Buying in the restricted zone: bank trust or Mexican company?

Every property in Cancún, Playa del Carmen, Tulum and the rest of the Riviera Maya sits inside Mexico's "restricted zone." That sounds alarming, but foreigners buy there legally every day. What matters is choosing the right structure and checking the property before money changes hands.

What the restricted zone is

Article 27 of the Mexican Constitution prohibits foreigners from directly owning land within 100 kilometers of the borders and 50 kilometers of the coasts. The Foreign Investment Law then provides two legal routes for foreigners to acquire property inside that zone: a bank trust for residential use, and a Mexican company for non-residential use.

Option 1: the bank trust (fideicomiso)

In a fideicomiso, a Mexican bank acts as trustee and holds title to the property. You are the beneficiary, and you keep the practical rights of an owner: you can live in the property, rent it out, improve it, sell it, or pass it on.

• Permit. The trust requires a permit from the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores).
• Term. The trust can last up to 50 years and can be renewed.
• Succession. You can name substitute beneficiaries in the trust, which can simplify what happens to the property after your death.
• Cost. The bank charges a setup fee and an annual trustee fee. Ask for both in writing before you choose a bank.
• Selling. You can sell by assigning your beneficiary rights or by instructing the bank to transfer title to the buyer.

For most people buying a home, a condo or a vacation rental for personal use, the bank trust is the standard and simplest structure.

Option 2: a Mexican company

A Mexican company, even one owned entirely by foreigners, can own property in the restricted zone directly when the property is used for non-residential purposes, such as a hotel, an office or a commercial development. The acquisition must be registered with the Ministry of Foreign Affairs.

The trade-off is ongoing obligations: the company needs a tax ID, accounting, monthly and annual tax filings and corporate records. That makes sense for an investor running a business, and rarely for someone buying a second home.

Who the notary works for

In Mexico, the deed is signed before a notario público, a lawyer appointed by the state to formalize transactions, verify certain legal requirements and calculate and withhold some taxes. The notary is impartial. The notary does not negotiate the price or terms, review the developer's sales contract on your behalf, or pursue the seller if something goes wrong later. That is the job of your own attorney.

What to check before you pay

1. Title. Confirm at the Public Registry of Property that the seller is the registered owner.
2. Liens. Obtain a certificate of liens (certificado de libertad de gravámenes) showing no mortgages, seizures or annotations.
3. Land type. Make sure the land is private property, not ejido (communal) land that has not been converted to full private ownership.
4. Local debts. Check that property tax (predial) and water bills are paid up to date.
5. Permits. For new developments, confirm the construction license, land-use permit and environmental authorization.
6. The contract. Pre-construction sales usually start with a promissory agreement (contrato de promesa). It should state a delivery date, a penalty for late delivery, how and when your money is protected, and what happens if either side backs out.

Closing costs

Expect to pay a real estate acquisition tax set by the municipality, notary fees, registration fees, appraisal costs and, if you use a trust, the bank's setup fee and the permit. These vary by property and municipality, so ask your attorney and the notary for a written estimate before you commit.

This guide is general information about Mexican law, current as of its publication date. It is not legal advice for your situation, and reading it does not create an attorney-client relationship.