Can Americans Own Real Estate In Puerto Vallarta. This article discusses the characteristics of a fideicomiso trust used to own property in Puerto Vallarta Mexico: Legal ownership of Puerto Vallarta real estate in Mexico for foreigners comes from the Foreign Investment Law which was approved by President Luis Echeverria in 1971 and became law in 1973. This law exists because notaries and other businessmen in Mexico recognized the huge asset Mexico has of its coastline. These leaders realized there was an opportunity to attract foreign investment. To have funds for economic development in the 70s was of paramount importance, and US dollars were highly desired.  How to make this asset available to foreigners and not violate the Mexican constitution was the dilemma.  The key became the fideicomiso or trust.

The 1917 Mexican Constitution banned foreign ownership of any land within the “Restricted Zone” which is within 64 miles of international borders and 32 miles of any coastline.

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. Chapala and Guadalajara are locations where a number of foreigners own with a simple escritura or deed.  Land inside the RZ would be within a fideicomiso trust.

The investment trust program was very successful, and in 1989, the Mexican government signed into law the ability for the foreigner 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.

The trust is privately held in a Mexican bank authorized to act as a trustee. The trusts are not assets on the books of the bank, nor are banks allowed to take any action without written instruction from the beneficiary of the trust. The bank holds title to the real estate in trust, and the foreigner is designated as the holder of the beneficial rights of the trust, which includes the right to sell, improve, and will to heirs, or exercise any legal right under law.

As beneficiary, the foreigner has the equitable interest in the property through whatever market variations may occur. In other words, any equity or the loss of equity accrues to the holder of the trust, not the bank.

When the actual sale takes place at the office of a notary, the foreign owner may assign his beneficial interest in the trust to the new buyer (for a Mexican National, he endorses the title in favor of the buyer). The new owner may wish to establish a new bank trust where he is named the primary beneficiary. In this case, he will issue instructions to the notary for this purpose.

Closing costs for the buyer are normally: acquisition tax, city appraisal, foreign permits, bank trust set-up and first year administration fee, notary costs, title insurance or survey, if requested.

Closing costs for the seller include payment of capital gains tax, trust cancellation if applicable, and real estate fees. Capital gains tax is computed using the declared value of the purchase price in the seller’s deed and the tax value, which form a basis to index appreciation or depreciation, and deduct allowable receipts to arrive at an amount of tax.  Each individual case will be different and proper analysis by a qualified professional is necessary. This computation is usually done by the notary closing the sale. Mexico created a way to release pent-up equity from its valuable shoreline.

 

                                                        Author and article courtesy of Harriet Murray, Founder of Cochran Real Estate in 1997. Harriet Murray Born in Louisiana, Harriet Murray had an early love of art and studied art education in college. Upon graduation, she went on to become an art teacher in New Orleans public schools. She later moved to TX and taught art there; as well as science, speech arts, and other subjects like most young teachers do. She is the current President of the Puerto Vallarta chapter of AMPI (after serving as Vice President under different Presidents for 15 years); and is AMPI certified in both the US and Canada, as well as a member of the NAR.  She is a proud Certified International Property (CIP) specialist – an achievement only attainable after intense training in real estate in markets all over the world. This article is based upon legal opinions, current practices, reporting from FBS MLS of AMPI members, and personal real estate experience in Puerto Vallarta since 1997. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review. Contact Harriet at email: harriet@casasandvillas.com.