San Carlos Mexico

The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals,
salts, ore deposits, natural gas and oil; but that such ownership may be assigned to individuals.

The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the
"restricted zone."
The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and
within 50 kilometers (about 31 miles) of any Mexican coastline. However, in order to permit foreign investment in these
areas, the Mexican government created the "fideicomiso," (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a real
estate trust. Essentially, this type of trust is similar to trusts set-up in the United States, but a Mexican bank must be
designated as the trustee and, as such, has title to the property and is the owner of record.
The Mexican Government created the "fideicomiso" to reconcile the problems involved in developing the restricted zone
and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land
located in the restricted zone without violating the law.

A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and
the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to
Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as
trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner
who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title
to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value
to any eligible buyer.

In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to
apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico.
This is currently done by the trustee/bank at the time a real estate trust is set-up.

Given the changes made for 1997 in the foreign investment Law, and the fact that a buyer can now apply for and obtain
a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before
entering into any contract.

The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire
rights on real property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the
use and exploitation of the property without constituting real property rights. The beneficiaries of the trust
(fideicomisarios) may be:

Mexican corporations with foreign investment
Foreign individuals or legal entities

The law defines "use" and "exploitation" as the right to use or possess the property, including its fruits, products, or any
revenue that results from its operation and exploitation by third parties or from the bank/trustee.

The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on
issuing the permits "...Considering the economic and social benefit, which the realization of such operations imply for the
nation." The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new
foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the
Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also
possible that some of the confusing elements will be eliminated. It is important to understand the application of the
current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has
used in the past, to better understand what criteria will be used by the Ministry in the future.

The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements
within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be
granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs
must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15
days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the
trust permit or registration are considered authorized.

There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary
loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary
has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or
sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a
fiduciary obligation to respect the rights of the beneficiary.

A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The
beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law
allows most activities engaged in by foreigners.

For more information email: sancarloshomes@gmail.com

Mexican Bank Trust / "Fideicomisos"

Mexican Real Estate Law | Land Rights / Usage Mexico /The
Restricted Zone and "Fideicomisos"