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 Questions
from Readers
Question: We
are considering the possibilities of retiring in Mexico and need to understand
all of the ramifications of committing a considerable part of our retirement funds
to a trust held by a Mexican bank. Your article "Mexican
Bank Trusts" mentions a couple of issues that are not comforting: 1.
The Feidicomiso can be "extinguished" : "A
trust can be extinguished if in violation of the permit. The Secretary of the
Foreign Relations Department can require the trust to be ended within 180 days
of notice to the trustee. Some of the causes for the dissolution of the trust
occur when there is a violation of plans and programs for urban development or
violations of ecology standards. Federal, state or municipal authorities determine
these violations." Is it possible that one could
unknowingly violate some municipal rule for instance or unknowingly upset some
local building official and end up with their investment appropriated from them?
What is Mexico's history with respect to extinguishing established feidicomiso's?
In the end analysis it appears that the feidicomiso amounts to a 50 year lease
that is paid for in advance and that no true ownership of the property or improvements
to the property belong to the buyer. Is this true? 2.
If building lots are not located within the security zone (Lake Chapala for instance)
can non-Mexican foreign owners actually own the property they purchase without
the feidicomiso. We love Mexico and have visited countless
times over the years. We hope that we can become comfortable with the way that
Mexico handles foreign "ownership" of property however at the same time,
we cannot risk the loss of a sizeable chunk of our savings that would be required
to build a home in Mexico. Any advice you might offer
is very appreciated. Answer: The
Mexican Government's ability to either seize or appropriate property is not limited
to a non-Mexican's holding ownership in trust but encompasses all property owners,
Mexican citizens alike. However, it is not a random or capricious ability and
must go through the appropriate channels and legal procedures. It is also important
to realize that the Mexican Constitution "inalienable" rights, such
as the right to due process, apply to all persons found within Mexican territory,
not just Mexican Nationals. In my experience, I've not
heard of such a thing happening except in the cases of drug traffickers and criminals.
In the case of environmental violations, it would be unlikely that you would unwittingly
make such a mistake, since the federal approvals are required for construction
permits, etc…that is to say, before you'd be in a position to commit the
violation, you would be duly notified that such an act would be against the regulations. Regarding
the restricted zone and the trust system, I would like to make the following observations.
The current law requires that any non-Mexican individual or a corporation with
non-Mexican involvement, i.e. shareholders, that holds property in the restricted
zone for RESIDENTIAL purposes, must do so through a Trust or Fideicomiso. This
is a change in the previous law, which prohibited holding any type of property,
and now restricts it to only residential property. (for example, you could form
a corporation here in Mexico with 100% foreign stockholders and own commercial
property on the beach). The general sentiment here is that within the next few
years, there will be additional changes to the law allowing residential property
to be held in fee simple as well; the restriction no longer has much meaning. The
laws have changed as well regarding the Trusts, extending the term of the trusts
from 20 years to now 50 years and renewable. The Trust system has worked very
well so far and actually provides a mechanism for owners, which allows them to
use, sell, gift, mortgage, etc…their property in this so called "restricted
zone". The Trust system provides other benefits, such as the ability to designate
substitute beneficiaries in the event of the death of the main beneficiary, avoiding
probate as well as additional real estate transfer taxes on the property as well
as a protection of the asset from creditors; a lien cannot be put on the asset
without the express written approval of the Beneficiary and the bank. Many Mexican
owners choose to use this Trust for that purpose alone. Again,
owning property through a Trust does not make such property more vulnerable to
appropriation or seizure and can actually provide additional benefits, albeit
at the cost of the annual trust fee, which runs around $400-$450 dollars per year.
And the risk of unwittingly committing violations of the environmental laws while
building a home is low since in order to obtain the initial construction permits,
all environmental approvals and studies must be done and submitted. Question: How
is the purchase price handled or paid to the seller? Answer: There
are several ways the purchase funds are handled. Escrow accounts are rare and
institutions must have a permit to be able to hold escrows. Sometimes
the buyer provides a cashier's check for the deposit made out in the name of the
seller. The notary or a third party holds this check until closing. The balance
of the purchase price is paid by a cashier's check or wired to the seller's bank
account. An escrow account can be opened at an approved
bank and the money wired to that account. The process must begin with the signing
of an escrow contract and approval from the bank. The seller is the beneficiary
of the account. Money wired to this account can be held in dollars. Question: What
is the restricted zone? Answer: Article
27 of the Mexican Constitution of 1917 prohibits foreigners from owning residential
real estate within thirty miles (50km.) of any coastline or sixty miles (100 km.)
of either border. This area is known as the "restricted" zone. In
1973, recognizing that many foreigners would enjoy owning a retirement or vacation
home in Mexico, and would bring needed dollars to the country through such ownership,
the Mexican bank trust, the fideicomiso, was established and approved for the
purchase of real estate located in the restricted zone. For the first time since
1917, a non-Mexican could invest in a recreation or retirement home and feel safe
that his or her investment was secure. Question: What
is a bank trust? Answer: Under
the bank trust, legal title is placed in the name of a Mexican bank, in trust,
under a permit from the Secretary of Foreign Relations. The Mexican bank holds
the title to the vacation or retirement home for the buyer/beneficiary of the
trust, the non-Mexican who purchased the trust rights in the property. The bank
administrates the property in accordance with the instructions of the buyer/beneficiary.
The buyer/beneficiary enjoys the same rights of ownership, as does a Mexican national.
He may build on the property, tear down existing buildings, modify them, rent,
lease or sell at anytime conforming only to internal bank regulations for this
type of trust and to the general laws of the country established for all persons.
Additionally, the beneficiary may finance the purchase and instruct the trustee
bank to enter into the security agreement with the lender. The
trustee bank may not, without express written consent from the beneficiary, sell,
transfer or encumber the property. The beneficiary may
name the parties he or she selects as co-beneficiaries and may name substitute
beneficiaries upon death of the primary beneficiaries, thus avoiding probate in
Mexico. Care must be taken however, in establishing the wording and terminology
used in the succession of rights in conformance with applicable Mexican law. A
permit to establish a Mexican bank trust (fideicomiso) can now be obtained for
a term of fifty years and can be renewed. In acquiring a property with an existing
trust, the seller may assign the rights in the existing trust and the new buyer
will enjoy the term established in the original trust permit. In other words,
a trust established in 1995 will expire in 2045. Prior to 1993, the term of the
trust was thirty years. Thus a trust established in 1990 would expire in 2010,
unless extended or the original trust permit extinguished and a new permit obtained
for fifty years. The cost for the permit issued by the
Secretary of Foreign Relations is currently about $ 1,000.00 U.S. dlls. and bank
trust administration fees generally range from $200. U.S. to $750. U.S. annually.
There are other expenses involved in the acquisition of a property, however, and
it is wise to request a written estimate prior to beginning the transfer process. This
article is based upon legal opinions, current practices and my personal experiences
in the PuertoVallarta-Bahia de Banderas areas. I recommend that each potential
buyer conduct his own due diligence and review. The Settlement Company and Mary
Elizabeth O'Connor have supplied information in this article. Harriet
Murray, Broker
For additional information on properties for sale
or lease within the bay, please call or e-mail me at: harriet@pvmirror.com
Thanks and until next week. Archives
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