The Mexican bank trust is an instrument commonly used for non-Mexican nationals, such as U.S. citizens and Canadians, to purchase coastal land in Mexico. This bank trust in Mexico is known as a fideicomiso. When talking about Mexican real estate in English, most people use the term bank trust simply because it is easier to pronounce than fideicomiso. When talking in Spanish expect to hear and use the term fideicomiso.
Firstly, from a non-Mexican national's viewpoint, a bank trust is used to acquire property here in Mexico only on land that is within the restricted zone, arguably the most desirable amongst buyers. This restricted zone, sometimes also called the prohibitive zone, is coastal land between sixty-six feet away from the mean high tide line and up to thirty-two miles inland from the major oceans, and up to sixty-four miles away from the three international borders.
This land is restrictive, because Mexico's constitution reserved this land for Mexico. But to encourage foreign investment, Mexico changed its foreign investment laws back in 1997, that specifically encourage foreign investment, in both real estate and corporations, using fideicomisos.
In the restricted zone, non-Mexican nationals are restricted from acquiring title to land using an escritura publica. An escritura publica is a type of deed used by Mexican nationals to acquire land. But non-Mexican nationals are allowed to acquire Mexican coastal real estate using a fideicomiso. While Mexican nationals have the option of using a fideicomiso, or an escritura publica to acquire real estate in the restricted zone.
This restricted zone is one of the four major types of land that non-Mexican nationals are confronted with concerning a real estate purchase in Mexico. The other three types or land are the Federal Zone, the Non-Restricted Zone, and ejido land, and it would be smart to learn about all of them. Here in Baja California, all four types of land are present and common.
There are three parties that all play a part in the creation of a Mexican bank trust, or fideicomiso: the beneficiary, the seller, and the Mexican bank.
The seller is the grantor. They sell the real estate involved, and relinquish all the rights that go along with the property.
The buyer of the Mexican real estate is the beneficiary of the fideicomiso. The buyer can be a person, a group of people, or a state side limited liability company, LLC! This buyer/beneficiary will receive all the rights that go with the property.
A Mexican bank serves as the trustee, and has a fiduciary relationship with the buyer, meaning that the Mexican bank is working in good faith for the buyer/beneficiary and in their best interests. The bank holds naked title to the property and carries out duties related to the property that serve the desires of the beneficiary, the buyer.
Now at this point you might be thinking why would a buyer need the Mexican Bank and what is naked title? The Mexican bank with naked title simply means that the property deed is deposited with them, but they don't count it as an asset on their books.
The bank can't sell, depreciate, or receive any benefits from the property because they don't have control of the property; they only have naked title, meaning title without benefits. If the bank servicing the bank trust goes bankrupt, then the fideicomiso is transferred to another Mexican bank to continue servicing the trust on behalf of the beneficiary.
Having the deed deposited with the bank is all that is needed to satisfy the Mexican constitution. It is that simple.
The buyer/beneficiary has control of the property, and will count the property as an asset on their books for their accounting purposes.
Since the buyer/beneficiary has control of the property, the buyer/beneficiary has the right to occupy it, enjoy it, lease it, improve it, depreciate it, 1031 exchange it, finance it with their IRA, sell it to their own state side LLC, borrow money against it, will it, add beneficiaries to the trust to avoid probate, lease-option it, sell it, and anything that can be done with Mexican real estate. Also, since the legal life of the trust is 50 years, the buyer/beneficiary can renew the trust as well.
Fideicomisos cost about $1500 to set up, and about $500 a year to maintain. It is good to shop a couple of banks to find out of all the costs of a fideicomiso, because Mexican banks are in competition with each other for your business.
A Mexican would choose to take title to their land and home using an escritura publica for two reasons. Firstly, it is more traditional, and next, they don't have to pay the fees associated with the fideicomiso, even though there are fees to have an escritura publica drawn and recorded. But a fideicomiso once set up is transferable and does not have to be recreated when the property is sold. This makes the fideicomiso an asset. Also by having a fideicomiso, you have more of a market to sell to, both Mexican and international buyers, therefore making your investment more liquid.
