You might know that there are restrictions on buying beachfront property in Mexico. But you may not know why this is a good thing or, what a fideicomiso actually does.
A fideicomiso is a trust. It’s a legal agreement between you as the property owner and your bank. Your bank holds your property in trust for you and your beneficiaries. Without getting deep into legal jargon, think of it this way: you keep your grandmothers pearls in a safety deposit box in your bank. The pearls belong to you but your bank holds them for safekeeping.
The backstory to the Fideicomiso: In 1917 the current constitution came into effect. After a tumultuous period in history, Mexico felt that they had been taken advantage for long enough. They decided that they needed to protect their land from foreigners. So, they restricted any non-Mexican from owning property in the ‘Restricted Zone’, 50 kms from the beach or 100 kms from a border.
The law of the day was already using trusts for various kinds of commerce, ownership, and estate management. In 1932, some clever lawyers passed a new act. This new act clarified the legal nature of the Fideicomiso for property ownership in the restricted zone.
In April of 2013, legislation was approved which would have amended the Constitution to permit foreigners to buy property outright in the Restricted Zone. There was a lot of buzz about this possibility. But seasoned real estate professionals and mortgage brokers were not in favour. The initiative has since been rejected.
There are several reasons why this is a good thing:
Trusts are an important estate management tool. Let’s say the owner of a property dies. If they have a trust, there will be nominal fees to pass the property down to their designated beneficiaries. If there is no trust in place, the property will go through probate and the estate will have to pay the 30% inheritance tax. Savvy Mexican property owners use trusts even when they don’t need to. They do this to manage their estate and prevent familial in-fighting.
Banks act as a fiduciary. Real estate professionals say that a bank will occasionally send back closing paperwork prepared by a Notary because of a mistake. The burden for the greatest fiduciary duty in a transaction lies with the bank holding your trust.
Coastal land is protected by the Fideicomiso. There are many responsible developers, but there are some who may not put people and environment ahead of profit at any cost.
Buying property in Mexico is different than buying property anywhere else. Talk to a seasoned professional, they’ll help you navigate the steps you need to take.
Race you to the beach!
Photo Credit: Four Seasons Punta Mita