1002 / What is a restricted zone purchase for purposes of real property transactions taking place in Mexico?
Mexican law prohibits the direct ownership of real estate within what is designated as the “restricted zone,” which is defined to include “all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline.”
In order for a U.S. individual to acquire property within the restricted zone, the buyer must first form a “fideicomiso”1 with the buyer’s bank serving as the title owner of the real estate, and as the trustee to the trust, with the U.S. buyer being the trust beneficiary.2 This structure allows the U.S. buyer to enjoy complete and unrestricted use of the real estate.
Essentially, the seller of the property sells the parcel to the bank as the trustee of the fideicomiso. The bank has a fiduciary obligation to follow instructions provided by the U.S. trust beneficiary, who will retain all ownership rights, while the bank retains title. Under this arrangement, the U.S. person can sell the property that is held in trust at its market value to any ready, willing and able buyer. In addition, the buyer can instruct the bank to lease the property to any person at terms favorable to the beneficiary.
1 In essence, a Mexican trust that will hold real estate.