By: Luis Gerardo Ramírez Villela
Mortgage Foreclosure Procedure
Under Mexican Law, a creditor may not take possession of assets subject to the mortgage without judicial intervention. Non-judicial foreclosure of mortgaged property is generally not permissible under Mexican law.
Upon an event of default under the mortgage, the creditor may commence a proceeding before the Mexican court of competent jurisdiction. The petition must be accompanied by the “first certified copy” (primer testimonio) of the public deed that evidences the mortgage and the power of attorney in respect of any person appearing on behalf of the creditor. It should be noted that the “first certified copy” refers to the first imprint of the deed of mortgage which has been registered before the relevant Public Registry and not to the first mortgage deed as such. The court will notify the borrower of the lawsuit and will order the registration of a notice of such lawsuit in the relevant Public Registry.
As of the date in which the creditor receives service of process, such creditor will be considered as the depositary of the assets subject to the mortgage and of all its accessories, from which the creditor will have to perform an inventory and deliver it to the court. If the borrower is not willing to accept the depositary responsibility, it would have to give the possession of the subject to the mortgage to the creditor or appoint a depositary.
At the trial, the court will rule upon any defense raised by the borrower. Failure of such defense or with the consent of the borrower, the court will order an appraisal of the assets subject to the mortgage. This appraisal will be carried out by experts appointed by the parties. Once the value of the assets subject to the mortgage has been determined, the court will order its sale through a public auction as already mentioned, to pay the outstanding debt unless the borrower can otherwise pay such outstanding debt.
The creditor is entitled to attach the assets subject to the mortgage. Prior to doing this, the court will conduct an encumbrance search on the assets subject to the mortgage and will notify all other secured creditors of the sale. All secured creditors may participate in the sale proceedings and the sale proceeds will be subject to, and distributed in accordance with, the priority of the claims of registered creditors.
Pledge Foreclosure Procedure
The procedure to foreclose a pledge is specially regulated and provides a summary process to obtain authorization to sell the pledged assets from the court. This process has not been exempted from claims of inobservance of due process of law arguing that the borrower is not given the opportunity to be heard in court and oppose to the sale of the pledged assets.
The only defenses provided under Mexican law for the borrower are to oppose to the sale of the pledged assets are the payment of the amounts due or enhance the security interest by increasing the pledged assets or reducing the underlying obligation.
After the court receives the petition to sell, it shall serve process to the borrower who shall have a specific term to respond. In the event the borrower opposes to the petition, the court shall resolve or proceed to authorize the sale of the pledged assets.
The court is allowed to authorize the sale of the pledged assets even before the notification of the petition of the creditor to the borrower provided a case of urgency occurs and the court determines the corresponding liability to the creditor. The proceeds of the sale shall be kept in pledge by the creditor in substitution of the pledged assets.
It should be noted that the sale of the pledged assets does not prevent the borrower from initiating a trial with the purpose of determining the enforceability of the underlying obligations.
