Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. -Mark Twain

Saturday, September 19, 2009

Yes You CAN Own Real Estate in Mexico!

Myth: Foreigners cannot own real estate in Mexico, and the Government can seize foreigners' property at any time.

Fact: Yes, foreigners CAN own property in Mexico. No, the government cannot seize it at any time.

Put simply, here are the basics on how the real estate system in Mexico works for foreigners, especially in border areas and along the coast in places like Rocky Point.

In the interior of Mexico foreigners can own property outright, with a deed and everything, just as they can in their own country. However, property located within 50 kilometers (about 31 miles) of the Mexican coastline or 100 kilometers (about 62 miles) of a national border falls within the "restricted zone", where the Mexican Constitution forbids fee simple ownership by foreigners. You can also "own" property there, but the process is a little different.

The difference is due to the Mexican government's need to protect its borders and coastlines, a matter of national security that at one time prohibited foreign ownership in those areas. With an eye toward increasing tourism and raising new revenue streams, in 1993 the Foreign Investment Act was passed (backdooring the Constitutional prohibition) and foreign ownership of land in the restricted zones became legal, but with a twist.

When you purchase real estate in those restricted zones, what you get is irrevocable and absolute ownership rights to property through a 50-year perpetually renewable and transferable Bank Trust called a Fideicomiso (Fee-day-co-meeso). This Trust is a legal substitute for deeded ownership and is provided specifically for foreigners to own property in the restricted zones. The Trust system of ownership is sanctioned by the Mexican government, provided for under the Mexican Constitution, and secured by the Central Bank of Mexico. This is NOT a lease, but actual ownership held in trust.

Put simply, the Bank Trust gives foreigners the same rights of ownership as Mexican citizens. The only difference is that foreigners do not receive the actual fee simple title, which is held in trust for them by a bank. It is important to understand, though, that the deed to the trust is not an asset of the bank in which it is held. It is your asset.

Title of the property is delivered to an authorized Mexican Bank which acts as the Trustee, designating the foreign buyer as the Beneficiary of the Trust (that's you). The Bank acts like an "employee" of the Beneficiary (you) in transactions involving the property. The Beneficiary (you) retains the use and control of the property and makes all the investment decisions. The rights of use and enjoyment, leasing, improving, mortgaging, selling, inheriting and willing the property is the same as when owned in fee simple title. It is your Trust and not the property of the Government or the Bank. Neither the Government nor the Bank can do anything with the property without your consent and/or instructions.

A sale becomes registered when it is witnessed and recorded through a Notorio Publico, a classification that is more like a specialized lawyer than the notary public you may be familiar with in the USA. From there, title passes to the designated Bank to be held in the Fideicomiso.

The Bank reviews all paperwork of the current owner/developer to make sure the documents are complete and legal. Until the Bank is satisfied with all the documents, it will not issue a Fideicomiso. What happens if the Bank holding your trust goes out of business, is purchased by an unauthorized Bank, etc.? Your Fideicomiso will be transferred to another authorized Bank. Again, the Bank does not own the Fideicomiso, you do!

Unless a problem occurs because of fraud or misrepresentation, the Fideicomiso cannot be compromised.

Note that even if the trust expires, the beneficiary does NOT lose all rights and benefits of the sale of the property held in trust. The beneficiary has a contractual right under the trust agreement to all benefits that might result from the use or sale of that property, even though he doesn't hold title to the property. Under Mexican Law, the bank administering the trust has a fiduciary obligation to respect the rights of the beneficiary.

One last word in this brief explanation: It's a good idea for potential real estate buyers to have all real estate transactions looked over by a licensed Mexican attorney. An additional caveat: I am not one of those attorneys. Though tens of thousands of foreigners have owned real estate, without problems, for many years throughout Mexico, the possibility of fraud always exists (as is also true in the USA and other countries).

In future columns I'll explain things in more detail, including ways to protect yourself from fraud, how your Mexican immigration status changes once you purchase real estate, what documentation you need, your legal obligations as a "land owner" (including tax obligations), etc.

But for now, in a nutshell, this will do as a starter. Yes you CAN own real estate in Mexico!