By: Juan E. Zuñiga and Aaron Behar.
In our previous article in Giving Back Magazine, we wrote about the proposed change to the Mexican Constitution that passed the Mexican Chamber of Deputies in May 2013, that would have allowed direct foreign ownership of Mexican residential real estate in the “restricted zone”, which is 100 km from the border and 50 km from the coast. This proposed constitutional amendment would have streamlined the closing and title process for the benefit of the Mexican real estate industry, including buyers in the coastal property market and provide a meaningful economic boost to this industry. Unfortunately, the amendment was rejected by the Senate. As a result, non- Mexicans purchasing real estate along the coast must continue to take and hold title through a fideicomiso, or Mexican bank trust. Foreigners will not be able to hold direct title to ocean front real estate and Mexican financial institutions acting as fiduciary trustees will continue to be required to hold title on behalf of foreign owners, who will be beneficiaries of such trusts.
As a result of the continuing Mexican law, that requires foreign land owners to acquire coastal property through a fideicomiso, this article outlines the basic mechanics of forming a fideicomiso and taking title to your Mexican coastal property. To form your fideicomiso, you must select both a Mexican bank to act as fiduciary for your fideicomiso and a Mexican Notario to protocolize the deed to form your bank trust. After your trust is created by execution of a formal deed before a Notario, you become the beneficiary of the trust, and have 100% of all rights to benefit economically from the property. The term of the trust is 50 years and is renewable for subsequent 50- year terms. The basic steps to forming your fideicomiso are as follows:
1. Select a Mexican bank to act as a fiduciary and hold title of the property.
2. The fiduciary will apply for a foreign investor permit with the Mexican Secretary of Foreign Relations on your behalf. There is a cost of $12,145 Mexican pesos for the permit as of 2014, which must be paid to the bank in advance. The fiduciary will also charge a one-time set-up fee and an annual maintenance fee, which may be paid at closing. The fiduciary requires paperwork such as “Know Your Client” forms as well as identifications, proof of residence, a Trust application, among others.
3. The buyer selects a Notario to handle the closing. A Mexican Notario is different than U.S. Notary Public; a Notario in Mexico is a holder of a special license to handle real estate transfers, among other activities. Even though a Notario is a licensed attorney, (s)he is not your personal attorney but rather a public function related to the transaction.
4. The Notario will work with the fiduciary and your attorney, if you choose to retain counsel, to prepare the deed transferring title of your property to your fideicomiso.
5. At closing, you must either (a) appear at the Notario’s office personally; or (b) grant someone else power of attorney, to execute the deed on your behalf and close the transaction.
6. All closing costs are the responsibility of the buyer, including the real estate acquisition tax. In our experience, total cost ranges between 4%-7% of the purchase price of your property and will be payable to the Notario at closing. Late fees and penalties may apply if there was a significant delay between the time in which you purchased your property and the time when the deed was executed.
It is possible that the proposed constitutional amendment will be presented again to the Mexican Congress in the near future because of President Enrique Peña Nieto’s economic platform. But for now, fideicomisos are here to stay.