Millions of tourists from around the world cross the Mexican borders to enjoy long and well-deserved holidays in Mexico’s beautiful beaches. From Puerto Vallarta, to Acapulco, to the famous Riviera Maya, foreigners have been attracted to the area and have started to purchase vacation or retirement homes here. While some decide to go for a lake-side home in central Mexico, or for a skyscraper condo in Mexico City, others decide that what they want and need is to be able to walk or drive no more than 10 minutes to the beach and relax. It is these foreigners that cannot physically own a title to their property except through a bank trust.
When Mexico found itself through rough times back in 1917, the government decided to make it harder for other countries to take advantage of their lands by delimiting a “Restricted Zone”. This zone meant that nobody other than Mexican nationals were allowed to invest in lands located within 100km of any Mexican border, or 50km from any Mexican coastline. However, as time passed, and in order to allow foreign investment in these areas, the government then decided to start issuing something called a “fideicomiso”, which is basically a bank trust.
These trusts are similar to one you may hold in the United States, except that the designated trustee must be an authorized Mexican financial institution such as Citibank, Scotiabank, Bancomer, amongst others. Exactly like in the US, this trust gives the buyer full ownership of the property they are purchasing, but instead of being the “owner”, they are stated as the first beneficiary. This allows the person to benefit from improving, remodeling, fixing, renting, or selling the property without restriction.
The first step to becoming a homeowner in the restricted zone is to find a bank or financial institution to hold the trust. Once you have found it, it is essential to sign a Trust Agreement where both parts agree how the trust will be held and what benefits you will enjoy as the first beneficiary. There will be an initial fee to pay for drawing up the agreement, which is usually around $700 USD, but it will depend on the property and institution. Annual fees must be paid to the institution holding the trust; these fees are determined by the value of the property.
It is essential to remember that although the bank legally acts as the trustee and holds the title, your property is not an asset of the bank. The beneficiary has every legal right to occupy, rent, modify or inherit the property as they wish. The trusts are set up for 50-year periods, which are renewable, allowing the purchaser – or their second beneficiaries – to continue enjoying the benefits from their property.
There are three important parts to the bank trust:
- The trust settler: this is a physical or legal Mexican national who is the current owner or seller of the property to be placed in the trust.
- The trustee: is the government approved financial institution, which will hold the trust for the designated time.
- The beneficiaries: this is the legal or physical foreigner acting as first beneficiary to the trust with the rights for use and benefits of the property.
In the Trust Agreement, it is necessary to state whether there will be one or more beneficiaries to the trust. In case of there being more than one, it is important to state the percentages of ownership and the benefits each one will enjoy. Each first beneficiary must have a second beneficiary who, in the event of death, would inherit (at no cost, or tax) the right of use and benefits of the property.
While many foreigners decide to reside in Mexico with an FM2 visa, which allows them to work and live in Mexico for certain periods of time, it is important to highlight that these visas do not grant you the right of ownership. The only way to become a titleholder without a bank trust – in the restricted zone – is through a Mexican corporation or by becoming a Mexican citizen.
Now, if you have any questions about how to set up your bank trust or any other related doubt, feel free to contact any of our Top Mexico Buyer’s Representatives who will gladly help you through the process of purchasing property in Mexico’s restricted zones.
And remember… here at Top Mexico Real Estate…
We make it happen!
By Thomas Lloyd
Thomas, from Indiana, is a graduate from the prestigious Krannert School of Management at Purdue University, where he obtained a degree in Administration with the Financial Management option.
He has been working professionally in Mexico since 1995, and in 2011 he was the first person to ever attain a new nationally regulated Real Estate degree and professional identification number for the Country of Mexico.
In 2009 he was voted Realtor of the year, because of his professionalism, attention to customers and knowledge of procedures and the market. Also, he has been active in the real estate community serving on the real estate association’s Honor and Justice Committee.
Thomas founded TOP Mexico Real Estate to help non-Mexicans have an enjoyable and safe experience as they purchase and invest in real estate in Mexico.
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