To continue with the series of blog posts, Buying a House Long Distance, it is essential to define some terms. First, the fideicomiso or bank trust in Mexico is a contract by means of which a natural or legal person, national or foreign; affects certain goods or rights for a lawful and determined purpose, for its own benefit or that of a third party, entrusting the realization of said purpose to a fiduciary institution.
Second, the fideicomisario, Spanish for trustee, is the beneficiary named in the trust agreement. It can be a natural or legal person who will receive goods, values, or resources when the established conditions are met.
Third, the fideicomitente, Spanish for settlor, is the natural or legal person who establishes a trust that delivers certain goods to another person so that he can administer and use them according to a specific purpose. Only those natural or legal persons who can legally manage the goods can do so.
Some history of the Fideicomiso
Well, at the time of the writing and preparation of the 1917 Mexican Constitution, there was a high threat of invasion. Thus, the Mexican leaders that wanted to protect their country created a clause saying that no foreigner could own property along the coastal border lines.
Therefore, they couldn’t own land within 50 kilometers from any coastal borderline or 100 kilometers of any bordering neighbor such as the United States to the north and down to the south, Guatemala.
However, in the decade of the 60s, there was significant demand for land. Foreigners, mainly Americans and Canadians, wanted to buy property along the coast on the stunning beaches of Mexico. But, because of the clause in the Constitution, they started to do the practice of presta-nombres (name-borrowing).
Thus, they would give the money to a Mexican buddy they had met. This buddy would buy the property under his name, but the actual owner was the Canadian or American in private.
Why do I need to set up a bank trust?
Nevertheless, it was illegal, and it started becoming such an issue that the Mexican government decided they had to do something.
It was great to have all this investment coming into Mexico, but they needed to create some regulations to better control it. They needed to avoid any type of fraud and abuse.
So, they inserted an amendment to the Constitution saying that foreigners could buy the land; however, a financial institution would be holding the property in the foreigner’s name. Hence, the bank trust in Mexico was born during the 1973 amendment. Since then, in order to buy a property in the restricted zone, you need a bank trust.
Is it a safe process?
The process is rather simple, very secure, and it’s your property. Like in the United States or Canada, it’s held in the trust, but you, the foreigner, are the beneficiary. The financial institution has no rights to the property. You can do what you want to do with it, just like any straight title owner.
You can improve upon it, build on it, modify it. There are no restrictions whatsoever. You can get a lien on it or borrow money off the property. It is your asset 100%. And I know a common question: what happens if the bank comes into financial difficulty? Will they be able to sell my property if it’s in the bank trust? The answer is no, by no means whatsoever.
The only thing the bank does is hold the paperwork on it. If they sell the bank or declare bankruptcy, or if another bank absorbs them, there’s a process where another bank can take over the bank trust in Mexico, but you continue to be the beneficiary.
What do I need to do to set at the bank trust in Mexico?
As we mentioned in the previous article of this series, any foreigner who comes to Mexico to buy or invest in real estate needs to register at the SRE (Secretaría de Relaciones Exteriores) the Foreign Affairs Registration. It costs $1,750 USD, and it is a fixed amount, regardless of the property’s value.
All the process takes about two to three weeks, and then the SRE issues a certification with which the buyer gets to choose which financial institution will hold the papers of the property. At this point, you submit the paperwork with the financial institution to set up a bank trust in your name.
A couple of important things about a bank trust in Mexico is that there’s no limit on the number of people who can appear as the first beneficiary. It is usually two people, for instance, the husband and wife. It could be just one person, but it could be 12, which is very flexible.
A very positive good point is that you also list the second beneficiary. The second beneficiary is set in case of the death of the first beneficiary or beneficiaries. That way, it becomes a type of will and testament.
If you own a property in Mexico and don’t have a bank trust, it’s vital to set up a will and testament so that everything is clear on paper.
Is it always necessary to set up a bank trust when buying property in Mexico?
You only need to set up a bank trust in Mexico if you buy a property within the restricted zone that we talked about before. However, if you’re on a kilometer 60 and want to buy a property, you can buy it straight. You can go right to the notary just like a Mexican national and buy it. The only thing you still need is to get the SRE registration to purchase or invest in Mexico real estate.