"WHAT IS IT AND HOW DOES IT WORK?"
Fideicomiso means Bank Trust. Foreigners can now acquire absolute ownership rights to property in Mexico’s formerly restricted zones (borders and beaches) through a Fideicomiso. This Trust system of ownership was designed specifically as a way for non-nationals to own property. It is sanctioned by the Mexican government, provided for under the Mexican Constitution, and is secured by the Central Bank of Mexico. It is irrevocable ownership set in 50-year increments, perpetually renewable, and is transferable. (It is NOT a lease. Leases cannot be sold, transferred, inherited, willed, or mortgaged. A Fideicomiso has these rights.)
When the Fideicomiso/Trust is formed in an authorized bank, the title to the property is delivered to the bank who then becomes the Trustee. The foreign buyer is designated as the Beneficiary (Owner) of the Trust. The bank becomes similar to an “employee” of the Beneficiary and must follow the instructions of the Beneficiary. The Beneficiary has total control over the Trust, retains the use and control of the property, and makes all the investment decisions. The rights to use and enjoy, sell, transfer, inherit, will, and mortgage the property is the Beneficiary’s right, the same as in fee simple ownership. It is your Trust and is not the property of the government or the bank. You can move it to any bank should you wish once it is formed.
MASTER TRUST OR INDIVIDUAL TRUST?
In the U.S., there are many types of Bank Trusts, i.e. living, education, family, etc.. There are these different types of Fideicomisos in Mexico as well. There is only one Real Estate Fideicomiso, however, and it is offered in two forms: Master Trust or Individual Trust.
Master Trust: In this type of Trust, a master umbrella Trust is formed and the individuals own a piece of the Master Trust. The Master Trust holds all the properties and makes all decisions regarding the Trust/property. It is responsible for, and pays the taxes on the entire property held within the Trust and appropriates amounts for reimbursement from the individual owners. The risk in a Master Trust is if the Trust property should incur a lien or judgement against it, what affects one affects all. Whoever controls the Master Trust holds tremendous power over it. The beneficial aspect of the Master Trust is that it is less expensive to set up and maintain.
Individual Trust : In an Individual Trust each property owner owns, maintains, and is responsible to pay taxes on their own Trust/property. It is slightly more expensive but the security of total control over your own Trust/property is worth the small additional expense.
LEASES AND LAND USAGE FIDEICOMISO
The Real Estate Fideicomiso should not be confused with the Land Usage Fideicomiso. This Trust allows one party to lease land to another party who plans on using the land for a specific purpose and specific length of time. The property is held in a Land Usage Trust, which allows the master leaseholder to use the land as a specified in the lease. The master lease is limited by Mexican Law to 30 years if the lease is on Ejido land, 10 years if on private land. Not all 10-year leases are held in a Land Usage Fideicomiso and many short-term leases of this nature are privately held between two parties.
HOW A SALE TRANSFERS
The sale is registered when it is witnessed through a Nortario Publico in Mexicali. From there it passes to the authorized Bank for the Fideicomiso ownership. The bank then reviews all the necessary documents and once satisfied that the subdivision is legal, issues the Fideicomiso. This is a long and detailed process, and can take months to complete.
Foreigners often worry about land being expropriated by the Mexican Government. By Mexican Law and as agreed to through NAFTA, Mexico may not directly, or indirectly expropriate property except for a public purpose (identical to eminent domain in the U.S.). When it is necessary to expropriate, swift and fair market compensation must be paid, along with accrued interest.
The law is very specific regarding Real Estate Fideicomiso. It provides the foreign buyer the same legal rights and protection of ownership as a Mexican national would have under the law. It bestows the Beneficiary (Owner) of the Trust absolute and irrevocable control over the property. It is in 50-year increments, guaranteed renewable for perpetuity.