Home Expat Blogs Fideicomiso Trusts in Mexico’s Restricted Zones

Fideicomiso Trusts in Mexico’s Restricted Zones

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Beachfront property in Puerto Vallarta
Credit: Harriet Murray
Harriet Murray Blogs for Expats In Mexico on Mexico Real Estate
Harriet Murray

At different times, renewed debate flares up over whether trusts are good for real estate properties in Mexico’s restricted zones.

The restricted zone, according to Article 27 of the Mexican Constitution, is all land located within 100 kilometers (62 miles) of any national border and within 50 kilometers (31 miles) of any ocean. Article 27 states that no foreigner will be allowed to acquire direct title to land within the restricted zone.

Mexico protects the shoreline of the entire country. Restricted zones, which are of interest to foreigners, include the beach and oceanfronts that bring homeowners the pleasure of enjoying the ocean, sand and warm climate.

In order to allow development of the shoreline and the border between Guatemala and the U.S., lawyers and businessmen in the 1980s revised the ancient use of Roman law of trusts. A fideicomiso is created to recognize the rights of a Mexican bank trust to cede rights to a primary beneficiary. The rights in the Mexican trust include the rights to pay for the rights to a property, sell the rights, remodel or grant successors or secondary beneficiaries the rights in the trust upon the death of the primary beneficiaries.

The fideicomiso trust is its own will and does not require probate to prove its validity. Third parties cannot contest the trust as they may contest a will outside of a trust.

There is a cost to hire an attorney and to probate an escritura for a property outside of a trust. For example, in San Miguel de Allende, a trust is not required, but the ownership of the property must be probated to prove who inherits. Some of these escrituras name heirs, but probate must be done in order to confirm this is the heir as named or to deal with claimants who contest the inheritance.

In my experience, a trust is a valuable legal document that protects beneficiaries against outside claims or disputes. There have been times when notaries would accept more casual identification of sellers who may or may not be joint or individual owners. The trustee of the bank trust will do his/her own diligence. Until the trustee agrees, the notary cannot close or transfer the property.

Here are a few pitfalls to avoid:

1. There is no right of survivorship as we as foreigners may understand it. It is best to talk in simple terms about what you want, and allow a competent bilingual person to explain and complete the bank trust application forms.

2. Does a couple buy a home with each having 50 percent of the property as primary beneficiaries? Do they leave their half to each other upon the demise of one? Does the survivor agree to whom both want to name as successive beneficiaries after the death of the two primaries? Percentages may be used to name more than one person. If children are named, they will have to have an administrator. Trusts are very conservative about allowing minors rights to be transferred or sold.

3. Trusts do not like to name a private trust as a primary beneficiary. It is better to name as secondary beneficiary an individual who may be the administrator of the trust. A foreign trust will require a formal and costly legal translation and registration before a Mexican trustee may accept it.

4. Trusts are not required for developers who have no foreign ownership. Any foreign owner or investor rights have to be in a trust. By definition foreigners cannot own directly in the restricted zone.

5. Mexican and foreign LLCs must be in a trust if they are foreign administrators or shareholders. Recently there were three properties with foreign and Mexican owners without trusts allowed and recorded by notaries. These properties cannot be sold or have great difficulty in overcoming mistakes by notaries and persons who do not know the most current Mexican law. Why were they created in the first place? To avoid paying taxes or to falsely claim foreigners have ownership they cannot have.

Next time, I will discuss LLCs in more detail and current ISR guidelines for assessing capital gains tax.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his/her own due diligence and review.

2 COMMENTS

  1. My friend in Melaque has been talking to a lawyer. She INSISTS the lawyer says she can have her prestanombre sign off, get rid of the Ejido, and turn the property over to her (she’s a Canadian) because she has a permanent residency card.

    I don’t believe this is true. But she says the lawyer says as long as she has a Permanent Resident card, she is allowed to have the property in her name.

    What do YOU say? There are lots of people awaiting your answer.

  2. I believe Melaque is in the restricted zone. So your friend would have to work with her presta nombre and probably pay all the expenses to take the property
    through the steps to become privatized and sold to a non-Mexican. She will have a fideicomiso trust as a foreigner. The trust is a protection for her and she should not work with any attorney or notary who suggests anything different. If the property is privatized properly, she will be able to have the trust. If she cannot get a trust, she is being conned.

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