The Bank Trust (Fideicomiso)

A Fideicomiso works similar to a U.S. Bank Trust. In a Fideicomiso the Mexican Government issues a permit to a Mexican Bank of your choice, allowing the bank to act as purchaser of the property. The bank then acts as the “Trustee” for the trust and the owner becomes the beneficiary of the Trust. The “Beneficiary” rights are very similar to those of Living Wills or Estate Trusts in the U.S.

The law authorizes Mexican banking institutions to act as trustees. A trustee takes instructions only from the beneficiary of the trust (the foreign purchaser). The beneficiary then has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The beneficiary may also sell the rights and instruct the trustee to transfer title to a qualified owner.

Many individuals incorrectly refer to the trust arrangement in Mexico as a lease agreement... this is not true. The property you buy will be put into a trust with your name as the beneficiary of the trust. By no means are you a lessee. You will have the exact same ownership rights that an owner of property will have in the United States or in Canada, including the right to use the property, sell the property, rent the property or improve the property. The initial term of the Property Trust is 50 years and an investor can renew the Trust for an additional period of 50 years. This process can be continued indefinitely.

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Corporations

The second method that allows foreigners to purchase land is through the creation of a Mexican Corporation. The corporation can be wholly owned by foreigners and have the ability to own an income producing property outright without a Fideicomiso.

The set up of a corporation is very similar to the creation of a corporation in the Untied States via drafting Articles of incorporation, by laws and the issuance of stock. Setting up the corporation involves legal fees and registration fees and on going tax filings just as in the United States.

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The Buying process

Buying property in Mexico is different than in the U.S., Canada or Europe.

Once a desired piece of real estate has been selected for acquisition, a Purchase Agreement Form is drawn and a deposit of $ 5,000 to $ 25,000 US dollars is required to secure the property. Then the Sale and Purchase Contract is processed and sent to the buyer. Afterwards the Purchaser has 15 to 30 days to review the Sale and Purchase Contract. After said period, 10 to 30% or more of the total purchase price is paid as initial investment. These deposits may be placed into an escrow account and can either be in the form of check or wire transfer. The Sale and Purchase Contract will contain all the transaction’s corresponding details.

Many developments schedule payments for buyers based on a construction schedule. As the development advances a proportional percentage is paid out. The final payment is usually paid at closing.

The closing process involves going before a Public Notary to sign the Fideicomiso (Bank Trust). A Notary in Mexico is different from a notary in the United States or Canada in that they are granted more authority. They are appointed State Attorneys who act independently for both the buyer and seller, and have an obligation to the government to collect sales and property taxes. The Notary legalizes the transmission of ownership of any given property, and is used in the formation of any corporation or LLC.  Most developers use a particular Notary because they have all of the developer’s documentation on file and it facilitates the process. However, purchasers do have the right to choose to work with the Notary of their choice.

At closing, the Notary will read the precise description of the property that is being sold and purchased as well as the agreed upon price, terms and conditions. If the Purchaser and the seller are in accordance with what is stated then in the same act, the buyer signs the Fideicomiso and the seller signs the transmission of ownership finalizing the sale. The next step is that the Fideicomiso is processed before the Department of Housing and a Title will be delivered within 120 to 180 days.

At Caribbean Shores Realty, our professional brokers will stand by your side in every step of the closing process, making sure that you have a smooth and enjoyable purchase experience.

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Title insurance

For Purchasers who want extra security we recommend to purchase title insurance with a well established company like Stewart Title. The title insurance company will perform a title search on a property by going back in time 30 years and reviewing the ownership of that property until present day. Besides the title they will also review the property to make sure that there are no liens against it and that all payments of federal zone tax and property taxes are current and paid. If after the purchase something is wrong with the title, the insurance company is responsible and they are liable to the purchaser for the entire value of the property being purchased.

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Financing in Mexico

Traditionally because of high interest rates charged by Mexican banks, most real estate purchases in Mexico were handled by 100% cash transactions. Recently U.S. financing institutions have started to offer financing to U.S. citizens purchasing property in Mexico. At present Mexican banks are also offering financing to U.S. investors.  Leading the way are banks such as Bancomer, Banamex, and GE Capital.

Financing is handled much like it would be handled in the United States since many of these institutions are in fact from the U.S. Based on credit scores, you may receive a loan with and interest rate that varies depending on qualifications. The lending companies will only provided a loan after due diligence has been performed on the property.

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