Foreigners are forbidden direct ownership in the ‘restricted zone’ which consists of any land within 50 kilometers of the ocean or 100 kilometers of the international borders. Obviously Los Cabos is within the restricted zone. However, the constitution provides for foreign ownership in the restricted zone as long as the foreigner holds the property in a special trust with a Mexican bank called a Fideicomiso (pronounced fee-DAY-koh-me-so). This trust is very similar to a land trust in the US or a living trust but with one critical difference. This trust is set up by permission of Congress to grant the foreigner all the rights, privileges and benefits of a Mexican citizen as pertain to owning the piece of property in question. But in return the foreigner pledges to consider themselves Mexican on any matters regarding the property and specifically promises not to ask their native country to interfere with Mexico’s internal affairs. Your home cannot be confiscated (unless you’re using it as a crack house, but they’d do that to a Mexican). You cannot be singled out for any special treatment: you are Mexican under the law. But you absolutely cannot ask your home country to intervene if you have a problem or complaint about something going on in Mexico. And while you own the trust you cannot sue anyone in another country for matters relating to the property in Mexico.
Now two very important points about the Fideicomiso:
The constitution assures that you will be equal in the eyes of the law. Equal, not above. Many Americans and Canadians take the attitude of ‘what can they do to me’? They can do anything they’d do to a Mexican. I mentioned using your property for drug trafficking but more likely the foreigner is breaking the law by evading taxes. If you are renting out your place you need to pay taxes on your income. Historically SAT (our version of the IRS or CRA) has looked the other way but as usual a few bad apples have spoiled it for everyone. Some folks are making vacation rental a commercial enterprise and reaping millions. SAT has already been calling on homeowner’s associations and I believe it’s only a matter of time before they take action.
Several years ago Congress briefly considered amending the constitution to allow direct foreign ownership in the restricted zone; the bill did not pass the Senate. While the amendment was still a possibility most real estate attorneys were recommending that, even if it passed, the best course of action was to continue using the trust system. The trust has the benefit of passing to your heirs without the need for probate. Without it the homeowner would need a Mexican will which would have to go through probate or worse, have a foreign will validated in Mexican court. Both options are costly and take forever. For estate planning purposes the Fideicomiso is the better choice.
When you decide to sell your property here in Los Cabos the buyer, if a foreigner, may elect to have you extinguish your trust and put the property into a new trust with a fifty year term, or they may choose to assume the present trust. In the latter case you, the buyer, and the bank will celebrate an Assignment of Rights contract. In addition to the costs to create a new trust, there is an annual fee due to the bank holding the trust. Your real estate professional can provide a detailed estimate of the cost to create the trust, other fees involved with property acquisition, and the subsequent recurring costs. It is wise to have that conversation as early as possible. Using a trust to hold title to your Cabo property is safe and has been tested over time for reliability. Yes, there are costs involved. But a wise buyer simply adds them to the budget. It only makes sense to do things the right way and thereby insure that your investment is a safe one.
Carol Billups is Broker/Owner of Cabo Realty Pros. She has enjoyed working with both buyers and sellers for over fifteen years and still thinks hers is the best job on earth. You can read more of her articles on the website blog www.caborealtypros.com. You can reach her from the U.S. or Canada at 1-760-481-7694, or in Cabo at 044-624-147-7541 or at firstname.lastname@example.org. © 2016 Carol S. Billups, reprinted by permission of the author