Presta Nombres versus Fideicomiso Trusts and Mexican Corporations

Since 1973 foreigners had been able to buy land in Mexico in a straightforward escritura (deed), if the property is in the interior, away from the shoreline, water ways or national border.

Giving foreigners the right to acquire land in the interior did not stop many foreigners from wanting the coastline. Somehow the technique of using the “presta nombre” (borrowed name) was introduced as a way to acquire use of land inside the restricted coastline area.

In 1994, foreigners were finally able to legally acquire the use of coastal land through the fideicomiso trust.  This legal structure made the use of a “presta nombre” a fraudulent and criminal act punishable under Mexican law.

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Instead of the using another’s name or “presta nombre”, the foreigner could acquire the rights to buy, sell, remodel, and bequeath the land through a bank trust, renewable. Millions of US dollars were invested in the nation of Mexico for the coastal property and the trust.  The government, including two presidents of Mexico, Echevierra and Salinas, solved the problem of how to allow foreign interest in the restricted zone by using the best legal and business advice possible to create the fideicomiso bank trust.

This trust is separate from the bank assets. If a bank becomes insolvent or dissolves its trust department, these trusts are moved to another trust department in another bank.  If the primary beneficiaries, die and no heirs come to claim the property or the heirs forget to pay the yearly trust fee, the bank, after a period of time, can go through procedures and sell the property. The proceeds must be kept in a bank account accruing interest and efforts must continue to find the beneficiaries.

Why did the Mexican government created fideicomiso trusts?  The Mexican Constitution forbids foreigners owning within the restricted zone around its shoreline. Investment in Mexico by foreigner could occur with the trust mechanism. “Presta nombres” would not be legal.

The two ways to acquire property legally in the restricted zone are through the fideicomiso trust or a Mexican corporation.  A Mexican corporation does not require nationals to be principals in the corporation unless it owns a large amount of rural land. The key point is that the corporation is Mexican and the partners or share holders must abide by the laws of Mexico. The foreigners must receive a permit to create a corporation and be approved for certain types of commerce.

There is still a great desire on the part of foreigners to have land in Mexico.  Ejido or communal land is not private, and not able to be put into a trust or Mexican corporation. The Mexican government in recent years has allowed the community itself to go through a process to privatize their land.  When ejidos* do become privatized, the land goes into the name of a national.

What does a foreigner do if they want to acquire ejido land which cannot be sold? They try to control the process by getting some guarantee that if they pay for the lengthy procedures to privatize the land, they will end up the owner. They don’t realize (or they ignore) the risk and cost involved. The cost to go through the privatization process is not usually paid by the ejido or communal owners, but the foreigner wishing to get in early for a “fraction” of the price of what the land will be worth when it becomes private.  So who does the foreigner work with to coordinate this effort?  Using a “presta nombre” since 1994 is illegal and punishable by law.

Armando Ramos, an expert in land sales, states “Ejido Land legally can’t be sold. It can be pass through the rights of possession, “La Cesion de Derechos Ejidales,” only to people that are Ejidatarios or people that live in the Ejido area (Avecindados).“

Recently, the members and affiliates of the Vallarta, Riviera Nayarit and Compostela Chapters of the National Association of Realtors in Mexico (AMPI) sent an announcement to a local community website to warn potential real estate investors.

Ejido property cannot be bought or sold until it is converted into private property. The use of “presta nombres” is ILLEGAL. THERE IS NO SAFE OR LEGAL WAY TO PURCHASE EJIDO PROPERTY.

For this reason, the members and affiliates of these three chapters of the National Association of Realtors in Mexico (AMPI) do not promote the sale or purchase of ejido property nor the use of “presta nombres”.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas.  I recommend that each potential buyer or seller for Mexican real estate conduct his own due diligence and review.

Harriet Cochran Murray, Director of Cochran Real Estate, is a seasoned Real Estate professional both here in Puerto Vallarta, Mexico and in the United States.  Harriet has served in many capacities as a board member for the local Real Estate Association AMPI (AMPI is the national association of real estate professionals).  She is also a member of FIABCI and NAR in the United States.  Harriet’s expertise and experience in the Real Estate and especially in the Mexican market makes her Viewpoint blog articles both informational and intriguing.  Harriet is a Buyer’s Agent who specializes in getting the best deal on the right property for her clients.  Visit her  website at www.casasandvillas.com and Check out her Real Estate Listings.

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