What is a FIDEICOMISO?
It’s a real estate contract whereby a foreign national acquires the benefits of using an immovable asset located within the Country’s restricted area for a period of 50 years. This trust may be renewed when certain conditions are complied with. Title of the property in question is held for a fee by a Mexican bank officially authorized to celebrate this type of transactions.
Under Mexican law the beneficiary of the trust (i.e. the foreign national) may lease, sell or transfer the beneficiary rights in question, in compliance with the applicable statutes. The official involvement of a Public Notary is of the essence in the entering of a Fideicomiso. This cumbersome system which has been in operation since 1973, was legally devised to allow foreigners to have the beneficiary rights in question when one considers that, pursuant to Article 27 (I) of the Constitution of Mexico, foreigners are prohibited from acquiring any direct ownership over any immovable assets located within Mexico’s Restricted Zone. This kind of trust contract allows foreigners to enjoy Real Estate located along the Mexican coastline without violating Mexico’s Constitution.
Legally three parties are involved in this contract:
1) The beneficiary (Fideicomisario), who is the individual foreigner (or corporation ) who enjoys the beneficiary use of the piece of real estate in question; 2) A fiduciary institution (Institucion Fiduciaria), e. g. a duly authorized Mexican bank, who hold title of the asset for the duration of the Fideicomiso contract charging an agreed fee for each of the services it provides to the beneficiary; and 3) the trustor (fideicomitente), a Mexican national who receives from the beneficiary the agreed price for the piece of real estate which is placed under the Fideicomiso contract, to be administered by the fiduciary institution.
Under the Mexican Law, the Fideicomiso contract is governed by:
1) the General Act of Negotiable Instruments and Credit Operations (Ley General de Titulos y Operaciones de Credito); 2) the Foreign Investment Act of 1993, as amended in 1996 and its Regulations.
THE ATTORNEY’S ROLE IN REAL ESTATE TRANSACTIONS
When most people consider buying real estate property in Baja California Sur they usually don’t consider the legal procedures involved in this type of transaction, as a result, a lot of the times they end up buying irregular property and soon after, the problems begin.
The legal aspects of this type of transaction must be supervised by an attorney. The attorney will:
- Make sure there are no liens or encumbrances affecting the property.
- The seller’s property rights have not been limited.
- The registered owner of the property is not deceased. No probate in process.
- Make sure there are no property taxes or others owed.
- Property is not affected by any legal procedures pending.
- Make sure the buyer can legally acquire the property.
- Inform the buyer of the different options to purchase property.
In order for the attorney to do the above, the owner must present a copy of the title or deed so a title search can be done to determine whether the seller has legal capacity to sell.
Most common problems are property seizures, litigation in process or faulty deeds. An attorney is qualified to know what the exact situation of the property is and if can be fixed, giving his/her experience in this field.
Another very common problem is buying Ejido property without obtaining “derecho de tanto”. A lawyer can determine how risky the purchase can be.
If the property is sold by a corporation, the most common problem is the lack of legal capacity of its representative for such a transaction.
The attorney will be able to inform the buyer if the property is affected by any government restriction such as future expropriation for urban development, roads or any government plans. An attorney can anticipate such complications.
Besides the above, the attorney will make sure the metes and bounds of the property match the documentation.
Remember, investing in real estate is a long term investment; you want to make sure it’s as free of problems as it can be.
An attorney cannot be replaced by a Realtor or broker as he/she has no interest of gaining a commission if the property is sold whereas the broker is interested.
Don’t try to save money buying problems. Secure your investment by hiring a professional to assist you throughout the purchase process.
If you want to learn more of the attorneys work in a real estate transaction, contact us.
If you are purchasing property, contact us immediately.
The Paper Chase®
Business, Legal & Real Estate Consulting.
THINGS TO KEEP IN MIND WHEN BUYING REAL ESTATE IN BAJA
- If you are paying for the closing, it is highly recommended that you hire a closing agent that represents you instead of using the real estate company or that company’s agent.
- There are only two legal ways in which a foreigner can own real estate in Baja:
Get a clear idea of all the alternatives when choosing a bank for the Fideicomiso. It is the buyer who has to deal with the bank in the future.
There are many banks that offer Fideicomiso services; before making a decision ask all the important questions; how much the annual fee is, fee for assignment of rights, if the bank’s representative speaks your language (you will have to deal with him once a year at least), location of the bank’s office, etc.
Ask your closing coordinator about the differences in price and service of the different banks and choose the one that better fits your needs, not the sellers or the Real Estate agent’s needs, you will be the one who will have to deal with that bank once the closing is finished.
