TRUST CONTRACT IS A LEGAL INSTRUMENT TO REAL ESTATE FOREING INVESTORS IN MEXICO
Mexican laws allow foreingers to acquire the rights to use, enjoy and avail of real estate located in the costa and border areas of México through a trust, called: FIDEICOMISO, which is the legal instrument purposed, foreigners to acquire real estate in México for tourist or industrial purposes, having the same rights and obligations that a full ownership property gives.
What is a trustee?
In México, it is bank institution like HSBC, Banamex, Banorte, etc. authorized to open fiduciary accounts and formalize trust operations. The trustees hold legal title to the real estate property during the term of the trust contract, and is also empowered with rights and powers necessary to achieve the objectives of the contractual agreement creating the trust.
What characteristics would a trust contract have?
In the trust deed, the present owner of the land would appear as the fideicomitente (settler or trustier) and would thereby deliver title of the real estate to the trustee who hold the property during the term of the trust contract, that is, 50 years with the option to renew the contract up to more years.
You, as the buyer, will be appointed as the fideicomisario, the person having absolute use and avail of the property.
The legal effect of the trust contract is the trustee Mexican Banks keeps temporary ownership of the real estate, in so doing complies with the laws (Article 27 of the Mexican constitution) that prohibit foreingers to acquiring full ownership of real estate located 50 kilometers wide along the coastlines and 100 kilometers wide along the border areas of Mexico. This belt of land is so called the “restricted zone”
While as a foreigner you cannot record title to land in the “restricted zone”, you can own the beneficial interest to the trust contract. It is in, in a way, like owning 100 per cent shares of the corporation which in turn owns a farm: it is for practical purposes like ownership.
What requirements are necessary?
You must provide to the Mexican Bank of your choice the following information (a notary public usually takes care of this):
a) FROM THE PROPERTY: A copy of the real estate title or deed indication the exact surface area, merits, and boundaries: No liens Certificate and appraisal.
b) FROM THE SELLER: A copy of the sellers ID, tax ID number and home address bill (water, electric, phone, etc)
If it is an incorporation: The Incorporation Clauses, power of attorney, tax ID number and a copy of an electric or phone bill with company´s address, empowered persons ID.
c) FROM THE BUYER: Complete name(s) as they appear on their identification, citizenship, address, e-mail and phone number/copy of their id´s and home address bill (water, electric, phone, drivers license, etc), a letter appointing their beneficiaries in case of death, who will be recognized by The Mexican Bank or Institution as the new Fideicomisarios, and pay the trust permit fee as well as the recording fee at foreign investment.
d) The agreed purchase price.
e) Internal Bank formats.
Upon receiving the above mentioned information and documents, Banks shall proceed to apply at the Foreign Affairs Ministry, for the trust permit; once obtained it shall proceed to execute and legalize the trust contract before a notary public. Notaries in Mexico have far greater legal competence that those in the United States. The notary public is the attorney at law who is authorized by the government to give final formality to the title transfer process in his protocol book. The resulting document taken from this protocol book is registered at the public registry of properties: it will give evidence of the title in the name of the buyer.
What rights and obligations does the beneficiary assume upon the celebration of the trust contract?
As the fideicomisario (trust beneficiary), you will have the use and possession of the property, that is, you may live on instruct the trustee on mortgaging the real estate, renting it, selling, transferring your beneficial interest to another person corporation, or performing any of the acts that by the law derive from the ownership.
If you sell the property to another foreigner, you may assign your beneficial interest to the new purchaser. This assignment of rights must be formalized before a Mexican notary public, prior the payment of the federal and local taxes and fees that from the transfer of beneficial rights.
You will have the obligation to pay the duties on land, i.e.: annual property tax named impuesto predial, condominium maintenance fees, water, electricity, annual trust fee, etc. as well as the trust annual fees and all other fees related with the trust objectives.
What fees will the trusted charge for this type of trust contract?
As acceptance fee, which is an only payment at the signature of the trust deed, and an annual fee depending of the value of your property, with a minimum of $ 500 us dollars.
What happen if the beneficiary should die during the legal period of the trust contract?
The beneficiary has the right to appoint a substitutes beneficiaries who will receive all the rights and obligations that arise from the trust contract, if the beneficiary dies during the life of the trust.
With the designation of substitute beneficiaries, your heirs will not need to follow any probate proceeding before the Mexican courts, that could take time and attorney fees. They would only have to give notice to the Bank or Trust Institution of the deceased and show the death certificate and their identifications. Then the Bank will give give instructions to the notary public, to process these documents and with the resulting deed register them as the new owner (beneficiaries) of the the trust property.
What will happen at the expiration of the trust contract?
On December 27th, 1993 a presidential decree was issued establishing the new foreign investment law. According to article 13 of this law, the Foreign Affairs Ministry Shall allow the renewal of the trusts over the “restricted zones” upon the expiration of their term.
Furthermore, the Foreign Affairs Ministry may authorize for a period of up to 50 years when the beneficiaries of the original and the new trust are different.