursue legal action using his birth country’s laws or any other non-Mexican laws or treaties and can only pursue legal action within Mexico, using only the Mexican Court system.

Conclusion

Foreign nationals can buy property within Mexico’s Restricted Zone by Using Fideicomisos.

A fideicomiso is basically a trust agreement between a Mexican bank and a foreign home / property buyer which allows the bank to act on behalf of the buyer. The bank, acting as a trustee goes ahead and buys the property and holds the legal title. The buyer retains full rights of ownership because the trustee is under the obligation to follow every instruction issued by the buyer.

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