Written by Mitch Creekmore - Stewart Title Mexico

For the purpose of the terms set forth in Article 5, Title Two of the Law, real estate used for “residential

purposes” shall mean any real estate destined “exclusively for residential use of the owner or third

parties.” The following activities, without limitation, shall be deemed real estate held for non-residential

purposes: (I) those destined for time-share use; (II) those destined for any industrial, commercial or

tourism activity that may simultaneously contain a residential component; (III) real estate acquired by

credit institutions, financial intermediaries, and auxiliary credit organizations to recover debts owed to

them and in the ordinary course of business; (IV) real estate used by entities in the course of their

business consistent with sale, development, construction, sub-division and other activities included in the

development of real estate projects, until these are sold to third parties; and (V) generally, real estate

destined for use in commercial, industrial, agricultural, cattle, fishing, forestry, or service-related

activities.

When in doubt whether real estate is deemed destined for residential purposes, the Ministry of Foreign

relations shall resolve the matter in ten business days from the date the party consults the Ministry on the

subject. If at the end of ten business days, the Ministry fails to respond, the use in question shall be

deemed for non-residential purposes. Further, Article 6 of Title Two specifies that when in doubt on

whether real property is located within or outside the restricted zone, the Ministry of Foreign Relations,

on consultation with the National Institute of Statistics, Geography and Data Processing, shall decide as

appropriate. And lastly, Article 7 of Title Two provides the notification procedure which interested parties

must give to the Ministry of Foreign Relations. That is, (I) the location and description of the real estate;

(II) a clear and accurate description of the uses to which the real estate in question is destined; and (III) an

ordinary copy, in annex, of the public instrument, known as an “escritura”, that records the formalization

of the acquisition.

When one condenses and “boils down” all of the language and definitions of law, coupled with the

resulting legal effect that must be understood, what does a foreign purchaser really glean from this

information? Simply, that Mexico’s Constitution and Foreign Investment Law are very specific regarding

foreign acquisition of real estate, and particularly in the restricted zone. Most importantly, we as foreign

Mexican corporation that can solely and exclusively be owned by one or more foreign stockholders with

no Mexican ownership participation. Make no mistake buying public. There is no gray area concerning

Mexico’s constitutional or foreign investment law. The title to houses on the beach, villas,

condominiums, townhouses or single family lots within Mexico’s restricted zone can only be in conveyed

into a fideicomiso with foreigners having renewable beneficiary interest. The assertion by some

purchasers that title to residential real estate can be vested in a Mexican corporation for foreign ownership

purposes simply is not correct. However, all other real estate, non-residential in nature, can be conveyed

to foreigners in fee simple provided the title is in a Mexican corporation whereby foreigners can have

exclusive ownership. And one final, salient point. Whether title is vested in a fideicomiso or a Mexican

corporation, in either case, all of these properties can be insured by a U.S. contract of indemnity more

commonly known as a title policy. There are a few U.S. title companies that can provide Owner’s and

Lender policies for guaranteeing ownership rights in these Mexican entities.