Do Mechanic’s Liens Exist in Mexico?

June 1, 2012
Do Mechanic’s Liens Exist in Mexico?

In the U.S., a mechanic’s lien is a lien on land, buildings and other improvements that generally arises by statestatute and assists to secure payment to those who supply labor and/or materials for construction projects.Mechanic’s liens basically help guarantee payment to contractors and/or subcontractors for labor and/or materialsprovided for land or a building. The concept of a mechanic’s lien, as understood in the U.S., does not exist inMexican law, where the performance of certain formalities and proceedings is always required in order to obtaina security interest in real property and its improvements. To begin with, in Mexico, all improvements constructedon a tract of land form a part thereof, and the legal presumption is that such improvements are owned by theowner of the real property, unless the contrary is proved. The most common mechanisms through which realproperty may be encumbered in Mexico in order to guarantee the performance of third parties obligations are: (i)a Mortgage, which must be formalized before a notary public and recorded with the Public Registry of Property;(ii) a Guaranty Trust, which requires the participation of a trustee institution, the granting via a public instrumentand recording with the Public Registry of Property; and (iii) an attachment following the attainment of ajudgment or a prejudgment attachment ruling issued by a court, which generally requires the commencement ofcollection proceedings supported by an executory document (e.g. a promissory note), or the obtaining of a courtorder requesting the registration of the litigation status, in which case the court may request that plaintiffguarantee the payment of possible damages to defendant. Regarding the option to place a lien on personalproperty, Mexican law establishes two options: (i) the traditional pledge, in which the personal property that isthe subject matter of the guarantee must be delivered to the creditor or made available for the disposition andcontrol of the creditor in accordance with the requirements provided by law; and (ii) the pledge without transferof possession, where the personal property remains in the possession of the debtor or a third party, but at all timesrequires the participation of the creditor, the debtor, and, if applicable, the third party that maintains possession ofthe goods, through the execution of the applicable pledge agreement and, depending on the amount involved,may require ratification before a notary public and recording with the Public Registry of Commerce. While acontractor and/or subcontractor in Mexico may sue for payment due from construction work related to land or abuilding, a mechanic’s lien will not automatically be established on the land or building, regardless of who ownssuch land or building. Therefore,, a contractor in Mexico should carefully explore the economic and commercialsolvency of the party seeking the services, as well as evaluate the possibility of requiring a performance bond orother form of payment guaranty.

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