Buying Real Estate in Puerto Vallarta
It is a common misconception that foreigners cannot own real estate in Mexico, but the reality is that they can. Outside the Restricted Zone, a foreigner or foreign corporation can acquire any type of real estate, holding the property as a direct owner complying with the Mexican law.
However, there is the Restricted Zone. The Mexican Constitution regulates ownership of the land and establishes that, “… in a zone of 100 kilometers along the border or 50 kilometers along the coast, a foreigner cannot acquire the direct ownership of the land”. These areas are known as the “Restricted or Prohibited Zones”.
Nevertheless, the latest Mexican Foreign Investment Law, enacted December 28, 1993, provides a solution in the form of a Fideicomiso. Within the Restricted Zone, a foreigner or foreign corporation can obtain all the rights of ownership with a bank trust, known as a Fideicomiso.
Any foreigner or Mexican National can establish a Fideicomiso (the equivalent of an American beneficial trust) through a Mexican bank to purchase real estate anywhere in Mexico, including the Restricted Zone. For practical reasons, even in unrestricted zones, many foreigners, and Mexican Nationals for that matter, prefer to hold their property under a Fideicomiso.
To do so, the buyer requests a Mexican bank of his choice to act as a trustee on his behalf. The bank as a matter of normal course, obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust.
The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for another 50 year period. During these periods you have the right to transfer the title to any other party, including a member of your family.
The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary, who has all the benefits of a direct owner, including the possibility of leasing or transferring his rights to the property to a third party or pre-appointed heir.
The trustee is responsible to the buyer/beneficiary to ensure precise fulfillment of the trust according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer/beneficiary. Fideicomisos are not held by the trustee as an asset of the bank.
Given the changes made in 1997 in the foreign investment law, and the fact that a buyer can now apply for and obtain a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before entering into any contract.
The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust’s beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be:
• Mexican corporations with foreign investment
• Foreign individuals or legal entities
The law defines “use” and “exploitation” as the right to use or possess the property, including its fruits, products or any revenue that results from its operation and exploitation by third parties or from the bank/trustee.
The law does not clarify how trust permits will be issued. Article 14 of the law states that “the Ministry shall decide on issuing the permits”… considering the economic and social benefit, which the realization of such operations imply for the nation. “The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the areas of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past to better understand what criteria will be used by the Ministry in the future.
The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry’s central office in Mexico City. It mist be granted in 30 days if the application is submitted to one of the Ministry’s state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations in a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration is considered authorized.
There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has fiduciary obligation to respect the rights of the beneficiary.
A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.
A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of the sale. Additionally, an attorney can do a title search and point out any problems or alternatives a buyer may have. The buyer should always have his or her own attorney rather than using the attorney of the seller or some attorney used by a real estate company free of charge. As the old saying goes, you get what you pay for, and usually if someone’s services are offered free of charge you are probably paying for them in some other way. Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a “cedula professional.” This document is a registered license to practice law in Mexico, a foreign buyer should ask to see the attorney’s license or have the attorney’s license number included in a retainer agreement before employing any services.
American attorneys are not licensed to practice law in Mexico and should not give advice on Mexican Law. It should be clarified that this is referring to individuals who are licensed to practice law in the United States, and not merely individuals who are citizens of that country. There are currently very few Americans who are licensed to practice law in Mexico. The fact that a person is licensed to practice law in the United States in no way allows him or her to practice law in Mexico: Mexican or United States Law.
Besides formalizing your real estate transaction, an attorney can be very helpful in saving you money. This is because attorneys are involved in many different transactions and have contacts with banks, notaries, and the Mexican government on a regular basis. Because of this, they are aware of the most competitive costs and fees involved in a transaction and can make sure that the buyer is given the best possible prices. An attorney can also inform the buyer regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings when the buyer eventually sells the property.
When looking for an attorney it is important to remember that any Mexican attorney can normally handle a real estate transaction. The buyer is not limited to only the local attorneys where the property is located. All real estate transactions involving a trust are governed by federal law. This means that all such transactions are carried out the same way regardless if the property is in Cancun or Los Cabos.
... published 2007-08-11