Be aware that some closing agents hide the real price of their services in some of the closing costs such as public registry fees or appraisals, when the closing is finish ask for all the receipts so you know exactly how much and what you paid for.
Make sure you understand the terms of the transaction and the Fideicomiso contract before you sign it. ASK QUESTIONS!
- 1) Fideicomiso, 2) Mexican Corporation. Unless you are serious about having a business in Mexico DO NOT set up a corporation just to hold Real Estate, this is no longer a good option.
REAL ESTATE CLOSING IN BAJA AND FIDEICOMISOS (THINGS TO KEEP IN MIND)
If you are buying property anywhere in the Baja California peninsula, it is in your best interest to consider the following:
- Fideicomisos are legal contracts between the buyer and the Bank, these contracts are valid for 50 years, which means your are subject to their terms for that period of time, unless you change banks (which is very expensive in most cases!).
- Please do not make the assumption that the Real Estate Market and practices are the same as in the Unites States or Canada. First of all; in these countries the Fideicomiso is not used as it is here in Mexico. Even though the Fideicomiso is similar to a US trust, it is very different and follows different rules. Second; Real estate agents are not legally licensed in Mexico, therefore a foreign buyer cannot depend on the normal safeguards that would apply in a Real Estate transaction in the United States.
- A real estate agent is a great help for finding you the right property, but only an attorney is licensed to provide legal advice.
- Just like a real estate agent or broker is the right person to show you different options in properties, a closing company, agent or attorney is the ideal person to handle your Fideicomiso or your closing because that is their expertise; normally they do not have an interests in the transaction, they do not receive a commission for the sale, their job is to set you up with the best option for your needs. There is no conflict of interest when you hire a third party to represent you for the closing. Buyer usually pays for the closing so why not hire a third party for the closing instead of the Realtor or the realtor’s recommendation?
- The following is the typical wording in Spanish and its translation to English of a Fideicomiso contract clause that you will find in most contracts (if not all) no matter which bank you use. Please read it carefully. Obviously the buyer/ fideiocomisario needs assistance that goes beyond the knowledge of an average real estate agent.
“c) El Fiduciario declara que con anterioridad a la firma del presente fideicomiso, EL FIDUCIARIO le invitó y sugirió obtener del profesionista, despacho o firma de su elección, la asesoría y apoyo en cuanto al alcance, consecuencia, trámites, implicaciones y en general cuestiones legales y fiscales directa o indirectamente relacionadas con el presente Fideicomiso, así como su apoyo en la negociación y evaluación del riesgo legal y fiscal del texto definitivo a firmarse, toda vez que EL FIDUCIARIO no se hace responsable de las consecuencias legales que puedan derivarse del desconocimiento de los mismos.
"c)The trustee (the bank) declares that prior to the signing of this trust, the trustee invited and suggested to the beneficiary (the buyer) to obtain from the professional, office or law firm of his choice, the proper advice and support as far as the legal scope, the significance, consequences, paperwork, implications and in general all legal and tax aspects in direct or indirect relation with this Fideicomiso, as well as support in the negotiation and evaluation of the legal and fiscal risk of the definite wording of the contract to be signed, given that the Trustee is not responsible for the legal consequences that might arise out of the ignorance of the same."
- When you buy your dream house or property you will want to find the best option available to you because you realize that is a long term investment, the same is true for your Fideicomiso; it is a contract that will be with you or your heirs for 50 years! Pay attention to the bank you are using and the contract you are signing, that way you will avoid future surprises.
Hope you find this useful as it is written with the only intention of informing you and help you avoid potential problems.
Attorney at Law and Official Translator
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Inheriting Property in Mexico
If you have inherited property in Mexico it is recommended that you move into first position and establish new beneficiaries in trust.
If you are from Canada, you'll need to have the death certificate certified and then take it to the nearest Mexican consulate to be ratified. At the same time you'll all sign a letter of instruction to the bank holding the trust, have it notarized and take that to the consulate as well. The letter will instruct the bank to recognize you as the new primary beneficiaries. Once that is done the Notario will draw up a public instrument establishing you as the primary beneficiaries and that will be registered with the city authorities. Contact us for information of costs and time involved. If the heir is in the US, the same process applies except that you would have to use an Apostille for the paperwork instead of having to go to the Mexican Consulate.
WHY AVOID LITIGATION IN MEXICO?
It may sound strange for a lawyer to advise clients to avoid litigation, but coming from a lawyer who knows and understands how the legal system in Mexico works it can only be taken, as talking from experience.
