With Rights, Come Responsibilities
By: Cheryl MIller, Broker, Baja Realty and investment
Purchasing a property anywhere in the world is an exciting prospect, but along with the joy and the rights that are derived from “ownership” are also responsibilities.
In Mexico, under a fideicomsio, or in your home country, no matter if you pay cash or carry a mortgage, there are responsibilities.
A fideicomiso, commonly called a “Bank Trust” is first and foremost a registered “commercial contract”, in which the parties, including the bank and yourself promise to do something in order to keep the contract alive and functioning. In fact, it is actually called in Spanish “El Contrato de Fideicomiso Translativo de Dominio” or “The Contract of Trust for the Transition of Ownership” in English. In these “Trusts”, for the most part, the Bank promises to hold the property for your use and enjoyment and to maintain this legal standing on your behalf for the term of 50 years, in return for you doing your part which is detailed in your fideicomiso contract.
The “parts of the contract” that fall on your shoulders as the beneficiary of a fideicomiso, if ignored, are legal reasons to declare a “Breach of Contract” and cancel the trust, and in which case, you lose your investment entirely. And there is no legal recourse. Your promises in this contract are clearly spelled out and are your loss in case of your default. Frankly, despite dealing with many clients being in breach, I have yet to see this happen an actual cancelation of a trust, and I have found the banks pretty forgiving. For example, a client who inherited his father’s property upon his death. He never changed the trust into his name nor paid the trust fees for 15 years …yet the bank cooperated and allowed him to catch up, pay the arrears with penalty and interest, without losing the property and for another fee, changed the property into his name. 15 years folks! That is pretty forgiving! But, the fact remains that under your fideicomiso contract, YOU do have responsibilities. Failure to comply, can jeopardize your standing in the contract…So why push it? Who wants to be the test case for any new policies of enforcement by a bank?
As a contract, I highly suggest you spend the money to have your contract fully translated. And hold onto that translation. It is your roadmap of what is expected of you. Most Buyers in Mexico are investing a great deal of money, and without the translation, and if you don’t speak, read and write Spanish, you are relying on the fast verbal translation given to you at the closing table, which I find severely lacking. Frankly, that is not good enough to operate from. And I also suggest keeping this translation and giving a copy to your secondary beneficiaries in case of your death. As well as, discussing with your secondary beneficiaries what they need to do should you pass away with regard to your Mexican properties. It is very important.
Most fideicomisios are structured very similar, with the particulars of the parties and the property changed, the price, the noted history of the property changing for each, BUT, the banks also spell out for you what is expected of you. This may include any and all of the following:
1. Notify them in case of any change to the beneficiaries or secondary beneficiaries:
(Some of these items may require a formal change to the fideicomiso incurring costs)
Husband and wife entered into the fideicomsio, but later divorced? Name change? This requires
One of the spouse dies? Both? This requires notification.
Want to change a secondary beneficiary? This requires notification.
Want to add another primary beneficiary or secondary beneficiary? This requires notification.
Note: any of these changes may also require notification to SRE as well.
2. Moved? Contact Info changed? This requires notification.
3. The Clavo Clause: You must not seek the protection of your foreign government regarding the property and promise to consider yourself a Mexican National with respect to the laws and requirements governing the property. Should you seek outside international protection, the contract is breached and the property will be returned to the Mexican government.
4. You must notify SRE 90 days before the expiration of the term of the contract. And YOU must seek its renewal at the end of the 50 year term. The bank is NOT responsible to do this.
5. Your fideicomiso is for residential use only. Unless permitted in your existing contract, any change of use must be approved by the bank, including renting the property. If your fidiecomiso allows you to rent, you are responsible to meet all government requirements of rentals, including paying income tax to Mexico.
6. You cannot use the property as collateral for loans or commitments without permission of the bank. You cannot make a third party contract with regard to the property.
7. You are responsible for any mortgage, property tax, maintenance costs, capital gains, permits, assessments, HOA fees, legal fees or costs for purchasing and selling, etc. Not the bank.
8. If you have a Trust with a Mortgage, you must complete the terms of the mortgage contract outlined in the Guaranty Trust or lose your rights (and all money paid towards the property).
9. If you add on or build, you must have a permit and follow all laws. After the termination of the construction, you must notify the bank and have the m2 of the construction changed in your fideicomiso, as well as the new value.
10. If you make changes to the trust, or want to cancel the trust, or require signatures from the Trustee, you must pay a fee to the Trustee Bank.
11. Changes must be made with a Notario.
12. You must pay the yearly fees to the bank. In addition, there are community responsibilities, just like where you are from, that also can breach the contract, such as paying your property taxes or applying for and receiving building permits when you want to add on or build. Failure to do so, and remedial actions taken by the government with regards to the lack of proper permitting can result in the loss of your contractual rights.
So, in summary…would you enter into or have a contract for which you are not fully aware of its’ contents where you are from? Probably not. So spend a little more money and have your fideicomiso properly translated….And let your heirs know of its contents and responsibilities as well. It will save you and your loved ones a lot of surprise, expense and possible heartache.
By Cheryl T. Miller, Broker of Baja realty and Investments, 14 yr. veteran of Baja Real Estate, Architect. Contact her at 011-521-624-122-2690 or write her at infoforsaleinbaja.com