MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no restrictions on granting securities over real estate to foreign lenders, or on repayments to foreign lenders under loan or security agreements. However, taxes may be withheld from the interest paid, which in some cases depends on whether it is a foreign bank, as well as on the tax residence of the lender and whether there is a double taxation treaty with the lender’s country of residence. The acquisition of real estate by foreign lenders as a result of a mortgage foreclosure could be subject to restrictions based on its location and use. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security The granting of security over real estate does not trig - ger taxes. However, notary public fees and registration fees should be paid to the RPP, and in certain loca - tions, such as Cancun and Los Cabos, the payment of a transfer tax ( impuesto sobre adquisición de bienes inmuebles – ISABI) is mandatory. Notary public fees and registration fees usually vary from state to state, depending on the amount secured. Enforcing a real estate security results in the same taxes as acquiring the property (see 2.10 Taxes Applicable to a Trans- action ). It is important to consider that in some cases, depend - ing on the lender, where there is a foreclosure proce - dure, particularly when collateral is owned by a private individual, the lender may end up having to pay the borrower’s taxes (income tax and/or VAT on construc - tions) arising from the transfer of the property as part of the foreclosure procedure. The notary public is responsible for withholding these taxes. 3.5 Legal Requirements Before an Entity Can Give Valid Security There are no special legal rules or requirements the entity must comply with to grant a valid security, other than complying with the regulations included in its by- laws, to avoid ultra vires acts. 3.6 Formalities When a Borrower Is in Default In typical real estate transactions, collateral is struc - tured through mortgages or security trusts. If a bor -
rower defaults, the lender must initiate a foreclosure legal procedure in the case of a mortgage. For secu - rities granted through trusts, the process follows the rules set forth in the relevant trust agreement, with the trustee usually acting as the executor. When other creditors of the borrower have security interests in the same asset, priority is generally estab - lished in the document through which the security was granted. In such cases, the judge will order the noti - fication of other creditors about the existence of the lawsuit or procedure, allowing them to participate in the process. In general, under Mexican law, in situations where the borrower has other creditors, the mortgagee or trus - tee has priority over other creditors when it comes to collecting from the secured asset. The successful enforcement of a real property security depends on the security and the borrower trail activity, but in gen - eral it takes well in excess of one year. 3.7 Subordinating Existing Debt to Newly Created Debt It is possible for existing secured debt to become sub - ordinated to newly created debt by agreement of the parties involved. There are certain legal obligations that have preference in relation to pending debt or securities, such as tax and labour credits, under cer - tain circumstances and with limitations. 3.8 Lenders’ Liability Under Environmental Laws A lender holding or enforcing a real estate security is not liable under environmental laws for any pollution of the real estate if it did not cause it. In terms of the Federal Environmental Liability Law, the individual or legal entity that, through its action or omission, direct - ly or indirectly damages the environment is liable and must repair the damage – or, where repair is not pos - sible, shall be liable for environmental compensation. However, new owners of real property as a result of a foreclosure procedure or direct acquisition are always responsible for clean-up and contamination existing on the real property.
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