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The Mexican Trusteeship, better known as “FIDEICOMISO”
By Agustin Galindo Attorneys at Law • Photos by Jesús de Avila · June 2009

The Fideicomiso exists when a person (settlor) transmits the property to another (THE TRUSTEE) who it puts under obligations to act on behalf of whom is designated in the respective contract as beneficiary and transmits it at the end of a term or a condition to the Trustor, to the beneficiary.

• Records:

The Mexican Constitution, Article 27 regulates the ownership of land and establishes:  in a zone of 100 kilometers along the border or 50 kilometers along the coast, a foreigner cannot acquire direct ownership of land". These areas are well known as the "Restricted Zones" or "Prohibited Zones".

Nevertheless, the latest Mexican Foreign Investment Law, enacted December 28, 1993, provides a solution. Within the Restricted Zone, a foreigner or a corporation can obtain all the rights of ownership with a bank trust, known as a Fideicomiso.

• Objective:

The objective of the Fideicomiso is to keep the involved parties rights, to acquire guaranteed rights of ownership, fulfilling the obligations that are specified in the contract.

The duration of the Fideicomiso is of 50 years and it can be renovated by other 50 years (which should be done through the banking institution at least 90 days before the end of the Fideicomiso), so under this legal figure, investments and acquisition of real estate inside an area known as the "restricted zone" that is within 50 kilometers (3.2 miles) of the Coast or within 100 kms. (64 miles) of any international border can be done.

During these periods you have the right to transfer the title to any other party, including a member of your family. The bank becomes the legal owner of the property for the exclusive use of the buyer/beneficiary, who has all the benefits of a direct owner, including the possibility of leasing or transferring his rights to the property to a third party.

• Involved parties:

• Bank trustee / provider. Person or entity transferring one or more real estate properties into a Fideicomiso.

• Beneficiary. Person or entity that can receive the benefits of a Fideicomiso. Several beneficiaries may be established and they may profit simultaneously or in succession.

• Fiduciary / bank. Financial institution that receives the property to manage it in Fideicomiso.

• Notary Public

• Attorneys of buyer and seller. That will keep the safety of the transaction to avoid future legal problems.

• Closing Costs:

Usually the buyer pays the transfer of acquisition tax and the closing cost, including: Notary's fees and expenses, and the seller pays capital gains taxes and broker’s commission.

Since January 1, 1996, the Federal Law regarding the real estate acquisition tax, which was 2% for all the Mexican territory, was modified to allow each of the Mexican states to determine its own tax. The range now may be from 1-4% of the tax appraisal value, which is generally less than the sales value.

Other closing costs, with out the transfer cost mentioned, vary from 3% to 5% of the appraised tax value. These percentages are applied to the highest value of:

The amount, for which the property is sold
The value of the official tax appraisal
The value designated by the property assessment authorities

• Cost of the Fideicomiso:

The bank charges an initial fee (approx. $1,500.00 USD) to set up the Fideicomiso, plus a percentage based on the value of the property. Also, the bank charges an annual fee (depending on the value of the property) to cover its services as a trustee (approx. $500.00 USD).

• Real Estate Broker's Commission:

Most real estate companies in Mexico charge a 6-8% commission based on the sale price of the prop­erty.

Raúl Galindo:
E-mail: raulgalindoabogados@prodigy.net.mx

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