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What is going on with HSBC Trust Department?
#1
BY RAUL LEON

If you are planning to sell or buy any property which is held in an HSBC bank trust (Fideicomiso), either as owner, broker or closer, this article is tailor made for you.

Everyone in the industry knows that HSBC trust department is worse than ever; that transactions involving property held in trust by HSBC move very, very slowly, if they actually move at all, and that every day new requirements, forms, policies and process changes are asked for. Very often their employees who were once assigned to your file can no longer be found. It is also hard to obtain any response, either by e mail or by phone (although I must say this is improving a little bit lately). So facing any type of transaction with HSBC has become a nightmare. But why?

What is going on? HSBC worldwide is not in the trust business, per se, but when they acquired Bital, a Mexican bank, who held the second largest number of trust holders and was the most widespread bank, (and a bank with more branches nationwide than any other bank), in Mexico at the time, they also inherited Bital’s Trust Department. HSBC immediately wanted to get rid of the trust department. The bank’s headquarters do not comprehend this business nor its ramifications, nor did they care to understand. Things only got worse when government money laundering regulations and policies (that every day get more and more restrictive to all banks), came into play. With the lack of appropriate controls, the bad integration of files, and the increase in money laundering policies, HSBC made a decision to close their entire trust department. With this, trusts were about to suffer the worst part of this process: Delays, inordinate requirements, and general confusion.

The main offices of HSBC in England sent an executive from Scotland, with the idea of bringing the the trust department under control and eventually to close it. Unfortunately, the decisions that have been made until now have deeply affected their costumers, as they have made very radical changes in policies and procedures, and have transferred the burden of the correct integration of the files to the customers, when in truth this is an obligation of the bank, and for which they are being paid the annual bank trust fee by the property owner.

There is also another factor playing in this situation, which is the lack of compliance of the trust department with the FATCA regulation of USA. (Foreign Account Tax Compliance Act, a new piece of legislation to help counter tax evasion in the US.)  This has led to problems with US authorities, and also problems with the Mexican banking authorities, who had found the lack of the necessary documents in their files.

The first step to get in compliance was given without any prior notice to their customers, which was to close all branches which previously provided services to the fideicomiso trusts nationwide. This actually occurred overnight. In doing so, all transactions are now concentrated in Mexico City, in the hands of very few, who have phone numbers that no one ever answers, and email addresses that no one ever responds to. Customers no longer were able to do anything, not even pay their annual trust fees. This led to several customer complaints, complaints filed by the AMPI main office, by some local attorneys, notaries and developers, none of which provoked any response from HSBC. The crisis became worse.

The lack of a sensible response to customers, and all the claims mixed with the constant change of employees within the trust department, finally became so bad employees of HSBC started to do a slowdown. Finally something was done, and now things are moving, but very, very slowly. HSBC designated a local law firm as their receiving office, with no authority to make any decision. This law firm does try to help a lot and are pushing to make HSBC more sensitive and flexible. This law firm is Bufete Troncoso with Javier Troncoso, to whom I truly thank for his involvement. Follow up is finally something possible as phone calls to Mexico City and emails are finally being answered, not in a very timely manner, but at least an answer can be provided.

HSBC still puts all the burden of the file integration on the shoulders of the customer, so for any transaction, the customer has to provide them all the history and documents, as if HSBC had no file at all. They request everything, from the original trust to all ID´s or parties involved even when such parties no longer participate on the trust. They require letters of instructions to be notarized and signatures must be exactly the same as in the passports on all the forms that need to be signed, (not similar, exactly the same), and utility bills must be no older than 3 months. Since all transactions at HSBC take a lot longer than 3 months, all of the historical parties must be prepared to send new utility bills several times.

The list of requests they make goes on and on. It seems that to every solution they have a problem, but that is the reality and it does not look like it will improve in the near future. So let me provide you some counseling on this:

a) If you are planning to sell or buy any property held in trust (Fideicomiso) by HSBC, either as owner, broker or closer, don’t try to make a transfer of right, this means, don´t transfer the rights of an existing trust, this would be very slow and a nightmare as they have to verify the identity of the new customer and that takes forever. Do not try to instruct to cancel the existing trust and create a new one as they will also have to verify the identity of the new client who acquires the property, just request as trustee substitution and transfer the trust to another bank, there, you can do whatever you want.

For trustee substitutions HSBC requests all the legal documentation of the new trustee, ignoring that, according to the applicable money laundering regulations, Mexican banks, having already been registered with the financial authorities, have a “simplify regime”, which means they should only have to provide the powers of attorney of their legal representative and its ID. But with HSBC, without any legal basis at all, they request everything as if no “simplify regime” applies. But still this is easier than any other process.

b) If it is a master trust that has the property, then chances are it is “frozen” which means nothing will move. Not all master trusts are frozen but many are and those cases are very, very hard to obtain any response from HSBC, at all. A claim to the banking customer protection agency (CONDUSEF) may be a path, but litigation may be the only solution for such cases unless the developer gets involved and goes to Mexico City to try to sort this out directly.

c) If you are under a current transaction, make sure everyone knows that there is no estimate time for closing, that things will happen very slowly and that people will be asked to send more and more documents, sign new forms, send utility bills, and fulfill other requirements that may change at any time without notice. All parties involved must be very patient and acknowledge the problem as there is no agent, attorney, notary or broker that can do much about this problems in HSBC.

Now, if you are an owner who have your property under an HSBC trust, and are planning to sell in the near future, maybe you should consider the possibility of requesting a trust bank substitution now. (Find another bank to hold your trust). It will be expensive as you will have to pay notary fees, public registry recording fees, HSBC cancellation fee, new trustee incorporation fee and first annual fee in advance. There will also be a no lien fee, no debt certificate fee, and legal fees but this will be the only way to make sure your sale goes smoothly and in a predicable way. Many real estate sales have slipped away because HSBC can’t get their act together.

Some buyers won’t even consider your property. Many Realtors are refusing to list a property with a fideicomiso held by HSBC. They don’t want to work hard to put a deal together and then watch in horror as HSBC kills it with their delays.

By Raúl León. Attorney At Law.
Más vale pocos pelos, pero bien peinados.
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