Legal Process to Purchase

THE GUARANTY TRUST 

Guaranty trusts are fairly new to Mexico. New legislation was enacted in 2000 introducing guaranty trusts as another structure to secure collateral, furthermore, the new legislation was clarified in 2004 removing many of the doubts and confusions created by the initial legislation.

Guaranty trusts present many advantages to lenders and secured party’s over other more traditional types of guaranties for instance mortgages, for several reasons.

First and foremost, title to the collateral is with the trustee (and not with the debtor, under a standard mortgage), and secondly, in the event of a foreclosure, special summary and out-of-court proceedings are permitted, which are aimed at streamlining the entire foreclosure process.

Guaranty trusts are being used to secure collateral in all kinds of loans issued to Mexicans and to non-Mexican borrowers. These types of trusts typically have two types of beneficiaries, type A which are usually lenders (Mexican or foreign), and type B which are usually the borrowers who will have restricted benefits under the trust, primarily to use, develop, enjoy and profit from the property in trust and its uses.

Once the loans are paid off and there is no need for the collateral to remain in trust, these trusts provide that type A beneficiaries disappear and remove any restrictions imposed on type B beneficiaries, affording full unrestricted rights and benefits to the properties in trust to type B beneficiaries.

Guaranty trusts have substantially impacted Mexico’s otherwise limited and expensive Mexico based lending industry, specifically from the consumer / borrower’s perspective. They have become the favorite guaranty vehicle for foreign companies and foreign banks lending into Mexico and taking collateral in Mexico.

Before the existence of the guaranty trust, foreign companies and foreign banks lending into Mexico and taking collateral in Mexico were very reluctant to participate in those markets. They faced much greater exposure and lengthy and unfamiliar judicial foreclosures under more traditional guarantees like mortgages.