What is a Bank Trust in Mexico?

Many of the laws governing real estate in Mexico can be traced back to a 10-year war with Spain, a dictatorship, land being stolen from Mexico and the 1917 Constitution. It was a very dramatic period in Mexican history, to say the least.

The Revolution and 1917 Constitution

To give a brief historical background, under the dictatorship of president Porfirio Diaz, Mexico had many threats to its sovereignty. During this time foreign investment in the economy flourished and gave Mexico great economic prosperity. However this prosperity didn’t reach most of the country’s population and so Porfirios dictatorship ended with the Mexican revolution of 1910.

Venustiano Carranza was known as the Primer Jefe or “First Chief” of the Constitutionalist faction in the Mexican Revolution. He was a strong leader in the overthrow of dictator Porfirio Díaz.

Carranza had power over almost all of Mexico’s states by the end of 1916. His lofty goals were:

• To establish a new constitution
• Give the Revolution legitimacy
• Be elected President

He summoned reformers from the middle class, who made up the majority of Mexico’s new political class. They gathered at a convention in Santiago de Querétaro, Mexico, in November 1916. Only 30% of the guests had participated in the Revolution, whereas 50% had attended college and held professional degrees. They were relatively apolitical, youthful, and ambitious. Carranza had anticipated that the new constitution would resemble that of 1857. However, the majority of the delegates were liberals viewed as radicals in Mexico at that time.

There are 137 articles in the 1917 Constitution, which is still in effect almost 100 years later. These outline basic human rights for all Mexicans, define citizenship, establish a system of government, and call for land reform.

Article 27 mandated that lands taken from the peasantry during the Revolution had to be returned, even if they did not have written titles. The government could also take all land not used “appropriately,” and repurpose it for the public good. It also forbade foreigners from owning land within 100km of a national border or 50km of the sea.

This held until 1994, when Mexico enacted the Foreign Investment Act. This Act allowed ownership of property in the restricted zone in one of two ways.

1. Under Mexican corporation with foreign ownership provided that the real estate will not be used for residential purposes.

2. individuals wanting to acquire real estate in the restricted zone for residential purposes must establish a “Fideicomiso” or real estate bank trust.

A Fideicomiso, to put it simply, is a bank trust that enables you to invest in any Mexican property and become a beneficiary of it. Its core tenet is that you retain full ownership rights over the property, with a Mexican bank acting as your trustee and holding legal title. The bank cannot put liens on your property or use it in any other manner, it is similar to fee-simple ownership. The trustee’s primary duty is to advocate for your interests.

A Fideicomiso between a trustor, trustee, and beneficiary may be established for up to 50 years with the opportunity of renewal in perpetuity. You can legally lease, sell, improve, gift, or encumber your real estate once the trust deed is established. To put it another way, you get to choose how to use the property.

Conclusion

A bank trust is a great way to own property in the restricted zone.

By establishing this trust, you can buy any property and use it however you like without becoming a citizen of Mexico. A Fideicomiso enables you to leave the real estate as an inheritance to your beneficiaries, without having to go through the courts. Because of this, savvy Mexican investors use a trust even though it’s not required. For everyone, national and foreigners alike, a trust is a great estate planning tool. This legal mechanism has also returned a high level of foreign investment in real estate to Mexico.

Contact us to learn more about real estate in Mexico.