Margarita Fever – Buying Real Estate in the Land of the Fideicomiso (Mexico)
Coloradoans are getting Margarita Fever. A trip to the Mexican sun coast. Warmth, salt air and a whiff of humidity. A yearning for a piece of Mexican paradise warms the body while a little tequila whispers soulfully that it is the right thing to do.
Why A Fideicomiso?
Foreigners cannot directly own Mexican real property located within 100 kilometers of the Mexican border or within 50 kilometers of the Mexican coast. To own land within this restricted zone requires a Fideicomiso. A Fideicomiso is like a trust with a Mexican bank as the trustee for the benefit of the buyers.
Proper Fideicomiso Setup
A Fideicomiso requires a Mexican lawyer, a Mexican bank trustee, a Mexican notario publico, and numerous fees. Thought should be put into naming the beneficiary(ies) because there is significant expense in the initial setup, and there can be significant expense when the property is sold or beneficiaries change.
A quality Mexican lawyer and U.S. lawyer is recommended. At the real estate closing, taxes are due the Mexican government. In general, the seller is supposed to pay the lesser of 25% of the sale price or 30% of the net profit to the government. If those taxes are not paid, the trust or trust beneficiaries could be responsible.
Naming Beneficiaries Of A Fideicomiso
If the beneficiaries of the Fideicomiso are U.S. individuals, then another Fideicomiso may be needed when the Mexican property is sold or those beneficiaries die. For that reason, a U.S. trust and/or LLC is often the Fideicomiso beneficiary. The structure can look like this: Fideicomiso with U.S. LLC as beneficiary, and LLC interest held by a U.S. trust. This allows future transfers of beneficial ownership to occur within the same Fideicomiso by transferring the LLC membership interests. It can also, unfortunately, result in very lax controls and no recourse for a buyer who ends up with a lemon property. Often these LLC transfers are set up by a Mexican real estate agent who does not represent the buyer. The contract is short, lacks specification that the sale is of LLC interests, contains no title insurance, and there are no guarantees that necessary taxes are paid to the Mexican government. A buyer can reduce these risks with proper advice.
Next time Margarita Fever hits, enjoy the moment. If you do decide to take the plunge into the land of the Fideicomiso, spend a little more to do it right the first time.
