HOW TO BUY IN MEXICO WITH A TRUST

Can I buy a property in Cancun like the Mayan Riviera as a foreigner?

Foreign citizens can buy land in Mexico. If the property is not in a restricted area (within 50 kilometers from the coast to 100 kilometers of theborder), then the property can directly be notarized the foreigner. If the land is within the limits of a restricted area, then the foreigner will be able to become owner of the property through a Trust or a Mexican Association.

There are two ways to have titles of property for foreigners in Mexico. These are: The TRUST or through a MEXICAN CORPORATION.

The following information explains a Title of property by means of a
TRUST. A public notary or a lawyer can offer better information on these two forms of property titles.

What is a TRUST and what is required of a property TRUST?

As of 1973, a well-known constitutional amendment, the Law of Foreign
Investment, allows those who are not Mexican to acquire properties on the coast and the border by means of a TRUST, which is settled by means of a Mexican bank. This TRUST assures the foreign buyer all the rights and privileges of possession, and it is required to own properties known as "restricted areas."

Any property located within 50 kilometers (32 miles) of the coast, or 100 kilometers (64 miles) of the borders is a "restricted area," in agreement with the established amendment in article 27 of the Mexican Constitution of 1917. From 1994, the Law of Foreign Investment states that the TRUST must be a term of 50 years, and that renovation during its existence be done with the simple request. The beneficiary can at any time rent, sell or transfer the real estate property.

Anyone buying real estate properties by commercial proprietors will be happy
To knowing that the amendment of 1998 to the Law of Foreign Investment provides opportunities of direct property for foreign buyers looking to buy real estate properties in the Zone Prohibited for commercial intentions. Provided the commercial intention is not limited by the Law of Foreign Investment, the buyer can buy through a Mexican corporation which is 100% appropriated by foreigners or one company of limited responsibility.

Once the buyer has decided to buy the real estate property, it is necessary to review the right to the real estate property.

The system of Mexican registry is not equal to or as easy to use as the registries in the United State. Some registries have been computerized, others still must be completed by hand and require local experts to find them. All the transactions of real estate properties must be registered with the Registry of the capital or any other big city within the State in where the real estate property is located.

In order to review the rights to the real estate property, the buyers must obtain copies of the title from the proprietor of the property. Copies of the titles can be obtained in the Registry office of the area in which the land is located. Most urban residences and land will be registered. A lack of registration is usually a bad sign. The real estate property can be registered in one of the two sections of the Registry.

The land registered in the section only reserved for possessions; this means that the single proprietor cannot necessarily demand possession of the property. The other registry can mean that others can reclaim the property, and in the best case they can do it, but it’s difficult to sell in the future.

Why use a property TRUST?

The Mexican government established the agreement of the TRUST to protect the foreigners who have properties in Mexico. By means of the TRUST there is an automatic authorized review of the transaction to make sure that it is legal. Before the buyer signs the agreement, the bank must corroborate the information of the salesman, like for example the authentic possession, the insurance, and the right to retain the property until the debt is paid. Everything is
Guaranteed for the protection of the foreign proprietor.

How the TRUST works?

The bank, in this case the trustee, retains the title for the buyer, who in this case is the beneficiary.

The property is not part of the bank’s assets and it cannot be subject to retaining the property that has not been paid for, or has become attached to the obligations that the bank has. While the bank is the technical proprietor of  the real estate, it has statutory obligations to accept the instructions of the beneficiary concerning the property.

What rights does the beneficiary have with respect to the property?

The beneficiary has all the property rights and can sell, rent, mortgage, transfer as inheritance or make any other legal act they wish to make with the property. The beneficiary can transfer or assign his beneficial interests to any person and keep the gains from the sale of the property, this is subject to the applicable laws in the matter of taxes and the expenses caused by the sale.

The property retained under the TRUST can be transferred to the heirs without inheritance tax. This is carried out by naming them as beneficiaries in case of death.

How long is the TRUST for?

The TRUSTS are granted in periods that extend to 50 years. Originally they were 30 years, and when acquiring a property that is with a TRUST it can establish a new period of 50 years or the existing TRUST can be assigned.

The TRUSTS are renewable at any time with a simple request.

How much does the quota of trustee cost?

The costs for the establishment of a TRUST vary from one bank to another. The approximate costs start from 2.300 dollars for the establishment of the TRUST, and $300 to $500 per year for administration of the TRUST.

These quotas are paid to the bank that takes the TRUST.

How is a TRUST established?

The TRUST is established with any bank by means of a public notary with the receipt  of authorization from the Ministry of Foreign Affairs. A great number of foreigners exist who are owners of properties in Mexico, so the notaries public use standard forms.

