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Q:
Can
foreigners own real estate in Mexico?
Yes
!!!
The Mexican Law allows foreigners to acquire the rights to use
of real estate located in the coastal and border areas of Mexico,
through means of a Trust Agreement (Fideicomiso Traslativo
de Dominio or simply Fideicomiso) This is the most
advantageous legal instrument available for foreigners to acquire land
in Mexico for residential purposes. It allows foreigners to have the
same rights and obligations that real estate full-ownership provides.
FAQs
on Trust Agreement
Q:
What is a Trust agreement ?
In the Trust deed, the
present owner of the real estate (selling party) appears as the Settler
and thereby delivers title of the real estate to the Trustee
(a Banking Institution) who will hold the property during the term of
the trust (normally 50 year-term renewable for perpetuity for
subsequent 50 year-terms)
The
buying party (you) appears as the Beneficiary of the
Trust, meaning : the person that holds the absolute right of use and
avail of the property during the trust term.
Q:
What is a Trust Institution?
A Trust
Institution is a Mexican Banking Institution registered and authorized
to open fiduciary accounts and set up trust operations. The Trust is
not an asset of the Bank. The Trustee (Bank) holds the legal title to
the real estate property during the term of the trust (normally 50
year term that can perpetually be renewed for subsequent 50 year terms), and is also
empowered with rights and powers necessary to achieve the objectives
of the contractual agreement creating the trust.
Q: How do I set up a trust (step by step) ?
Once you make the decision to buy property and have actually selected
it, the first thing to do is to select a first-class public notary to
take charge of the legal issues. In Mexico, a public notary is a
licensed attorney who is authorized by the State Government to provide
legal formality to title transfer process in his protocol book. A
public notary in Mexico have far greater legal status and competence than those in the
United States.
As
a normal practice, buying party (you) gets to select the notary.
Normal practice also calls for the deal to be closed using notary
assistance and in his presence. An agreement between buyer and seller
is drawn up using a Standard Form of Agreement of promise to Buy
& to Sell. In this agreement, buyer and seller set a deposit
amount to be placed in escrow (anywhere from 10% to 30% of the
transaction price) as well
as the time period (usually 45 days) to finalize the transaction.
Drawing
an adequate agreement is a key element in the operation. It should
guarantee that if the deal does not go through because of property not
being clear, buyer does not loose his deposit and has no further
obligations to seller.
Upon
agreement taking place, notary conducts due-diligence on the
property, (i) confirming that no balance is due on land owner’s tax,
(ii) making sure it is free from liens and encumbrances, (iii) cross
checking the title in Public Records (Public Registry of Properties)
to confirm that the title is in good standing, (iv) notary presents
foreign buyer to the Ministry of Foreign relations as well as
Commission on Foreign Investments and sets Trust. Once notary clears
every item in due-diligence, the actual closing takes place (again in
notary’s presence) and balance payment is exhibited.
If
notary is unable to clear every item in the
due-diligence, sale is cancelled by buyer, buyer recuperates the deposit
(placed in escrow) and has no further obligations to seller.
Q:
What documents are necessary to set up a trust ?
To set up a
Trust assisted by Public Notary the following documents and
information are needed :
Selling
party :
A copy of the real estate title or deed indicating the exact
dimensions, surface and boundaries, properly registered in Pubic
Registry of Properties. Municipalities' legal description/appraisal of
property, proof of payment of Landowner’s Tax for the
previous 10 years.
Buying
party :
a) your full name, nationality, occupation, address and phone number.
(Copy of your passport, immigration form of entry to the country,
phone or other utility bill to prove your address)
b) name(s), nationality, address and phone number of the substitute(s)
beneficiary (ies) in case of decease of during term of the trust.
Both
The agreed purchase price in form of a Standard
Form of Agreement of promise to Buy & to Sell
Q: What are the rights of the Trust beneficiary
?
As the Trust
Beneficiary, you will have the right use and possession of the
property. You may live on the land and undertake any alterations and
improvements. You also have the capacity to instruct the Trustee on
mortgaging the real estate, renting it, selling, transferring your
beneficial interests to another person or corporation, or performing
anyone of the acts that by law derive from the ownership.
Q: What are the obligations of the Trust
beneficiary ?
He
is responsible of timely payment of annual Trust Fees. He is also
responsible of prompt payment of landowner’s Tax, water, sewage and
utility bills and the condominium maintenance fees (if applicable)
Q: What happens if beneficiary dies ?
At
the time the trust is set up, a substitute beneficiary must be named.
In the event of death of beneficiary, substitute takes place of first
beneficiary with the same rights and obligations as first
beneficiary.
This
procedure takes place with no cost to substitute beneficiary, instead
of an inheritance probate proceeding before the Mexican courts,
which could take time and Attorney's Fees.
Q: Can the beneficiary of the trust set up a
lean or a mortgage on the property ?
Yes. Once the Trust is set up, beneficiary can offer rights of use of
the property as a collateral for a mortgage.
Q: What happens when beneficiary decides to
sell after some time?
He
may do so at any time with the only obligation of paying capital gains
tax.
A trust interest may be sold like any other interest in real estate
property. Upon the sale of an interest in real estate held under a
trust, the Secretary of Foreign Relations is required by law to issue
a new trust permit to the buyer (if buyer is a foreigner). If property
held under a Trust is sold to a Mexican National, the trust can be
terminated and the Mexican National may then own the property
directly.
It
is important to point out that capital gains tax are exempted if
Beneficiary can prove that the property was used as a home for at
least two years. This is normally proved by having a dwelling or home
built on the property and showing phone or utility bills.
Capital
gains exemption does not apply if land is purchased and then sold as undeveloped land.
Q: Can a beneficiary rent his property ?
Yes,
he may rent to anyone he desires.
Q: What costs are involved to buy properly by means of a Trust?
These
are the costs related to set up a Trust : (i) authorization from the
Ministry of Foreign Affairs, (ii) registration in the Registry of
Foreign Investments (iii) registration in the Public Registry of
Properties (iv) Public Notary fee to conduct due diligence and set up
Trust (v) Bank fee (one percent of the amount of the transaction for
pre-qualification analysis and the drawing up of the agreement
In
all, ballpark figure for total expenses for the transaction should be
between 10 % to 12 %.
Additionally, there is a yearly fee for the term of
the Trust. This is usually one percent of the property value and is
charged by the Bank for its services acting as Trustee over the
property.
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