Even a U.S. creditor may engage a debt collector to collect a debt the creditor believes is due and report that debt to a credit bureau even though the debtor disputes the debt, even if the creditor and debtor are in the middle of court or arbitration proceedings to resolve that dispute. That happens every day, and it is not illegal. While there is a dispute about the debt, the FCRA allows the debtor to attach a (short) statement to his credit report disputing the debt so that others reading the report will know there is a dispute over the reported debt. Nothing in U.S. law says that a creditor must first have a judgement or arbitration decision before beginning collection action on a debt. However, without a judgment or arbitration award recorded as a judgment, the creditor’s remedies are limited to pestering the debtor about the debt, reporting it to the credit bureaus, and, if the debt was secured by property (e.g. a mortgage, vehicle title lien, etc), taking the secured property.
The contract you have is governed by Mexican law and the time share company is presumably located in Mexico, so Mexico is where you have to resolve the underlying dispute over the time share. Mexican law is rooted in Spanish civil law, a significantly different legal construct than the common law from England which is the root of most U.S. law. I am unfamiliar with the details of Mexican contract law and cannot tell you how that will work out. But in any event, once there is a resolution of the dispute in Mexico, you could apply that resolution here, too. Thus, if the result is that you don’t owe anything the creditor and the collector will have to update the credit report to state that you don’t owe anything.
While a Mexican lawyer cannot sue a U.S. debt collector in the U.S. without being licensed to practice law in the U.S. a lawyer licensed in your state could sue of the debt collector for you if any U.S. laws were violated by the debt collector.
A contract does not have to spell out all the various things the other party can do if you breach the contract. The other party may do whatever the law permits him/her/it to do, and parties to a contract are considered to know that. Consider for a moment that very, very few contracts say that if you default on the contract the other party may hire a debt collector to come after you and may report the debt to collection agency. Look at your credit card agreements and other contracts you have. They likely do not mention that at all. Yet that happens every day. Why? Because the law allows the creditor to do it. Most people know that is one of the things that can happen when they default so they are not surprised, but even if they didn’t know it that doesn’t stop the creditor from being able to do it.
In order to repossess property as a remedy, the law does require that the parties enter into a security agreement that pledges the property for the debt. This is why you do see that written in contracts — the law requires that before the creditor may take that property. But nothing in U.S. law requires that a creditor have told you in the contract that you might face a debt collector or have the debt reported to a credit bureau before the creditor may do that. That’s the difference.
The creditor is free to choose among all the different options available to it to address the breach. If you default on a car loan, the creditor may start by getting a collection agency to come after you and reporting the debt to a collection agency first before repossessing the car if it wants. Nothing in the law requires it to first repo the car.
As for having to resolve the dispute where the creditor is but the creditor can come after you where you are, that too is common. Even in the U.S. you see that all the time. If you are located in one state and the creditor is in another, you may face that same situation. A lot of contracts in the the U.S. will specify a particular forum for resolving disputes the parties, and it may be that the forum is located in the state where the creditor is, not where you are.
In short, none of this is at all unusual or illegal. While you obviously do not like it, when you breach a contract this is the sort of thing you may face, whether the other party is another state or, as here, even in another country.

