What is a Bank Trust Anyway?

If you've considered buying property in Mexico, then you've probably heard this term. So what is a Mexican Bank Trust (fideicomiso) and do you need one?

Do You Need a Bank Trust? If you are a non-Mexican and want to buy Mexican property within 100 kilometers of the border or 50 kilometers of a coast line (the 'restricted zone'), then you need a Mexican Bank Trust. This is because foreigners may not hold title to property in Mexico's restricted zone, with one exception. Foreigners with permanent residency may use a Mexican corporation to purchase commercial property in the restricted zone. But Mexican corporations are complex and we're not going to cover them here.

So what is a Mexican Bank Trust?

In simple terms, it's an agreement between a buyer and a Mexican bank. The bank agrees to hold title to a designated property on behalf of the buyer.
The buyer is named Beneficiary of the trust and therein receives all rights of property ownership.
Only the Beneficiary may use, rent, renovate, sell or take any action in regards to the property. In addition, only the Beneficiary will reap equity profits upon selling the property.

Other important facts about Bank Trusts:

Bank Trusts are valid for 50 years at which time they can be renewed.
Annual Fees are charged and vary by bank, but are generally between $300-500 USD.
Substitute Beneficiaries must be named by buyers when obtaining a Bank Trust. This makes for a very streamlined process in the event your property needs to be passed on to loved ones.
If the bank managing your trust should discontinue their services, another bank will be designated by the government to take over your account.

What about U.S. LLC's? Sometimes buyers choose not to be named personally as the Beneficiary of their property's Bank Trust. Alternatively, buyers can form and own a U.S. LLC and have the LLC named as the Beneficiary. Whoever owns the LLC receives all rights of property ownership.

Pros: Transferring rights to a new buyer is simpler, faster and cheaper than if Bank Trust Beneficiaries are named personally. LLC's are sold in U.S. transactions that can be completed in 2-4 weeks. Bank Trust transfers generally take 3-4 months. New owners of the LLC become new owners of the property. The Bank Trust doesn't need to be modified because it still accurately depicts the name of the LLC as the Beneficiary. This saves money on closing costs.

Another benefit comes when selling the property. Since the LLC sale takes place in the U.S., Mexican capital gains taxes are not triggered. However, the seller is obligated to report to the I.R.S. any profit gained on the sale of their LLC.

Cons: The Mexican government is well-aware of this loophole. They are suffering a huge loss in capital gains revenue on properties that are being bought and sold in their own country. It's possible they may come up with legislation to close this loophole and if they do, some fear there could be retroactive penalties. Some Mexican attorneys say that's not likely, but there's no way to know.

Are Bank Trusts safe? Absolutely. Mexican Bank Trusts have been in use since 1971 and are an excellent ownership tool. But as with any real estate transaction in any country, it's imperative that you work with a reputable realtor and closing attorney. Due diligence should always be performed by the closing attorney to ensure the property you're buying has clear title and is eligible for transfer. The likely cause of any story you've heard of a foreigner having their Mexican property taken away is the lack of proper title. The only law that allows the Mexican government to expropriate property is when the land is required for public works (ex: road construction). In this rare case, the property owners must be paid the current market price with interest. This is known as Eminent Domain in the U.S.

What if I'm a dual citizen? Well, aren't you lucky! You can take title in a Bank Trust or in a Mexican Fee Simple Deed.

Questions? Please reach out any time!

Chuck & Jenna