By: Luis Gerardo Ramírez Villela
The mortgage is regulated in the local civil codes of each of the States of Mexico, the applicability of each code depending on the location of the real estate property subject of the mortgage. Most of the Civil Codes of each State have substantially similar provisions as those contained in the Federal Civil Code (the “Civil Code”).
Mortgages may be created either by a unilateral act of the borrower or by an agreement entered into by and between the borrower and the creditor. In the event of default of the borrower under the secured obligations, the creditor may enforce the security by means of the corresponding judicial proceedings, requesting a competent court to seize and sell the assets subject matter of the mortgage by public auction and to pay the proceeds thereof to the creditor in settlement of its debt.
In order for the mortgage to be valid vis a vis third parties, it needs to be registered in the Public Registry of Property (Registro Público de la Propiedad) where the property is located. The lien of a duly recorded mortgage takes priority over all other liens on the mortgaged property, with the exception of liens perfected prior in time. Unregistered mortgages, having no legal status as such, are merely private contracts between the parties thereto and do not rank at all with registered mortgages nor inter se.
The mortgage shall also extend to (i) natural accessions of the mortgaged property; (ii) any improvements and fixtures made by the owner to the mortgaged property; (iii) movable goods permanently attached to the mortgaged property by the owner which cannot be separated therefrom without causing damage to such property; and (iv) new buildings constructed by the owner on the mortgaged land and additions to the mortgaged buildings. Except as may be agreed by the parties, mortgages will not include (a) industrial products of the mortgaged assets, and (b) rents due and unpaid at the time that demand for payment of the obligation secured by the mortgage is made.
In the event of default under the secured obligations the creditor has the right to foreclose and enforce the sale of the mortgaged property, through public auction, by initiating a specific judicial proceeding (juicio especial hipotecario).
Once the sale of the mortgaged assets takes place, the creditor has the right to receive the proceeds of such sale. Furthermore, upon the sale of assets, the creditor has the right to participate in the bid, in the relevant public auction to acquire ownership of such assets. In any event, the courts have considered that extrajudicial enforcement of the mortgaged property directly by the creditor is against general principles of equity and justice.
Despite the mortgage over real estate property being traditionally the most frequent form of in rem security interests, mortgages on other "real property rights" such as rights of way, the rights of usufruct (usage) and even other mortgages are permitted under Mexican law. Likewise, mortgages could include as collateral any type of industrial facilities in connection with, or derived from, the real estate property (hipoteca industrial).
