Summary of Mexican Property Law

Before investing in real estate in Mexico, you should first understand
the legal requirements necessary to secure your rights in the property
and know how to properly carry out the transaction. Although the basic
elements of the transaction are the same as in the U.S., there are some
important differences that you should be aware of.

APPLICABLE LAWS

The legal foundation for real estate law in Mexico starts with the
Federal Constitution. Each state in Mexico has its own Civil Code which,
especially in the case of the provisions concerning real estate, is
usually exactly the same as the Civil Code for the Federal District.
Nevertheless, it is advisable to check the Civil Code of the state in
which you intend to purchase to make sure that there have not been any
changes.

It is also important to consult a Mexican attorney to make sure that any
of the state or municipal laws do not conflict with the federal
provisions. Most of these principles are reflected in the various state
legislation, but, to be sure, check with a competent Mexican real estate
attorney.

The most basic laws for real estate transactions are:

- The Mexican Constitution and international treaties
- The Foreign Investment Law and its regulations
- The Civil Code
- The General Law of National Properties
- Federal Zone Regulations
- Condominium Law
- Tax Laws: income tax law, acquisition tax law
- The General Law of Negotiable Instrument
- Commercial Code
- Public Registry
- Notary Law and Federal Law of Public Brokerage
- Agrarian Law
- Corporation Law

FOREIGNERS AND FOREIGN INVESTORS

First, it's important to consider what determines the status of being a
foreigner and what is considered foreign investment in Mexico.

Articles 30 and 33 of the Mexican Constitution specify that foreigners
are those who are not Mexican by birth or naturalization.

In the case of Mexican nationality acquired by birth, there are three
conditions, any of which, when met, would qualify an individual for
Mexican nationality:

- If you were born in Mexico, regardless of your parents' nationality;
- If you were born outside of Mexico and your mother or father is
Mexican; or,
- If you were born on a Mexican airplane or ship.

Mexican nationality by naturalization may be acquired by:

- Foreigners who obtain a letter of naturalization from the Ministry of
Foreign Relations, and,
- Foreigners who marry Mexican nationals and establish residency within
Mexico.

Article 33 also stipulates that all foreigners are protected under the
civil rights provisions of the Constitution. The President has the
power to deport any foreigner whose presence is deemed to be
"inappropriate", even though this power is rarely, if ever, used.

The Mexican Foreign Investment Law, which was published on December 27,
1993, defines "foreign investment" and "foreign investor" as:

Foreign investment:
- The participation of foreign investors, in any proportion, in the
capital stock of Mexican companies;
- That which is made by Mexican companies with a foreign capital
majority; and
- The participation of foreign investors in the activities and acts
provided for in the Foreign Investment Law.

Foreign Investor: an individual or legal person of a nationality other
than Mexican and foreign entities without juridical personality.

Let's take a look at the parts of the law that deal with real estate
investments by foreigners.

The Mexican government has put foreign investment in tourism and real
estate development high on its list of priorities. The tendency of the
Mexican government has been moving from one of tight restrictions
throughout the seventies and part of the eighties, to a position of
encouraging foreign investment in all areas of Mexico. The government
has been willing to show that it means business with its new "open-door"
policy for foreign investment by making important changes in the foreign
investment laws. Whether the investment is a "maquiladora", a tourist
development involving the construction of hotels or condominiums, or
simply the construction of summer homes by foreigners, the Mexican
government has been sending out the message loud and clear: Mexico is
open to foreign investment.

In spite of the advances and positive changes made in the Mexican
foreign investment law, there are still some aspects of the law dealing
with real estate acquired by foreigners that may seem overly
restrictive, especially when compared to similar situations in the
United States.

THE RESTRICTED ZONE AND "FIDEICOMISOS"

In an attempt to avoid some of the problems Mexico had to deal with in
the past with regard to its territorial rights, the 1917 Mexican
Constitution enacted restrictions on property ownership by foreigners.
Basically the law declared 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 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.

In summary, the following parties are involved in a real estate trust:
- The seller of the property, or trustor (el fideicomitente) who
irrevocably transfers title to the property to the bank.
- The bank, who acts as trustee (el fiduciario) and holds title to the
property and is obligated to administer the property only for the
benefit of the buyer or beneficiary.
- The buyer, or beneficiary (el fideicomisario) who is entitled to use,
enjoy, lease, or sell the property held in the real estate trust without
limitation whatsoever.
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- excerpted from "How to buy real estate in Mexico"
(c) 1994 by Dennis Peyton