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Bank Trust (Fideicomiso)
 

 

BAJA PROPERTIES TITLES - DON'T GET CONFUSED:

In this article, I define the different classifications of Mexican.property "titles". An attempt to inform investors in how to differentiate properties that can legally be held by foreigners in a bank trust or foreign owned Mexican corporation as opposed to properties that cannot be purchased by foreigners without changing the property´s classification.

BANK TRUSTS- SP. FIDEICOMISO

Foreigners in Baja can enjoy all the benefits of beach property ownership via a bank trust. The trust is very similar to a living trust that most U.S. buyers understand. The trust allows the beneficiary to sell the property rights to another foreigner or Mexicano. At the time of death, trust benefits are transferred to designated heirs who can transfer hereditary rights in perpetuity. In order to assure the property title can be transferred to a foreigner, the seller must provide proof of title, registered in the public record and free of liens.

IS THERE ANY RESTRICTION ON SIZE OF LAND I'M PURCHASING?

Yes, acording to the article 14 of the foreign investment law, the Ministry of Foreign Affairs shall decide on the permits for seting up a bank trust according to the economic and social benefit of that trust to the Nation. In other words, they requiring a commitment from the beneficiary of the trust to invest certain amount of money on the property in order to give the permit for the fideicomiso. It is in our knowledge that the Ministry of Foreign Affairs established a 2,000 sq. meters limit (21,520 sq. ft) for foreigners that wants to buy land using a fideicomiso (bank trust)

PROPERTIES IN WHICH BANK TRUSTS ARE NOT PERMITTED EJIDO LANDS

Mexico's largest form of property use, called ejidos, are lands that are dedicated to farming cooperatives. I say property use, because the cooperative member has use rights only. They cannot sell these lands without permission to do so from the department of REFORMA AGRARIA.

Many ejido coastal properties, on the Pacific and the Sea of Cortez, were never suitable for farming. As a result, many of these beach property ejidos were transformed into trailer parks - ¨campos de trailer¨. Agricultural reform law specifys that ejido lands are to be used for agricultural purposes not tourist camps. But given the lack of both good soil and water, the government placed a blind eye to ejido ¨campos de trailer¨.

In 1993 the government was persuaded to allow ejidos to privatize their lands and, if they wish, sell them to foreign buyers. This has presented opportunities for the folks who have built homes (often expensive homes) to secure their investment with a bank trust. Once the ejido privatization is complete, each ejido member is issued a title for his or her respective parcel. The title can then be transferred to a foreigner in the form of a bank trust. Another option is to buy the entire campo and become a Baja developer. This can be done by establishing a 100% foreign owned Mexican corporation.

PROPERTY ¨EN POSSESION

Many Baja properties, including large and valuable beach parcels, are homestead lands. After five years of possession and occupation, the homesteader (must be a Mexican citizen) can apply for title to this land from the department of ¨Terrenos Nacionales¨ . Joint ventures are often established to gain title of property held in possession. Typically, the foreign investor pays the engineering, government and legal fees to obtain title on behalf of the possessor. Once title is obtained it is resold to the investor´s trust or corporation.

TRAILER CAMPS

When you find a development, on either Baja coast, with no roads and sewers and leasing lots to foreigners, you can bet it is classified by the county planning department as a campo de trailers. Whatever the property classification (private, ejido or possession) a lack of sufficient funds is the cause for not making the improvements required of a formal subdivision: engineering plans, surveys, permits and infrastructure.

If the property is not a legal subdivision (campos are not) you may or may not purchase a lot from the seller. Assuming title to the property is held by the seller (not possesion or ejido) he can subdivide a parcel (one parcel), and sell it without a formal subdivision specifying lots and improvements.

The county will let the title holder do property divisions a time or two, then stop any further parceling of the property. The intent is to prevent repetitive divisions of the property without providing streets, sewers, electricity and water. The rule for the buyer is to have the parcel divided, approved by the planning department and registered in the public record before releasing funds to the seller.

In the sixties many U.S. retirees and vacationers leased these properties and placed a trailer on them. After a few years, most of the lessees began making improvements. Frequent visitors to Baja have seen the resulting bad architecture: a back or front end of a trailer sticking out of an addition built around it.

In the seventies and continuing into the 1980´s, economically well heeled risk takers began building luxury homes in these campos de trailer. Risky business because you are improving your landlord´s property with no guarantee of a return from said investment. The maximum lease period in Mexico is ten years (thirty years for ejido leases if stipulated). Lease termination and eviction at lease term, with no recompense, is the risk.


THE TRAILER CAMPS IN ENSENADA

Now in the 21st century, in the county of Ensenada (In square miles largest county in Mexico) we are faced with a forty year old problem. Quality urban planning and adequate taxation requires that these campos de trailer conform to subdivision codes that protect the environment and provide legally registered lots-not trailer spaces

Contrary to Baja state law, building permits, in the early eighties, began to be issued by the planning department , for trailer camps. The rationale: at least, they could insure that building plans were in conformity to building codes. Also, a little ¨mordida¨(bribe) helped grease the irregular¨ building permit process.

The county, until the 1990´s, continued to allow ¨irregular construction¨ because they knew that the trailer camp owners (by and large) did not have the capital to transform the camp into a legal subdivision.

TIMES HAVE CHANGED

In most departments and agencies of today's Mexico, corruption is no longer the rule, rather the exception. The days of bribing every official have fortunately become bad habits of the past. BRAVO for Ensenada´s Department of Planning and Urban Development for taking pride in honest bureaucratic work. They no longer issue building permits in Campo de Trailer designated camps.

This means: greater protection for the environment, better planned growth and significantly more property tax revenue for the county. Each lot owner or renter is taxed at urban rates as opposed to rates designated for rural land, trailer camps.

For the renter who can't get a building permit, the situation becomes a serious problem. Until the property owner conforms to subdivision code requirements, no building can take place on the property. As mentioned above, parcels can be divided without a formal subdivison. The county will allow one or two of these parcel splits and then stop any more division. Thus prohibiting the property owner from side stepping the law to avoid the costs of providing water, electricity and sewage - improvements inherent in a tract of lots for homes.

Faced with trailer camp owners who cannot afford the above mentioned costs of a subdivision, county engineers are adapting the normal regulations. Water and sewer are the primary concerns. If cisterns and delivered water is the only option so be it. If septic tanks are designed to not harm the environment they can also be permitted. Lights and streets are not necessary. The intent here is to get these camps on line and in conformance to good health and environmental standards.

For the past 15 years of legal practice in Baja, I have seen literally hundreds of distraught U.S. citizens evicted from their dream homes costing hundreds of thousands of dollars to build. With a little due diligence, an escrow process and title insurance all these tragedies could have been prevented.

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