WHAT IS A BANK TRUST ACCOUNT?
Most banks offer trust accounts as an optional service. In a trust account, a trustee controls funds for the benefit of another party – an individual or a group. The bank trust account is a useful way to convey and control assets on behalf of a third-party owner. One such trust, a Totten trust, allows a trustee to control the assets of an estate, while a real estate trust holds funds for payment of costs associated with a property.
Another kind of bank trust account handles money for the benefit of a property owner. Funds are placed in the account for the payment of real estate taxes, property insurance and other liabilities, and paid to the appropriate agency when the bills become due. In this manner, a monthly mortgage payment can include payment for other costs and the pro-rated funds placed into the trust account when the homeowner’s payment is received.
BANK TRUST = FIDEICOMISO
A FIDEICOMISO is the most common option chosen by the foreigners who attempt to buy property in the area. A Fedeicomiso is unique because it doesn’t have an exact equivalent in United States or Canada, so an exact translation is impossible. The closest we can get would be a “real estate trust”.
A Fideicomiso de Zona Restringida (Real Estate Trust of a Restricted Zone) is a legal document with which a Mexican bank will, for lack of a better word, lend you their name so you can use and manage the property. Technically the property will be under the bank’s name (as shown in the catastral cedulas of houses that are under Fideicomisos) but in the course of the 32-40 pages that the Fideicomiso deed contains, it explains how, by paying a yearly fee of around $700 USD (depending of the banking institution) the bank will be responsible for the ownership of the land, but that’s about it.
The use, administration, maintenance, civil responsibility, rental income, mortgage loans, and income from its sale, belongs exclusively to the trustee. The trust institution makes very clear that they have no responsibility to the property and trustees can do pretty much whatever they want with it.
There are many benefits to a Fideicomiso. One of them is that it works like a will. In the deed, you designate beneficiaries who inherit the trust upon your death by presenting a death certificate and a simple letter.
Another benefit is that nobody can put a lien of your lot, simply because it is not in your name, so your legal/economic issues won’t affect the property. But that the biggest advantage is that, if the property qualifies and the trustee gets resident status, at the time of sale, the seller (trustee) can exempt 100% of the ISR tax (capital gains) up to a selling price of $3,800,000 MXN.
The downside of forming a Fideicomiso would be the price. The initial bank fees (that include the permit, one yearly fee in advanced and expenses) are between $2,000 and $2,500 USD, which you pay on top of all the closing costs (acquisition property tax, rights, certificates, notary and attorney fees, etc.).
Also, a bank takes around three weeks to issue the permit, but this is from the moment the permit is paid and all the proper documents and forms have been submitted. To get those documents and fill out those forms takes usually a good two or more weeks, so the closing time frame of a Fideicomiso is usually two to three months, approx.