Viva San Carlos - Blog

APPLICABLE LAWS
The legal foundation for real estate law in Mexico starts with the Federal Constitution. Each state in Mexico has its own Civil Code which, especially in the case of the provisions concerning real estate, is usually exactly the same as the Civil Code for the Federal District. Nevertheless, it is advisable to check the Civil Code of the state in which you intend to purchase to make sure that there have not been any changes.

It is also important to consult a Mexican attorney to make sure that any of the state or municipal laws do not conflict with the federal provisions. Most of these principles are reflected in the various state legislation, but, to be sure, check with a competent Mexican real estate attorney.

The most basic laws for real estate transactions are:

- The Mexican Constitution and international treaties
- The Foreign Investment Law and its regulations
- The Civil Code
- The General Law of National Properties
- Federal Zone Regulations
- Condominium Law
- Tax Laws: income tax law, acquisition tax law
- The General Law of Negotiable Instrument
- Commercial Code
- Public Registry
- Notary Law and Federal Law of Public Brokerage
- Agrarian Law
- Corporation Law

FOREIGNERS AND FOREIGN INVESTORS

First, it's important to consider what determines the status of being a foreigner and what is considered foreign investment in Mexico.

Articles 30 and 33 of the Mexican Constitution specify that foreigners are those who are not Mexican by birth or naturalization.

In the case of Mexican nationality acquired by birth, there are three conditions, any of which, when met, would qualify an individual for Mexican nationality:

- If you were born in Mexico, regardless of your parents' nationality;
- If you were born outside of Mexico and your mother or father is Mexican; or,
- If you were born on a Mexican airplane or ship.

Mexican nationality by naturalization may be acquired by:

- Foreigners who obtain a letter of naturalization from the Ministry of Foreign Relations, and,
- Foreigners who marry Mexican nationals and establish residency within Mexico.

Article 33 also stipulates that all foreigners are protected under the civil rights provisions of the Constitution. The President has the power to deport any foreigner whose presence is deemed to be "inappropriate", even though this power is rarely, if ever, used.

The Mexican Foreign Investment Law, which was published on December 27, 1993, defines "foreign investment" and "foreign investor" as:
Foreign investment:
- The participation of foreign investors, in any proportion, in the capital stock of Mexican companies;
- That which is made by Mexican companies with a foreign capital majority; and
- The participation of foreign investors in the activities and acts provided for in the Foreign Investment Law.

Foreign Investor: an individual or legal person of a nationality other than Mexican and foreign entities without juridical personality.

Let's take a look at the parts of the law that deal with real estate investments by foreigners.

The Mexican government has put foreign investment in tourism and real estate development high on its list of priorities. The tendency of the Mexican government has been moving from one of tight restrictions throughout the seventies and part of the eighties, to a position of
encouraging foreign investment in all areas of Mexico. The government has been willing to show that it means business with its new "open-door" policy for foreign investment by making important changes in the foreign investment laws. Whether the investment is a "maquiladora", a tourist development involving the construction of hotels or condominiums, or simply the construction of summer homes by foreigners, the Mexican government has been sending out the message loud and clear: Mexico is open to foreign investment.

In spite of the advances and positive changes made in the Mexican foreign investment law, there are still some aspects of the law dealing with real estate acquired by foreigners that may seem overly restrictive, especially when compared to similar situations in the United States.

THE RESTRICTED ZONE AND "FIDEICOMISOS"
In an attempt to avoid some of the problems Mexico had to deal with in the past with regard to its territorial rights, the 1917 Mexican Constitution enacted restrictions on property ownership by foreigners. Basically the law declared that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil, but that such ownership may be assigned to individuals.

The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "restricted zone". The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and 50 kilometers (about 31
miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the "fideicomiso", which can be roughly translated as a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but in this case a Mexican bank must be designated as the trustee, and, as such, has title to the property and is the owner of record. The Mexican Government created the "fideicomiso" to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone.

A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Since foreign buyers do not have the capacity to enter into a normal real estate sales contract, due to Constitutional restrictions, the bank acts on their behalf.

The bank, as trustee, buys the property for the foreigner, and has a fiduciary obligation to follow instructions given by the beneficiary. The beneficiary of the trust retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is the beneficiary of the trust and is entitled to use, enjoy and, if he or she should decide to, even sell the property held in trust at its market value to any eligible buyer.

In summary, the following parties are involved in a real estate trust:
- The seller of the property, or trustor (el fideicomitente) who irrevocably transfers title to the property to the bank.
- The bank, who acts as trustee (el fiduciario) and holds title to the property and is obligated to administer the property only for the benefit of the buyer or beneficiary.
- The buyer, or beneficiary (el fideicomisario) who is entitled to use, enjoy, lease, or sell the property held in the real estate trust without limitation whatsoever. ----- excerpted from "How to buy real estate in Mexico" (c) 1994 by Dennis Peyton -----

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