Here is the good and the bad of the Judicial System in Mexico when it comes to litigation. I’m sure there are a lot more good and bad but these are the most important:
- GRATUITOUS. Unlike the US courts where attorneys have to pay court cost for the use of the court rooms, pay to file motions, etc. In Mexico, such costs are prohibited by our constitution (Art. 17). “All persons have the right to the administration of justice” which must be gratuitous. (Hiring an attorney is the person’s choice; there are institutions like the “Instituto Federal de Defensoría Pública” –Federal Institute of Public Advocacy- that provide legal advice at no cost).
- WELL STRUCTURED. The bases of our legal institutions are over 2,000 years old. Concepts such as the Fideicomiso (Which is a combination of the Roman Fiducia and the American Trust) and the Usucapio (modernly known as the “prescription Adquisitiva” -Reverse possession-) come from the glorious times of the Roman Empire and have survived throughout the passing of times and changing of empires because of their effectiveness and fairness. The modern Mexican Legal System, which follows the Romano-Germanic or civil tradition is a well-structured combination of various legal institutions from Rome to some of the legal traditions of the Ottoman Empire, then Spain and finally some legal institutions from the pre-Hispanic civilizations like the Aztec Empire (some Agrarian Law). In most recent times due to globalization the Mexican Legal system has adopted some of the American (Common Law) legal institutions, the Fideicomiso is again the perfect example, but also all the 11 International Treaties that Mexico is part of.
- SLOW. This is probably the main reason to avoid approaching the courts in Mexico. The same Article of the Mexican Constitution (art. 17) that gives any person present in its territory the right to receive Administration of Justice at no cost, is the same article that gives the individual the right to “expeditious courts” and “prompt, complete and unbiased” decisions. This sounds very fair and romantic, but in reality is totally the opposite. Perhaps as consequence of providing free services, the courts are overloaded with cases; the backlog makes the new cases take a long, long time before a decision is made by the judge. Unlike the US, some litigation in Mexico is oral, but mainly in writing which also makes for a slow system. The good news is that this is changing, we have new Criminal Laws that rule in every state of the country; we now have oral criminal proceedings (In B.C.S., beginning 2016), oral commercial litigation for minor cases (since 2013). The sluggishness of the cases in court drives some frustrated attorneys to incur in the old practices of giving “propinas” to the officers in order to move their cases forward, which leads us to the following bad aspect.
- CORRUPTION. Unfortunately the organs of the Executive Powers (Government) are not the only ones infected with this social cancer, the judicial system has also been infected, perhaps not at the same level, but sadly paying bribes continues to be a practice. This is especially true in criminal battles; there have been cases where even Federal Judges have surrendered to the temptation of receiving favors from the litigants or in some extreme cases they have made decisions that favor organized crime for fear of being executed or losing their families.
At The Paper Chase we are very well aware of the above; therefore we have adopted the “Preventive Approach” when assisting our clients in Legal matters. This approach consists of the following principles:
- Litigation as the last recourse. We try to negotiate with the opposite party by finding a solution that will satisfy everybody. A win-win scenario. We prepare our client’s Wills, Contracts, Acts of incorporations, Fideocomisos, etc. With the potential scenario of litigation in mind, we do our best now to avoid litigation in the future; “the just in case” mentality. We try to cover all the possible complications or downsides that we can think of, we prepare for the future.
- We only take cases to court when there are considerable possibilities of obtaining the result expected by our client, in other words, we only go to court when we have a case. We are honest to our clients when we believe they have no chance. Having to pay more in legal fees than what is at stake in a case is simply not acceptable.
- Because we minimize the cases we take to court we can focus and truly concentrate in the few cases we handle, we can give them the right attention, our commitment to truly advocate in their behalf. Again, a win-win situation in which our client wins by obtaining the proper representation and attention to his/her case; we win because we can focus and are not overwhelmed with a bunch of cases we cannot handle; the Judicial System wins because the officers are not having to spend their time on frivolous lawsuits, reducing the backlog of the system.
Just like we are honest to our clients, we are honest to the system and ourselves. We do not pay bribes nor believe in “propinas”, this unfortunately makes us subject to the slowness and corruption we may encounter, but we believe that when we are in the right eventually we will get the justice our client deserves.
I am passionate about my profession, being a Lawyer has given me many great experiences and although I truly like the challenges of being a litigant attorney, I value my clients and I understand my position in society as a service provider so when it is in my client’s best interest, nothing is more important than that.
Attorney at Law
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