Escrow vs. Fideicomiso: Understanding the Key Differences When Buying Property in Mexico

Buying property in Mexico as a foreigner comes with legal and financial considerations that differ from those in the U.S. and Canada. Two important terms that often come up in real estate transactions are Escrow and Fideicomiso. While both offer security, they serve very different purposes. Understanding their differences is crucial for ensuring a smooth and legally compliant property purchase in Mexico.

What is Escrow?

Escrow is a third-party financial arrangement where funds are held securely until all conditions of a real estate transaction are met. It protects both the buyer and the seller by ensuring that no money changes hands until the contractual obligations are fulfilled.

How Escrow Works in Mexico

The buyer deposits funds into an escrow account managed by a neutral third-party company.
The seller meets the contract conditions, such as providing clear title, legal documents, and property inspections.
Once all terms are fulfilled, the escrow company releases the funds to the seller, completing the transaction.

Benefits of Using Escrow in Mexico

Reduces risk of fraud by ensuring funds are only released after legal obligations are met.
Provides transparency for both parties.
Recommended for foreign buyers, as it adds an extra layer of financial security.

Is Escrow Required in Mexico?

No, escrow is not legally required in Mexican real estate transactions. Many transactions proceed without it, especially those handled by local buyers and sellers. However, it is highly recommended for foreign buyers to protect their funds during the purchase process.

What is a Fideicomiso?

A Fideicomiso is a bank trust required by Mexican law for foreigners buying property in the restricted zone (within 50 km of the coastline or 100 km of the border). Since Mexican law prohibits direct foreign ownership in these areas, a Fideicomiso allows non-Mexican buyers to legally acquire property while maintaining full ownership rights.

How a Fideicomiso Works

A Mexican bank acts as a trustee and legally holds the property title.
The buyer (beneficiary) retains full ownership rights, meaning they can sell, lease, or pass the property to heirs.
The trust lasts 50 years and can be renewed indefinitely.

Benefits of a Fideicomiso

Allows foreigners to own property legally in Mexico’s restricted zones.
Provides full control to the buyer (beneficiary), with the bank acting only as a trustee.
Can be inherited or transferred without complications.

Is a Fideicomiso Required?

Yes, for foreign buyers purchasing property in restricted zones. If the property is outside these areas, a foreigner can buy directly without a Fideicomiso.

Key Differences Between Escrow and Fideicomiso

Feature	Escrow	Fideicomiso
Purpose	Secures transaction funds	Grants legal ownership to foreigners in restricted zones
Legally Required?	No	Yes, in restricted zones
Who Holds It?	A third-party escrow company	A Mexican bank (trustee)
Who Controls It?	Buyer and seller, based on contract	Buyer (beneficiary) has full control; bank is only a trustee
Duration	Temporary (until closing)	50 years, renewable
Costs	0.5% - 1.5% of purchase price	Annual trust fees ($500-$700 USD/year)
Risk Protection	Ensures contract conditions are met before funds are released	Ensures legal ownership for foreign buyers

Do You Need Both Escrow and a Fideicomiso?

If you are a foreigner buying in a restricted zone, you must use a Fideicomiso.
Using Escrow is optional but highly recommended, as it adds a financial safeguard to the purchase process.

Final Thoughts

Both Escrow and Fideicomiso serve different purposes in Mexico’s real estate market. Escrow protects funds during a transaction, while a Fideicomiso ensures legal property ownership for foreigners in restricted zones. For the safest investment, working with a reputable escrow service and an experienced real estate attorney is highly advised.

If you're considering buying property in Mexico and need guidance, feel free to reach out for expert recommendations!