Forgetting the Fear of the Fideicomiso

Related imageMany buyers get nervous when they hear about the “fideicomiso” system, which is the manner in which residential property can be purchased by foreigners in the “restricted zones”, that is land which is 50 kilometers from the coast or 100 kilometers from the border. This system is part of the Mexican Constitution, designed to protect Mexico against losses of land that had happened during the country’s history, in times of foreign invasion.

Now, as serious as that may sound, the fideicomiso system is quite simple, once understood, essentially equaling nothing more than a bank trust allowing one to own property in Puerto Vallarta or other parts of Mexico. The bank acts as the fiduciary, with you and your heirs as the beneficiaries of the fideicomiso.

It is actually a wonderful mechanism to use for ownership of any property as it works much like an estate trust would in the US or Canada, isolates the asset and avoids probate and high inheritance taxes when the beneficiaries pass away.  You can mirror your estate plan in the fideicomiso trust here in Mexico which will cover your properties here and when you pass away, your heirs will be recognized as the beneficiaries of the trust.

While under the fideicomiso, there is no concern that the government may directly or indirectly, expropriate your property, unless in the unlikely case of needing it for public works (for example, road construction), as would be similar in other parts of North America. In the very rare case that this should occur, the government would pay the current value of the property with interest to the owner and since the beneficiary of the fideicomiso agrees to be considered a Mexican citizen with respect to the rights and obligations that correspond to the property, the owner, or beneficiary of the trust would be able to defend themselves against such an expropriation just as if they were a Mexican national.

To further protect you when you buy a house or condo in Puerto Vallarta using a fideicomiso, banks in Mexico are protected from bankruptcy by government law. The property that is held in a fideicomiso is not actually considered an asset of the bank, so in the highly unlikely case of a bank entering economic trouble, the fideicomiso will be transferred, by Federal law, to another fiduciary bank.

At Tropicasa Realty, our agents, in-house legal representation and trusted network of notaries, can help you understand completely the workings of the fideicomiso system when buying a property in Mexico, making sure your questions are fully answered. Contact us for more information.

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