HOW TO OWN MEXICAN REAL ESTATE AS FOREIGNER

The Bank Trust (Fideicomiso)

Perhaps the easiest way to clarify how foreigners can own real estate in Mexico’s coastal areas and border zones is to begin with a historical perspective.

Mexico spent the better part of three centuries under domination of the Spanish and French. During that period, ownership of property was a privileged right of the foreign landlords. On September 15, 1810, Mexico declared independence from foreign rule, and spent the next 100 years electing former generals of the military as Presidents. By 1910, there were still only 834 registered private landowners holding title to 2/3 of the real estate in the country. The other 1/3 belonged in government control. Over 16 million citizens in the country demanded the right to own property, and a revolution developed around the cry "Land and Liberty!". Generals Francisco Villa, Emiliano Zapata and others sympathetic with the cause of the common man led many battles against the Federalists. In 1917, the revolution culminated in the overthrow of the old “Hacienda” system of land registry. A new government was born with the ratification of the Constitution and formation of the democratic republic we know today.

At that time, property titles were reissued to the citizenry on a grant basis, and large tracts were set aside under the distribution system known as the “Ejido”. Most of these lands were placed into agricultural cooperatives. Some lands were set aside for colonization by future generations. These ejidal lands were protected from DIRECT foreign ownership, as was a zone around the perimeter of the country. This restricted zone, extending 100 kilometers deep from the international borders and 50 kilometers inland from all seacoasts, was created by Article 27 of the Constitution of the United States of Mexico primarily as a result of protectionist policies adopted after the annexation by the United States of what were known as the New Mexico territories.

By the late 60’s, with the election of Luis Escheverria as President, the country began to seek a way out of its deficit economy. In 1971, in an effort to promote tourism revenues, Escheverria prescribed, by Presidential Act, a program to allow foreigners to acquire title in the restricted zone, and thereby permit foreign dollars to invest in in the thousands of miles of tropical beaches that lay untouched. On April 16, 1973, the Congress adopted its version of the President’s plan, “The Law to Promote Mexican Investment and Regulate Foreign Investment”.

The law allows foreign individuals and companies to take title to real property within the restricted zone through the vehicle of a Trust. Set up with the foreigner becoming beneficiary, and the Mexican banks being authorized to act as trustees, the trusts grant by congressional authority all rights to the foreigner to act upon the property as though he were a born national citizen. These rights include the right to buy, sell, rent, lease, pass to heirs or substitute beneficiaries without inheritance tax, and the right to build upon the land subject to applicable local zoning restrictions. The initial life of the trusts was thirty years.

On May 16, 1989, the policy towards foreign ownership trusts was liberalized to allow for 30-year extensions upon the expiration of each 30-year term. On December 27, 1993, further liberalization extended the life of the trusts to up to 50 years, with a renewal provision, and allows that non-residential properties may now be held directly (without a Trust) in a wholly or partially foreign owned Mexican corporation. Title insurance is now available from US companies.