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.

Inspite 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.

TheMexican 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:

1. The seller of the property, or trustor (el fideicomitente) who irrevocably transfers title to the property to the bank.
2. 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.
3. 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.