What Is a Fideicomiso and Why Do I Need One

What Is a Fideicomiso and Why Do I Need One?

There are some terms used casually when trying to purchase property in Mexico. These include “ejido”, “fideicomiso”, and other similar words.

It can be challenging for expats in Mexico to understand the intricacies of the real estate market. That’s why we decided to create an article that explains in simple English what a fideicomiso is, how it was created, and how it functions when buying property in Mexico.

What is a fideicomiso?

A fideicomiso, in plain English, is a trust bank that you must form to own or invest in property in Mexico. This trust has a trustor and trustee as well as a beneficiary.

This trust is a kind of intermediary, as you can’t legally own property in Mexico. Don’t worry; we’ll cover that in the following section.

As your legal trustee, the bank is in effect the owner of your property. It is the job of the trustee to represent your interest as you see it. The bank can’t use your property, place liens on your property, or use it for their financial interest beyond the fees written in the contract.

Why do we need a fideicomiso at all?

Why do I need a fideicomiso?

You’re not the only one wondering why you need a fideicomiso. The ejido and the Mexican Revolution are the roots of this whole thing.

I won’t delve too deeply into the history of the ejidos. But, in a nutshell: they are plots of government-owned land that have been set aside specifically for people to live and farm. The new constitution, which was written after the Mexican Revolution to protect land rights, prohibited the sale of land by foreigners.

In 1992, the then Mexican President Carlos Salinas de Gortari approved a constitutional change that allowed a Mexican Bank to act as an intermediary between foreign investors, and the Mexican Government. Yes, this may have led to the foreign corporatization in Mexico, but the move was necessary for modernizing the nation. Let’s leave the philosophical debate for another time.

Fideicomisos (as well as corporations) are loopholes that allow you to purchase property in Mexico. This is because you don’t actually buy the property. Instead, your trustee does. This loophole allows foreigners who want to purchase property in Mexico to do so while still meeting the requirements of the Mexican Constitution.

Do you find that a bit strange? You should not panic. As a beneficiary in Mexico, you are guaranteed certain rights.

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How long does a fideicomiso last?

As the beneficiary of fideicomiso, you have certain rights in Mexico. The Mexican property is owned by you until it expires. You can either renew the fideicomiso or sell it.

You can create fideicomiso Mexican trusts that will last for up to 50-years. The trust deed that is created once the fideicomiso has been set up allows you to sell, lease, mortgage, improve your property, or leave it to your heirs.

What’s your catch? Unfortunately, there are some restrictions.

Rights and restrictions of a fideicomiso trust

Fideicomisos are governed by Mexican law and have rights and restrictions. There are some basic things you should know if you plan to invest in Mexican real estate:

  • It is important to know that every document must be certified by Notarios, or the Mexican equivalent of Public Notaries. Notarios are a specialized section of lawyers, and the government only allows so many. Notario licenses are often passed down to the next generation. If you want anything done, then you have to go through them.
  • Restricted zones (such as within 30 miles of the Mexican coast) exist. They are very difficult to purchase. You can do it, but you need the permission of both the Ejido and Mexican government. It is very difficult to get and expensive as well. Realistically, if you want to buy land in restricted zones, you’ll need to become a Mexican citizen.
  • You can choose to leave your Mexican property to any other alternate beneficiaries of the Fideicomiso trust as you see fit.
  • You can use the property as you see fit until the Fideicomiso Trust expires. After that, you can either sell your property or renew the Fideicomiso.
  • When you set up a Guaranty trust, then you are legally allowed to mortgage the property as an estate asset. The downside is that you have to find a Mexican bank willing to do it.
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Summary of fideicomisos

A fideicomiso, in short, is a trust that you can set up at a Mexican bank. This allows you to buy Mexican land or to invest in Mexican property without first becoming a Mexican. Fideicomisos are easy to set up and more than one million foreigners in Mexico have done so since December 1993. This is a part of owning a home in Mexico. It’s not impossible to do.

Pros of using a Fideicomiso

Fideicomisos are a great way to purchase a property in Mexico.

  • This allows expats the opportunity to purchase properties in the restricted area (you can choose from the many beautiful beaches in Mexico).
  • This gives foreigners the exact same rights as Mexicans when it comes property ownership. You can either buy, rent, sell or modify the property.
  • The trust can be used for the purchase of multiple properties throughout the country.
  • You can choose who you want to inherit your rights in the event of your death.
  • The license can be renewed for another 50 years.
  • You can also sell your trust to another buyer, if you wish to. Simply change the name of the trust.

Cons of using a fideicomiso

There are not really any “cons” to be concerned about when using a fideicomiso, but instead here are some things to in mind.

  • You will have to pay a fee in order to create a trust. The amount may vary from $500 to $1,000 USD, depending on the bank.
  • These fees can range from $1,500 to $2,000 USD. These fees may rise over time.
  • As mentioned earlier, the foreigner does not own the property directly. The bank is the owner of the property and the foreigner is the beneficiary.
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