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After
5 years of work in Mexico insuring real estate properties to foreign purchasers,
there are always varying questions asked relevant to residential acquisitions.
"If I buy a house in Mexico, don't I get a 99 year lease from the
government?" Or, "I understand that I can buy a residence in Mexico if
the title is vested in a Mexican corporation." And invariably, "I
didn't think Americans could own Mexican beach front properties." All of
these suppositions are incorrect. In order to clear any confusion a purchaser
might have regarding the acquisition of Mexican residential property, it would
be appropriate to define what Mexico's Constitution and the Foreign Investment
Law of Mexico mandates regarding foreign (non-Mexican) buyers of real estate. Most
purchasers contemplating buying a house in Mexico are aware that Mexico has a
"restricted zone" (50 kilometers along all of Mexico's coastline, 100
kilometers along all of Mexico's natural borders) per Article 27 of the Mexican
Constitution. What many purchasers are not aware of is the Foreign Investment
Law of Mexico ("FIL") originally established in 1971, amended to the
"New FIL" in December, 1993, and ultimately amended again in October,
1998. This FIL is known as the "Reglamento de la Ley Inversion Extranjera y
del Registro Nacional de Inversiones Extranjeras." Relative to properties
within this prohibited area, the amended Foreign Investment Law's intent is to
clearly and narrowly define what is residential property, what properties must
be in a "fideicomiso" (Mexican bank trust), and what properties are
considered non-residential and therefore can be purchased by foreigners in a
Mexican corporation. For
the purpose of the terms set forth in Article 5, Title Two of the Law, real
estate used for "residential purposes" shall mean any real estate
destined "exclusively for residential use of the owner or third
parties." The following activities, without limitation, shall be deemed
real estate held for non-residential purposes: (I) those destined for time-share
use; (II) those destined for any industrial, commercial or tourism activity that
may simultaneously contain a residential component; (III) real estate acquired
by credit institutions, financial intermediaries, and auxiliary credit
organizations to recover debts owed to them and in the ordinary course of
business; (IV) real estate used by entities in the course of their business
consistent with sale, development, construction, sub-division and other
activities included in the development of real estate projects, until these are
sold to third parties; and (V) generally, real estate destined for use in
commercial, industrial, agricultural, cattle, fishing, forestry, or
service-related activities. When
in doubt whether real estate is deemed destined for residential purposes, the
Ministry of Foreign relations shall resolve the matter in ten business days from
the date the party consults the Ministry on the subject.
If at the end of ten business days, the Ministry fails to respond, the
use in question shall be deemed for non-residential purposes. Further, Article 6
of Title Two specifies that when in doubt on whether real property is located
within or outside the restricted zone, the Ministry of Foreign Relations, on
consultation with the National Institute of Statistics, Geography and Data
Processing, shall decide as appropriate. And lastly, Article 7 of Title Two
provides the notification procedure that interested parties must give to the
Ministry of Foreign Relations. That is, (I) the location and description of the
real estate; (II) a clear and accurate description of the uses to which the real
estate in question is destined; and (III) an ordinary copy, in annex, of the
public instrument, known as an "escritura", that records the
formalization of the acquisition. When
one condenses and "boils down" all of the language and definitions of
law, coupled with the resulting legal effect that must be understood, what does
a foreign purchaser really glean from this information? Simply, that Mexico's
Constitution and Foreign Investment Law are very specific regarding foreign
acquisition of real estate, and particularly in the restricted zone.
Most importantly, we as foreign buyers of Mexican properties must realize
that title to real estate in the prohibited zone can only be vested one of two
ways for our benefit: either in a 50 year renewable Mexican bank trust (fideicomiso);
or, in a Mexican corporation that can solely and exclusively be owned by one or
more foreign stockholders with no Mexican ownership participation. Make no
mistake buying public, there is no gray area concerning Mexico's constitutional
or foreign investment law. The title to houses on the beach, villas,
condominiums, townhouses or single family lots within Mexico's restricted zone
can only be conveyed into a fideicomiso with foreigners having renewable
beneficiary interest. The assertion by some purchasers that title to residential
real estate can be vested in a Mexican corporation for foreign ownership
purposes simply is not correct. However, all other real estate, non-residential
in nature, can be conveyed to foreigners in fee simple provided the title is in
a Mexican corporation whereby foreigners can have exclusive ownership. And one
final, salient point, whether title is vested in a fideicomiso or a Mexican
corporation, in either case, all of these properties can be insured by a U.S.
contract of indemnity more commonly known as a title policy. There are a few
U.S. title companies that can provide Owner's and Lender policies for
guaranteeing ownership rights in these Mexican entities. Article
Courtesy of Arizona Journal of Real
Estate & Business |
