Puerto Vallarta, Mexico - There has been a lot of misinformation circulating regarding the proposal by the Congress of Mexico to eliminate the property trust system. This article is intended to not only set the record straight, but also to talk about what this means.
A bill has been presented in Congress to eliminate the existing fideicomiso/trust system for foreigners who wish to purchase real estate in the Restricted Zone, which is along Mexico's coastlines and borders. This bill does come with restrictions and is not a blanket elimination of the system. In addition, even if Congress approves the bill, the States will later need to approve it in order for it to become effective.
Despite what you may have heard, this is NOT currently law and the fideicomiso/trust system has NOT been eliminated! Even if it passes, if you are using your property for anything other than your personal residence, such as commercial uses or renting the property for vacation use, you would still be required to have the property held in a fideicomiso. The ability for foreigners to be able to purchase property outright in the Restricted Zone would only be for those that would be utilizing the property as their personal residence. Since many foreigners want the ability to be able to rent their property, this will not be an option according to the way the law is being proposed.
I think the better question to ask yourself is why is this change important and what will it effectively change for you? While there are still people who don't entirely understand the fideicomiso/trust system and/or consider it to be a lease (which in no way, shape or form is it), the system has worked now for nearly four decades.
U.S. title companies have endorsed the system and issue title insurance to properties held in fideicomiso. Lenders, both foreign and national, have lent significant sums of money through the fideicomiso system, fully protecting their financial interests, as well as their borrowing clients. Clearly, both of these types of institutions have had the opportunity to review the system inside and out with their legal teams and have found that this is a secure system for purchasing property.
But did you know that Mexican nationals also purchase property in the fideicomiso system? Yes, some do. They find it is an excellent estate planning tool that allows them to allocate assets to heirs all the while avoiding the Mexican probate system, which is as cumbersome here as it is in the United States or Canada. So if Mexicans find it a useful tool, why are foreigners so anxious to get rid of it?
Certainly, clients from outside Mexico are used to owning their property outright without having a "middleman." And yet, many people hold their property in a variety of trust vehicles in both the States and Canada for estate planning purposes and even for tax reasons. Perhaps it's just the feeling that they are being treated "differently" than, say, a Mexican national.
Of course, there are additional costs involved in having a fideicomiso as well. You have to register with the Foreign Affairs Department, which is about $1000 USD and then there's that pesky annual fee, which is usually around $500 bucks. We're in an economy where every penny counts and if you didn't have to pay those fees, then that's an extra month's groceries or perhaps an airline ticket to visit your home away from home.
However, if the system is eliminated for some, they will still be required to file with the Foreign Affairs Department and incur some fees anyway. Also, in the event that you had to proceed through probate, you would incur attorney's fees, which certainly could add up to more than what the annual cost of the trust had been over many years. So it's really debatable as to how beneficial not having the trust would be for many.
One of the biggest arguments being presented is that there would be a major influx of foreigners buying in Mexico if the restriction of the fideicomiso were lifted. I may stand alone on this issue, but I don't see that as a restriction for clients buying. I have never had a client not want to purchase property here because of the fideicomiso. When they understand it and its protections for the client, they're ultimately very pleased to be working with the system.
However, there are some that feel that markets throughout the Restricted Zones will see massive increases in purchasing, as much as 25% more property purchased by the foreign community. While I would welcome additional buyers into our community, I don't think this is realistic and is more a promotion for the elimination or curbing of the fideicomiso system.
Whether the system is eliminated or modified is yet to be seen. But if this measure is defeated, I don't see this as any major setback. And if it passes, while some will revel that they no longer have to pay the annual fees, others will continue using the system and enjoying the security and benefits that exist with the use of the fideicomiso/trust system.Since 1997, Wayne Franklin and his team at Tropicasa Realty have been a trusted name in Puerto Vallarta real estate. Tropicasa Realty is the region's representative for "The Leading Agents of the World" and with over 100 years of combined experience in real estate, all agents of the company are affiliated with AMPI. Wayne Franklin or any member of his knowledgeable team can be contacted in-person at their Romantic Zone Office - Pulpito 145-A at Olas Altas or in their San Marino Office - San Marino Hotel at Rodolfo Gomez 111-4. While in PV they can be reached at (322) 222-6505 or by calling 866-978-5539 (Toll-Free) from the U.S.
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