Common Misconceptions regarding American ownership of Real Estate in Mexico

I am often asked if Americans can own Real Estate in Mexico, and the answer is YES! In most of Mexico, Americans, or any other foreigners, can own land outright with what we know as a fee simple title; have as in the United States. Yet, border areas and coastal zones, are restricted zones, the restriction applies to a strip of 50 kilometers (31.05 miles) from the ocean and 100 km. (62.1 miles) from the borders, and unfortunately the government decided to consider the whole Peninsula of Baja California a restricted area.

These restriction came about because Mexicans were concerned about having lost so much territory to the U.S. in the 19th century (about 1/3 of their country): Texas in 1845, and during 1848 the territory that became California, Nevada, Utah, most of Arizona, and parts of New Mexico, Colorado, and Wyoming, this under the treaty of Guadalupe Hidalgo. The treaty was signed shortly after American forces had captured Mexico City. It's not surprising that Mexico was a little nervous about allowing foreigners, especially Americans, to acquire any more land.

Yet, as they say old wounds heal no matter how deep, thus the U.S. and Mexico have a good understanding as neighbors and business partners under the NAFTA. NAFTA has promoted good business relationships, but even before NAFTA, Mexico wanted to make it possible for foreigners to invest in their country, therefore in 1971 Mexico developed the idea know as a fideicomiso (bank trust) as a way for foreigners to acquire residential property within the restricted area.

Now, I often hear or read everywhere that some people consider a Bank Trust or fideicomiso a Lease. Let’s set the record straight, the Fideicomiso is NOT a lease. Under a bank trust the beneficiary (buyer) has all the rights of ownership: the right to use and enjoy the property, borrow money, make improvements, and transfer their rights. A lease gives only the right to use. If the tenant makes improvements, such as building a house, on the property, that house belongs to the landlord. Nor can the tenant sell the property or borrow money on it.

The reason people still believe that the fideicomiso is a lease comes originates from pre 1971 long term lease agreements. Let’s remember that prior to 1971 the government had not yet developed the fideicomiso, thus the only available option was a log term lease agreement. Based on the above, lots of folks assumed that the lease and fideicomiso were equal; thus they built homes and made improvements on the land they were leasing. After the Bank Trust was initiated, some leases expired and the landlords declined to renew, which was their legal right. The tenants then lost the houses they had built. This frightened other Americans, who thought that their compatriots had their ownership rights taken away, when in fact they had never possessed such rights. In many cases, however, the tenants of the former leases were able to regularize their situations by purchasing the property under a bank trust.

Now the question is can the Mexican Government take away foreigners' property at any time? NO! The bank trust is officially established with the government’s blessing through a permit and gives foreigners the same rights as Mexican citizens. The only difference is that they do not receive the actual fee simple title which is held in trust for by a trustee (bank). When first established, the term for a Bank Trust was limited to 30 years. In 1989 the government allowed trusts to be renewed for another 30 years, and in 1993 the term was extended to 50 years, renewable for another 50.

In Mexico the Bank Trust is held by a trustee who holds the property registered under the foreign beneficiary.

For more information on the above or regarding any legal and business issues in Mexico don’t hesitate to contact the author anytime.

Rafael Solorzano, Esq.
882 Grisom Avenue
San Diego, Ca 92154
(619) 573-9384 Office
bctrusts@hotmail.com

Rafael Solorzano, is a former Trust VP for Banco Nacional de Mexico, S.A, he is an attorney at law licensed in all 32 Mexican States, with over 24 years of experience in fideicomisos (Trusts), corporate law, immigration, international business consulting, environmental, Health & Safety regulations, Federal Zone, Zoning Laws, Hunting, Firearms and Explosives Law.