Residential vs. Non-residential 

Article 5 of the regulations of 1998 to the FIL enumerates some activities that will be considered non-residential. These include:

that they depend on multi-properties;

some industrial or commercial activity, or  tourism, or if it is used simultaneously for residential intentions;

acquired by financial institutes of credit, runners, and auxiliary organizations of  credit, recovered to recover debts in its favor;

used by legal organizations to fill social objectives that can consist of the transference, urbanization, construction, and any inherent activities in the development of the projects of the real estate properties until they are commercialized or are sold to a third party;

use as goods of commercial, industrial, agricultural real estate properties for cattle, fish, applications of the forestry, and for surrender of services.

The characteristic of a Trust

As stated previously, the buyers that buy the real estate properties in the Prohibited Zone for residential intentions must buy through a Trust. The salesman (the "otorgante") transfers the title of the real estate properties to a Mexican financial institution that acts as the administrator in a Trust that will be used for the intentions indicated by the donor, for the advantage of the buyer, indicated by the buyer, the beneficiary or the beneficiaries. The buyers in any agreement of Trust are free to negotiate most of the terms and conditions of the agreement.

The salesperson

The salesperson transfers the title of the real estate property the Trustee to
Hold in a Trust for the benefit of the buyer under the agreement of Trust. The agreement must express that the Trust is irrevocable and that the salesperson has no rights. In other words, the salesperson can retain some rights under the Trust during or at the end of its term.

The Trustee

The Trustee administrates the Trust like a fiduciary for the Beneficiaries, and is responsible for carrying out the terms in the agreement. In Mexico, a single authorized Mexican financial institution can act like Trustee. The Trustee can resign for any reason, only after a Mexican court has confirmed that a sufficient cause exists.

The Trustee cannot do anything with the real estate property except that which is expressed in the contract. The Trustee is responsible for any loss or damage suffered by the Beneficiary from the result of  negligence on behalf of the Trustee.

The Buyer and Beneficiaries

Typically, the buyer is the Beneficiary of the Trust. Nevertheless, the buyer can name other Beneficiaries.  We recommend that the contract of Trust allows for substitute Beneficiaries, just in case the initial Beneficiary dies, the right to use and to enjoy the real estate property is passed to the substitutes without the necessity of the legalization of the document.

The Contract of Trust, the Registry, and the Expenses

As previously stated, the buyer can negotiate most of the terms and conditions of the contract of Trust.

The Trustee must obtain permission of the SRE to acquire the real estate property in Trust if the Beneficiaries are foreign. The contract of Trust must be executed in front of a Mexican Notary, who is registered in the Public Registry of Properties. Although the price to establish a Trust and to close on the purchase depends on the value of the real estate property, the Trustee, and the location of the real estate property, the expenses vary from 5% to 10% of the price of purchase.

The typical expenses include obtaining a certificate of no burden, the estimate, honoring of the notary, and the transference of the IVA of the real estate property, depending on the State; this varies from 2% to 4% of the valued price of the real estate property.

The Trustee also receives an annual commission that can vary from $300 to
$2.000, and additional expenses in the event of a transfer at a later date.

Terms and rescissions of the Trust

The initial Term of a Trust is a maximum of 50 years and can be extended by application to the SRE.  Rescissions of Trust (provided that the salesperson does not reserve any right under the contract), the real estate property will be transferred to the person designated by the Beneficiary, provided that the person is designated to acquire the title (for example, if the owner is not of a foreign country or an organization that cannot acquire real estate properties in the Prohibited Zone).

The Necessary Steps To Close

With the exception of a buyer buying without a Trust, the purchasing transaction is essentially the same as any other transaction of real estate properties in Mexico. The buyer will have to make sure that:
1) the salesman has a valid and clean title to the real estate property;
2) the property does not owe taxes or burdens;
3) the terms of the sale are evident by a contract of purchase or contract of              
     promissory if the money is paid in advance of the closing date;
4) the contract of Trust correctly describes the terms negotiated with the
     salesman and the bank;
5) the buyer obtains a certificate of no burdens;
6) the buyer obtains the title insuranc ( it can be obtained by the following    
     companies: Stewart Title Guaranty Company, First American Title
     Insurance, Chicago Title)
7) the buyer obtains a estimate of the real estate property;
8) the SRE authorizes a leave for the Trust;
9) the contract of Trust has incorporated in the title a provision of  
     protections adapted to the buyer; and
10) the title is registered with the Registry of Properties (Public Registry of   
      Property)

Conclusion

Although the purchase of real estate properties through a Trust can appear complicated, the process will not have to prevent the purchaser from owning their ideal house on the beach. The Trusts have been proven and used through the years.
Nowadays there is an enormous amount of foreign investments in Mexico through purchases of residences for foreigners in real estate properties in the
Prohibited Zone. The government of Mexico does not want to lose this resource of foreign investment. The process will be facilitated in the future.

Meanwhile, provided you have the patience and look for competent legal aid, you can have confidence in the structure of a Trust.

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