The cold, record winter brought dreams of warm sand, sunny skies and crystal clear water.
For potential second homebuyers considering Mexico, and boomers are prime candidates, this year also held a whisper of hope in eliminating the confusing way foreigners are required to hold title to property near crystal clear water south of the border.
It now appears the status quo will remain for at least the near future, as Mexico’s legislature failed to consider the topic in a timely fashion. The best chance since 1972 for U.S., Canadian and other foreign citizens to hold fee simple title in Mexico was lost.
What Might Have Been
Last spring, the Mexican equivalent to the United States House of Representatives passed a proposal that eliminates the need of a bank trust in order for non-nationals to directly own property near the coast and boundaries, including the entire Baja Peninsula. The proposal was passed on to the Senate. The initiative failed, however, when the Senate did not address the bill within proper timelines.
Opinions vary as to what happened and if the ball was deliberately dropped. At the center of the controversy were the banks that generate millions of dollars by creating the trusts.
Like any controversial issue, there were lobbyists on both sides attempting to sway legislators. The bank trust, or fideicomiso, must be renewed every year. The average annual renewal cost for a fideicomiso is about $500, so any change in how title is held would have likely brought a substitute fee, perhaps additional property taxes.
An additional cost would have brought a familiarity of ownership – fee simple - and relief to foreigners who have been skittish to accept the terms of owning in Mexico. Some consumers believe non-nationals can only lease property south of the border while others have been uncomfortable with the idea of not having fee simple title, especially when the official document is written in Spanish.
Buying Real Estate in Mexico -- The Here and Now
Some real estate agents believe fideicomiso confusion has kept retirees, especially cash-strapped persons on a fixed income seeking a lower cost of living, from considering Mexico. Although the fideicomiso is extremely safe for foreigners, it also has been extremely difficult to explain. Others, however, note that the process has been around for 42 years and informed buyers are more than prepared for any red tape.
“More people at least know about what to expect,” said Martin Posch, co-owner of Windermere Los Cabos. “That’s because they either have friends who have purchased in Mexico tell them about it or have had an agent explain it to them. Obviously, if they have already purchased here they know all about it.”
Several years ago, the Mexican Constitution was changed regarding foreign acquisition in the “restricted zone” (50 kilometers along Mexico's entire coastline, 100 kilometers along all of Mexico's natural borders). Now, title to all real estate in the restricted zone being acquired by foreign purchasers can only be legally vested and recorded in one of two ways: (1) in a Mexican bank trust (fideicomiso) for all residential property; or (2) in a Mexican corporation for all non-residential real estate.
As trustee, the Mexican bank acts on behalf of the foreign beneficiary in any and all transactions involving the property held in fideicomiso. However, the beneficiary retains the use and control of the property and makes the investment decisions regarding it. The beneficiary has the right to use, mortgage, encumber, improve, lease without limitation, sell without restrictions and to pass the property to named heirs. In essence, the beneficiary has the same absolute rights to use, benefit and enjoy the property as if it were in fee simple ownership.
Commercial Ownership in Mexico Less Restrictive
Foreigners may directly acquire property within the restricted zone, providing it is to be used for commercial activities. In other words, the usage must be industrial or retail (bed and breakfast, boutique hotel, restaurant, etc.) in order to qualify as non-residential. Residential properties in the interior of Mexico (outside the restricted zone) may be purchased by foreigners in fee simple title with registration of their ownership to the Ministry of Foreign Relations.
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Mexican escrow companies and financial brokerage companies have added the service of utilizing U.S. bank accounts for earnest money deposits. Any foreign buyer should always exercise caution and use common sense when it comes to the company chosen to shelter a portion of the funds earmarked for their dream getaway.
Mexico’s Senate did not deal with the fee-simple title proposal -- and banks appear to be as powerful south of the border as they are here.
As author, nationally syndicated newspaper columnist and talk-show host, Tom Kelly has carved a niche as one of the leading real estate and finance journalists. His book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Stewart International, and is available in retail stores and on Amazon.com. He and his wife, Jodi, Dean of the Humanities College at Seattle University live on Bainbridge Island, WA. Their four grown children are spread out around the world and their first grandchild, Myles Thomas, makes them goofy with joy. You can connect with Tom on his Facebook page at https://www.facebook.com/tom.kelly.37604303, or check out his website at http://tomkelly.com.
Tom Kelly’s novel “Cold Crossover” is now available in print at bookstores everywhere and in both print and Ebook form from a variety of digital outlets. Follow real estate agent and former basketball coach Ernie Creekmore as investigates the disappearance of his star player on a late-night boat. Check out the national reviews and put “Cold Crossover” on your list.