FOREIGN INVESTMENT IN REAL ESTATE

Article 27 of the Mexican constitution grants to the nation, ownership of the land and water comprising national territory and then provides for the power of the nation to transfer ownership rights of such properties to private individuals, thereby creating private property. This right is not full and absolute; rather it is subordinated to a number of laws, and it may also be limited in the public interest. Section 1 of the aforementioned article 27 grants the right to acquire dominion of land only to Mexicans and grants the state the discretionary power to allow foreigners to make such an acquisition, subject to the condition of considering themselves as Mexicans with respect to the property acquired, and not to invoke the protection of their home governments. If said covenant is breached, all rights to the property shall revert to the nation. Moreover, said section prohibits foreigners from acquiring direct ownership over land and water within the "Restricted Zone".

The "Restricted Zone" is the strip of Mexican territory 100Kms. in depth from the borders and 50 Kms. from the coast lines. In which foreigners may not acquire direct ownership of real estate. This prohibition does not exclude the possibility that foreigners may use and enjoy real estate within this zone under legal titles other than ownership, using various procedures, such as: A) A 100% foreign owned Mexican company may directly acquire property within this zone to perform non-residential activities: that is, industrial, commercial and tourism activities. B) If the real estate if for residential purposes, foreign individuals or companies, and Mexican companies with 100% foreign capital stock, may acquire rights to use and benefit from the real estate through a trust, ( Fidecomiso ).

In such fidecomiso the settler delivers to the trustee (A Mexican Bank) in an irrevocable trust with transfer of title, the real estate located in the "Restricted Zone", as consideration for an amount (price ) received from the beneficiary of the trust ( the purchaser ). The beneficiary amount (price) received from the beneficiary of the trust ( The purchaser ). The beneficiary acquires the rights to use and benefit from the real estate, including the rights to manage, operate, lease, inhabit and encumber the same, as well as the right to obtain the fruits, products and other benefits deriving from the utilization or exploitation of the real estate, through third parties or the trustee: and even transfer the rights to other acquirers, receiving the proceeds from such sale. Duration of the trust shall be for 50 years. Renewable for equal periods.

When foreigners intend to purchase real property located in Mexico, they should conduct a series of searches and inquiries to determine if the seller has good title to the property. If there are any liens or encumbrances on the property, and if claims and other possible contingencies could affect ownership at a later stage. The following is a suggested list of these searches and inquiries, including documents needed.

TITLE DEEDS: Prior history of ownership: copy of the registration folio at the Public Registry of Property: acquisition of certificate of absence of liens and of good standing from said Registry: search for property conflicts and claims ( if applicable ) ; search for the type of land and authorized usage and zoning compliance, outstanding mortgages or other encumbrances on the property or structures thereon: review of the payment of real estate taxes and water contributions: physical identifications of the boundaries and surface: existence of railroad spurs: lease agreements, (if applicable): employee claims on the property: easements and other property rights: verification for compliance of environmental regulations.

If there are structures it is important to verify the following: Construction permits and licenses: authorization for the plans drafted: health license, including Social Security payments: contracts for the construction of buildings, installations and equipment: permits and licenses for electric and gas installations and for wells, hydraulic and pumping equipment: trust deed on the property: and operation licenses, permits and approvals.

We strongly suggest that any foreigner interested in purchasing real property for any purpose in Mexico, contact competent legal advice to assist in such an acquisition.