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Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes, security can be granted over real estate. The two forms of security granted over real estate are mortgages and guarantee trusts.

Mortgages and trust agreements must be made in writing and formalised by a notary public. Further, both must be registered with the Public Registry of Property of the state in which the real estate is located.

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over machinery and equipment. There are three forms of security interests over movable assets:

  • pledges;
  • non-possessory pledges; and
  • trusts.

The most common forms of security granted over machinery and equipment are non-possessory pledges, in which the borrower retains possession of the assets. Guarantee trusts are also used to create a security interest over machinery and equipment, but in this case possession of the assets must be expressly transferred to the borrower. Both the non-possessory pledge and the guarantee trust must be notarised and registered electronically with the Sole Registry of Movable Property of the Public Registry of Commerce. Finally, a pledge agreement may also be used, but is less common.

Receivables

Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, a security can be granted over receivables. There are two forms of security interest over movable assets:

  • non-possessory pledges; and
  • trusts.

The most common forms of security granted over receivables are non-possessory pledges. Guarantee trusts can also be used to create a security interest over receivables. In this case, as property of the receivables is transferred to the trustee, the trustee must enter into an agency agreement with a servicer (typically the borrower) to service the receivables. Both the non-possessory pledge and the guarantee trust must be notarised and registered electronically with the Sole Registry of Movable Property of the Public Registry of Commerce. With no contractual provisions to the contrary, approval of the borrower under the accounts receivable is not required to create the security interest. Nevertheless, under the Commercial Code, in order to be effective against the borrower, it must be notified of the assignment. Likewise, to be effective against third parties, it must be registered with the Sole Registry of Movable Property.

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over financial instruments. The most common form of security granted over financial instruments is a pledge.  According to the Securities Law, there is a specific pledge over securities, through which the lender must open an account with a warehouse of securities and deposit the securities in it. This agreement must be in writing and there is no need to register the pledge. Moreover, it is unnecessary to make the endorsement, delivery of the securities or the registration within the issuer’s registries. 

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over cash, although it is uncommon. The typical approach to secure cash flows is lock-box mechanisms (eg, administration trusts). Escrow agreements are also used. The administration trust also serves as a cash-flow payment for the lender, due to the fact that a special trust’s bank account is created for these purposes, where all cash deposits must be made to this account and the account remains property of the trust in the lender’s benefit (trustee). An escrow account is similar in functionality, where a third party receives cash deposits for the benefit of the transaction parties and disburses the cash over certain conditions agreed on by the transaction parties.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over intellectual property. The most common form of security is a pledge, which must be notarised and registered with the Sole Registry of Movable Property, as well as with the Mexican Industrial Property Institute. A trust can also serve as security over intellectual property. 

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