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Thursday, December 15th 2022

What Is A Fideicomiso?

Written by

Rafael Bracho

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Introduction

What Is a Fideicomiso?

When you’re trying to buy property in Mexico, there are terms that get thrown around casually like “ejido” and “fideicomiso”—as if everyone should be familiar with their meaning.

For this reason, it can be difficult for expats to navigate the ins-and-outs of the Mexican real estate market, so those of us at Expat Insurance thought it would be helpful to write an article explaining—in simple English—what a fideicomiso is, how it came about, and how it works in buying a house in Mexico.

What Is a Fideicomiso?

What Is a Fideicomiso?

In plain English, a fideicomiso is a bank trust that you need to form in order to invest in or own property in Mexico. This trust is set up with a trustor, a trustee, and a beneficiary.

Basically, this trust acts as an intermediary between you and the Mexican government, because you aren’t technically allowed to own property in Mexico. (Don’t worry, we’ll get to that in the next section.)

In effect, the bank owns the legal title to your property as your legal trustee. The job of the trustee is to represent your interests as you see fit. That means, the bank cannot use your property in any way, or place liens on it, or use your property for their financial interests beyond the pre-established fees as written in the contract.

But why do we even need a fideicomiso?

Why Do I Need a Fideicomiso?

What Is a Fideicomiso?

If you’re wondering, Why do I even need a fideicomiso?—you’re not alone. It all goes back to the Mexican Revolution and the ejido. (To read our previous article on ejidos, click here.)

I won’t go too much into the history of ejidos, but, to put it in a nutshell, they are reserved plots of land owned by the government, specifically set aside for the people to farm and live off. After the Mexican Revolution, the new constitution outlawed the selling of land to foreigners—to protect these land rights. There have been many ups and downs in the implementation of ejido law in Mexico over the years which are covered in our other article.

However, in 1992, then Mexican president Carlos Salinas de Gortari ratified a change in the constitution that allows for a Mexican bank to act as an intermediary between foreign investors and the Mexican government. (Yes, it may have opened the door to foreign corporatization of Mexico, but it was also a necessary step in modernizing the country. We’ll leave that philosophical discussion for another day.)

A fideicomiso is basically a loophole that allows you to buy property in Mexico because it’s not actually you that’s buying Mexican property, your trustee is buying it—that is to say, a Mexican bank is buying the property in Mexico. This allows foreigners to buy property in Mexico, while still satisfying the conditions of the Mexican constitution.

Does that sound iffy to you? Before you panic, you should know that you have guaranteed rights as a beneficiary of a fideicomiso trust in Mexico.

How Long Does a Fideicomiso Trust Last?

What Is a Fideicomiso?

You have rights as the beneficiary of a fideicomiso trust in Mexico. The Mexican property is yours until the fideicomiso expires. After that, you have the option to renew it or sell your property.

Before you get too worried, you can set up fideicomiso trusts in Mexico that last up to 50 years. Once the fideicomiso trust is set up, the trust deed allows you to improve, sell, encumber, bequeath, or lease your property as you see fit.

What’s the catch? Sadly, there are restrictions.

Rights and Restrictions of a Fideicomiso Trust

What Is a Fideicomiso?

A fideicomiso has rights and restrictions that are stipulated by Mexican law. However, there are basic things that you should be aware of if you’re thinking about investing in Mexican property:

  • Perhaps the most important thing to know is that every document needs to be certified by notarios—or the Mexican equivalent of public notaries, though more niche. Notarios are a specialized section of lawyers, and the government only allows so many. For this reason, notario licenses are often passed down to the following generation—and if you want to get anything done, you have to go through them.

  • There are restricted zones (such as within 30 miles of the Mexican coast). These are very difficult to purchase. It can be done, but you basically need the permission of the ejido and the Mexican government. It’s very hard to get and costly as well. Realistically, if you want to purchase land in restricted zones, you’ll have to become a Mexican citizen. (Click here for more information on that.)

  • You are entitled to leave your Mexican property to any other alternate beneficiaries of the fideicomiso trust as you see fit.

  • You’re entitled to use the property as you see fit until the fideicomiso trust expires. Then you can either sell your property, or you have an option to renew the fideicomiso.

  • If you set up a Guaranty Trust, then you are legally allowed to mortgage the property as an estate asset. The downside is you have to find a Mexican bank willing to do it.

Conclusion

What Is a Fideicomiso?

In short, a fideicomiso is a trust set up with a Mexican bank that allows you to purchase Mexican land or invest in property in Mexico without having to become a Mexican citizen first. They are relatively simple to set up, and over one million foreigners have set up fideicomiso trusts in Mexico since December of 1993. It’s a routine part of being a homeowner in Mexico, but it’s nothing that can’t be done.

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