Things you need to know about owning property in Mexico, when buying prime beach-front real estate, ocean view homesites, and condos.
Ownership of real estate by foreigners in Mexico is safe and secure. The Mexican constitution adopted in the mid 1920’s, at the end of the long and bloody revolution or civil war that began in 1910, prohibits outright land ownership by foreigners in areas near the ocean and the nation’s borders (the “restricted zone”). As a result, for about 70 years there was no mechanism for foreign ownership in the Baja and other coastal areas, and buyers resorted to devices such as long term leases or corporations with a Mexican “ghost” owner, or putting land in the Mexican friend’s name. Predictably, a number of problems resulted.
But in the 1990’s the government of Mexico, recognizing what foreign investment might do to boost the nation’s economy, authorized use of a trust device that had stood the test of time elsewhere. A trust separates “ownership” into “legal,” and “beneficial” parts, with the legal owner (trustee) holding title on behalf of the beneficial owner (beneficiary) and acting according to the beneficiary’s instructions.
How it Works:
Under a Mexican trust, called a “fideicomiso”, a Mexican bank acts as trustee, thus keeping legal title in Mexican hands as required by the constitution – yet the foreigner beneficiary enjoys all practical rights of ownership and can sell or gift the property, mortgage it, lend it, build on it, etc., by giving written instructions to the trustee. The beneficial rights can also be willed, and if there is no will they pass to heirs according to a combination of the trust’s beneficiary designations and applicable inheritance law. It works in essence just like a living trust, which is often used for property holding and estate planning purposes in the United States.
The fideicomiso has now been in use for this purpose for more than thirty years, and was revised for greater flexibility in 1994. Confidence has grown steadily as the mechanism has proved itself in practice, and as of 2007 at least three major American title companies are providing title reports and writing policies of title insurance. As of early 2007, Costa Loreto is working with two of those insurers to provide a master title policy and be prepared to issue individual policies of title insurance to individual buyers. A choice will be made shortly.
In addition, the Mexican closing process itself offers a much higher level of confidence in the validity of title than does the American process. This is because the Notario, (see “Notario” in educational section elsewhere on website) who both drafts the title transfer instrument and officially records it, thoroughly explores and documents the title history and the authority and right of all parties to the transaction and includes the result of that exhaustive study in the body of the title transfer document itself. As an indicator of how reliable the process, one of the major American lenders now active in the market has elected not to require title insurance when it makes loans, relying instead on carefully selected and prominent Notarios.
Look for a fuller explanation of both the closing process and the role and work of Notarios in the educational section of the website.
