Mexican
Bank Trusts On
a recent trip to the US, I met with a number of American real estate agents. Almost
all of them wanted to better understand the Mexican bank trust, before they felt
comfortable referring a client to me. In this article, I want to discuss the bank
trust for foreigners, using several different sources. Lic
Francisco Campos Garcia Zepeda, Director of Permits, Secretary of Foreign Relations.
Translated and used by permission. Linda Neil, Translator: It
is necessary to understand the background as to why and how bank trusts (fideicomiso)
were created for foreign ownership of Mexican real estate. In the middle of the
nineteenth century, Mexico lost large amounts of land to the United States when
it invaded its neighbor. The Mexican government had to find a way to stop further
loss of their territory. They did this by prohibiting in the Mexican Constitution,
foreign acquisition of land along the borders and coasts of the country. A restricted
zone was created. The restricted zone is the strip of
land 100 kilometers along the borders of states and 50 kilometers along the beaches.
In the twentieth century, Mexico realized that it needed
foreign investment so the government developed the use of a trust in the restricted
zone. The two advantages of the trust for Mexico are: 1.
It encourages the flow of foreign capital into Mexico.
2. Foreign ownership
in the restricted zone is held in a trust institution, which must have a permit
from the Secretary of Foreign Relations. Through the use of the trust, there is
compliance with the Mexican constitution in regard to non-Mexican ownership of
real estate. The parties to the trust are: The Trustee
(Fiduciario) which is the bank or credit institution holding the real estate,
the Trust Settlor who is the legal Mexican person appointed to sign for the trustee,
and the Beneficiary (Fideicomisario) who is the person named as the beneficiary
of the trust. The law regulating
the trust in the restricted zone is found in the Foreign Investment Law, 1993.
This law establishes the requirement for a permit whereby the credit institution
may acquire, as trustee, rights in real property located in the restricted zone.
The trustee may admit foreigners into the trust in order for foreigners to acquire
rights in residential property. The law also grants the credit institution the
right to charge for the administration of the trust. The trustee charges a yearly
fee in addition to having the right to charge other fees for requests on a per
case basis. The application for the trust has specific
parts: 1. The name and nationality of the trustee
(credit institution)
2. The name and nationality of the designee to
sign for the trustee.
3. The name and nationality of the beneficiary
and the substitute beneficiaries.
4. The term of the trust
5.
The use of the property.
6. The description, location and surface area
of the real property being placed into the trust. The distance of the real property
from the Federal Maritime Zone, and the distance from the national border of Mexico.
The
measurements and boundaries of the property must be attached to the application
for the permit. There are strict time limits on these
applications. The time to respond to the request, if the permit is presented in
the main office in Mexico City is 5 business days and 30 business days for applications
presented in one of the state offices of the Foreign Relations Secretary. It no
resolution is made within this time frame, the application for the permit is understood
to be approved. The notary who will handle the closing
makes the application for the permit. The buyer needs to pay a deposit, usually
half of the estimated closing costs, in order for the notary's office to start
this process. The foreign beneficiary, in order to have
the trust granted, agrees to be considered a Mexican citizen and abide by the
laws of Mexican regarding real estate ownership. The foreign owner agrees that
he shall not invoke the protection of his government in matters pertaining to
the ownership of real property in Mexico.  | |
The trustee or credit
institution must report every year the status of the trust beneficiaries and any
changes to the trust. If the Secretary of Foreign Relations determines there is
non-compliance, the trustee must make changes or corrections within 60 days from
notification by the Foreign Relations Office. A trust can be extinguished if in
violation of the permit. The Secretary of the Foreign Relations Department can
require the trust to be ended within 180 days of notice to the trustee. Some of
the causes for the dissolution of the trust occur when there is a violation of
plans and programs for urban development or violations of ecology standards. Federal,
state or municipal authorities determine these violations. The
term for trusts being issued now is 50 years, and can be renewable for an additional
50 years. If all the requirements of the permit have been complied with, the request
is made to renew by the interested parties within 90 days prior to the expiration
of the first term. Mitch Creekmore of Stewart Title recommends
that when a foreigner is buying a residential lot, he should require the developer
to show proof that the Mexican government has approved the subdivision. The potential
buyer should request to see the legal authorization. Also, the developer should
be asked if the property will be conveyed into a trust at the time of sale. If
this is not the case, the foreigner should find out the details, as well as the
development issues that may exist. Only then can the prospective buyer make an
informed decision about a purchase. If a foreigner is
purchasing non-residential property, the acquisition can be done through a Mexican
corporation. Under certain conditions, the corporation may be 100% foreign-owned.
Again, the foreigners must accept that they are subject to Mexican laws and agree
not to invoke the laws of their own country in matters of real estate ownership.
The purchasers also agree that the real estate acquired will be registered with
the Department of Foreign Affairs and will be used for non-residential purposes.
In this way, foreigners can directly acquire commercial, tourist or industrial
properties. Jesus Reyes Vazquez, Nuevo Vallarta, supplies this information. It
is absolutely necessary for a potential investor to understand the basic law regarding
acquisition of Mexican properties, before buying. If you have further questions,
please write to me. Harriet
Murray, Broker For additional information
on properties for sale or lease within the bay, please call or e-mail me at: harriet@pvnet.com.mx
Thanks and until next week. | 
