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 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", which can be roughly translated as a real estate trust.
Essentially, this type of trust is similar to trusts set up in the
United States, but in this case 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.
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. Since foreign buyers do not have the
capacity to enter into a normal real estate sales contract, due to
Constitutional restrictions, the bank acts on their behalf.
The bank, as trustee, buys the property for the foreigner, and has a
fiduciary obligation to follow instructions given by the beneficiary.
The beneficiary of the trust retains and enjoys all the rights of
ownership while the bank holds title to the property. The foreigner is
the beneficiary of the trust and is entitled to use, enjoy and, if he or
she should decide to, even sell the property held in trust at its market
value to any eligible buyer.
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