Rain break: Owning in Mexico could become easier

Purchasing real estate in Mexico has been a confusing for proposition for people looking to leave the rain or for those seeking a less expensive place to retire.

Now, it appears more changes are on the way that could possibly instill more confidence for all non-nationals in how title is held south of the border.

The Mexican equivalent to the United States House of Representatives recently 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. If passed by the Senate later this year, U.S., Canadian and other foreign citizens could hold fee simple title in all regions of Mexico.

“Things could become much easier, but we’ll just have to wait and see,” said Mitch Creekmore, senior vice president of Stewart Title Guaranty, who has been providing title insurance in Mexico for the past 20 years.

Like any controversial issue, there are lobbyists on both sides attempting to sway legislators. The bank trust, or fideicomiso, must be renewed every year and helps fill the gap left by the country’s low real estate taxes. The average annual renewal cost for a fideicomiso is about $500, so any change in how title is held would most likely bring a substitute fee.

Still, an additional cost would bring 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.

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,” said Jay West, co-owner of Windermere Los Cabos and a past president of the Los Cabos chapter of the Mexican Association of Real Estate Professionals, a sister organization of the National Association of Realtors. “Fee-simple title would provide an easier framework for buyers,” added West, who has been frequenting Los Cabos since 1988 and moved there in 1995.

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.

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.

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.

If Mexico’s Senate passes the fee-simple title proposal, residential transactions would closer resemble U.S. deals, reducing confusion and concern.