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backLATINtalk April, 2012

Implication and Effects of Recording in the Public Registry of Property in Mexico

There are various types of public registries in Mexico, the function of which is to record various legal acts.

Generally speaking, there is an important difference between the public registries existing throughout the country.

There are registries that create rights and those that declare rights.

Furthermore, there are public registries whose records are intended to give notice and cause effects on third parties and the general public, and there are records in public registries merely intended to be declaratory.

Notice by recording legal acts is a legal requirement in some cases.

One of the main public registries is the Public Registry of Property, where public deeds, are recorded transferring ownership of real property or creating security interests in real property, such as through mortgage instruments, among other documents.

In all cases involving real property purchase or sale agreements and agreements creating mortgage guaranties over real property, it is an indispensable requirement that the notary instruments evidencing such legal acts be recorded in the Public Registry of Property in the state where the respective real property is located.

The effect of recording is to give notice of the legal act, allowing any person to verify who is buying and selling specific real property or identifying the debtor and creditor in a credit relationship secured by a mortgage.

Upon recording the legal act, all third parties are deemed to have constructive notice of the existence and legality of the act.

The laws specifically provide a precise list of the legal acts and agreements that require recording with the Public Registry.

If recording is required and not performed, failure to record results in what is known as the relative effects of a legal act meaning that, for legal purposes, it is deemed that the act was only executed between the subscribing parties and third parties are not legally notified of the existence of the agreement or legal act that should have been recorded.

This is significant for the executed agreement given that third parties may not recognize the existence of the legal act and the purchaser of real property whose deed was not inscribed may not be considered a good faith purchaser in any legal proceeding as to priority rights, adverse possession and presumption of legality.

There are many cases where the parties sign a private real property purchase and sale agreement and fail to record such, while at the same time the same real property is sold to another party by the seller.

If the second real property purchase and sale agreement is subsequently executed and recorded prior to the first, the likely outcome is that the second buyer will be considered the ultimate purchaser and legal owner of the property.

The outcome would be the same when creating a mortgage guaranty over real property and the mortgage instrument is not recorded with the public registry.

If the mortgagor executes another credit agreement with a third party and the first agreement is not recorded, while the second one is, the second lien shall have priority, even though it was related to a credit agreement executed subsequent to the first credit agreement.

In the event of conflicts from duplicate sales or mortgage instruments, recording the corresponding legal acts in the public registry is essential for their validity and effectiveness.

Notary publics in Mexico are responsible for requesting the registration of recordable legal acts when required by law.

Furthermore, it is also necessary to pay recording costs in accordance with the fee schedule established by the corresponding regulations.

Each state of the Mexican Republic establishes the organization and operation of its respective Public Registry of Property.

Such public registries are responsible for issuing certificates of no liens, which evidence whether real property has any liens or whether such are free of liens, in order to ensure that the purchaser does not acquire real property that is subject to a mortgage or other lien granted to a third party.

If a mortgage guaranty is not recorded and the real property is sold to a third party, such third party may validly be assured that the property is not subject to liens or limitations of ownership and there is little that the mortgagee may do to validate its mortgage guaranty against a third party that acquired the property in good faith.

Conflicts and litigation related to deficiency in the recording of legal acts and agreements are complex, long and costly.

Any time a transfer of ownership to real property takes place or that loans secured by a mortgage are issued, one must ensure that the notary public instrument issued for such purposes is duly recorded in the Public Registry of Property.

Source: CCN Mexico Report - GAI

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