What is a fideocosmico and why you may need one? If you don’t have the Mexican nationality but want to buy a house to live or to invest in Mexico, you need to know what a fideocosmico is, why is it mandatory to have one to buy a property in the “restricted zone” of Mexico (we will explain you what it means later) and obviously what are costs that come with it.
WHAT IS A FIDEOCOSMICO
To put it simply, the fideocosmico is a bank trust. There are three party involved in the bank trust:
- The bank
- The seller
- The buyer
The buyer, which becomes the owner of the bank trust, has all the rights about the property. Which means that he can rent it, sell it, or modify it.
The bank is the trustee, who is working for the buyer. The bank holds the title but has no right to make any decision about the property.
The seller is the Mexican Government.
You also need to know that the Bank Trusts are active for 50 years and are renewable after that. Do not be confused, this is NOT a “lease”. A small annual fee must be paid annually to the bank holding the trust. Finally, the buyer designates a substitute beneficiary, who becomes the beneficiary in the case of death (this makes inheritance much easier
WHAT IS THE RESTRICTED ZONE
The restricted zone is defined in the Mexican constitution by the following limits:
- Within 50 kilometers (33 miles) from all the Mexican coastline
- 100 kilometers from any borders of the Mexican territory
WHAT ARE THE COSTS
The initial cost to establish a bank trust is approximately $2000-$2500* USD and this fee is part of your closing costs. Your real estate attorney works with the bank to set up the trust prior to closing. There is a yearly fee of $500-$700* USD that is paid to the bank.
Now, a little history on the origin of the fideicomiso. Legal ownership of real estate in Mexico for foreigners comes from the Foreign Investment Law that was approved by President Luis Echeverria in 1971. It became law in 1973.
The Foreign Investment Law of 1973 allowed a different treatment of real estate within and outside the Restricted Zone. Foreigners can own land outside the RZ without the need of a trust.
The investment trust program was very successful, and in 1989, the Mexican government signed into law the ability for foreigners to have successive extensions of the trust thorough a simple application process when time for expiration of the original trust period came due.
In 1994, the new Foreign Investment Law allowed a beneficiary to have a trust for 50 years, with the application for extension or renewal still intact.