A major consideration for Mexico home purchasers is the location of the home. But if the home you are considering is located in what is called the Restricted Zone, you cannot legally own direct title to that real estate property if you are a foreigner.
The Restricted Zone is defined as the land area within 100 kilometers of Mexico’s international land borders with the U.S., Belize and Guatemala; and, the land area within 50 kilometers of Mexico’s ocean front areas (the coastline of Mexico).
Foreigners can buy property in the Restricted Zone by acquiring a fideicomiso, which is a long-term irrevocable bank trust. In this case, a Mexican fiduciary bank holds the title and cedes the rights to own and occupy, remodel, sell, give away or leave to your heirs. The fideicomiso is not a lease, but a renewable trust held currently for 50 years (and renewable) by the Mexican government. If you are buying property outside of the Restricted Zone, you can hold title to the property.
The sole purpose of the fideicomiso is to satisfy the Mexican Federal Constitution by vesting legal title to the property in the name of the trustee. The trustee’s sole responsibility for the property is to hold and transfer title at the exclusive direction of the beneficiary. The trustee has no duty and no right to defend, maintain or manage the property.
The primary beneficiary (buyer) retains sole authority to manage and control the property, and the direct obligation to pay all taxes and liabilities related to the property.
The Riviera Maya is a popular destination for nationals and foreigners. The Cancun area competes with Puerto Vallarta and the Western Coastline of Mexico for tourism and foreigner second homes.
Politicians in the state of Yucatan introduced – a few years ago and for the second time – a proposal to change the Mexican Constitution to eliminate the trusts now required of foreigners buying in the restricted zones of the country.
The legislators stated they want to take away the stumbling blocks to selling foreigners real estate. They cited the expenses of a trust as well as bureacratic mazes and losses to sellers. Developers and investors are actively behind this effort. The proponents for change report that foreigners vacationing and buying second homes in Mexico contribute more than 9 percent to the national GDP and create over 9.5 million jobs. The legislatures said more buyers would come if the requirement of a trust was eliminated and fee simple ownership applied to all. These legislatures did not know or did not care to understand the trust more completely. Their reasons were for their own economic benefits.
I had an experience many years ago when a bank trustee required more time to identify the right of the national sellers to transfer real estate to a foreign buyer.
The trustee insisted on further documentation to establish if the selling couple owned the property jointly, or if only one of them was the owner as his/her separate property. The notary was willing to close the transaction with a statement from the couple of how they owned the property. The trustee would not accept this requirement. He required proof from the civil marriage agreement of how the couple would own property as man and wife. It was important for the bank trustee to know if the sale was going to be valid. The only way the trustee could be sure in this case was to know if there was one seller or two transferring real estate into the buyer´s trust.
The cost of closings has increased for foreigners, but not from the cost of the bank trust. The acquisition tax and the city tax appraisal have increased, as has the foreign investment permit required of all non- citizens.
I do not believe it is wise to change the Constitution when the purpose of this law is to protect the shoreline and borders from foreign ownership, and prevent an increased ability for other parties to invade or harm the nation’s interests.
This article is based upon legal opinions, current practices and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.