What is a mortgage?

Sources: Educaloi.qc.ca

A mortgage is a right , related to an asset, which is given by one person (the debtor) to another person (the creditor) as a guarantee that the debtor will discharge an obligation (to repay a loan, for example ). The obligation is generally owed to the creditor by the debtor and the debtor almost always owns the property.

If the debtor does not fulfill his obligation, the creditor can use his rights under the mortgage to compensate for the fact that the obligation has not been fulfilled. We say that a property on which we have given a mortgage is “mortgaged”. A loan whose repayment is secured by a mortgage is called a “ mortgage loan ”.

For example, you gave the bank a mortgage on your house to guarantee the repayment of a loan of $ 100,000. If you stop paying off their loan, the bank can sell the house to collect the money you owe them.

A mortgage on property gives the creditor the right to:

Only when certain conditions are met:

In addition, the creditor must take certain steps before being able to exercise the rights arising from the mortgage. (See the question “What must a creditor do before he can exercise his rights under the mortgage?”).

A debtor is in default when he fails to fulfill his obligation in favor of the creditor. An obligation is a promise made in a contract by which the debtor undertakes to do or not to do something. For example, Manon and her bank signed a contract in which Manon undertakes to reimburse the $ 10,000 that the bank loaned her. Manon has the obligation to repay the loan. If Manon misses a monthly payment and stops repaying the loan, she is in default because she failed to meet her obligation to the bank.

Other facts which will be considered as putting the debtor in default may be provided for in the contract between the debtor and the creditor. For example, the contract between Manon and the bank provides that Manon will be in default if she does not keep her house insured. So Manon has to keep her house insured, or she will be in default and the bank could exercise the rights she has under the mortgage. (See the question “What rights does a mortgage give to the creditor?”) This is one of the reasons why you must have insurance on the day you sign the deed of loan.

The debtor must be in default before the creditor can exercise his rights under the mortgage. Therefore, if the debtor fulfills his obligation towards the creditor, the latter cannot exercise his rights.

The creditor must first send the debtor a document called notice. This notice must then be published (registered) at the registry office where the mortgage was published, either the land register or the Register of personal and movable real rights (RDPRM). In order to register the notice, the creditor must prove that he sent it to the debtor.

The notice must:

The period for abandoning the mortgaged property begins when the notice is registered. The creditor must usually wait until the end of these periods before exercising his rights under the mortgage. The period is 10 days if the creditor intends to take possession of the property to administer it. Otherwise, the length of the delay varies depending on the type of property mortgaged:

Mortgages on land or a building (house, apartment building, etc.) are called real estate mortgages. In general, any owner of land or building can decide to mortgage it. A real estate mortgage must be created in a notarial deed en minute, ie by a notary. The act that creates the immovable mortgage must describe the mortgaged property and specify the amount of money to which the mortgage relates.

The amount of money the mortgage is on is the maximum amount that the creditor will be able to recover under the mortgage. This is usually a higher amount than the amount owed to the creditor by the debtor, because the creditor thus ensures that the mortgage covers not only the amount of the debt, but also interest and other charges, such as charges. costs of foreclosure and sale of the mortgaged property.

For example, Luke borrows $ 200,000 from the bank and to secure the loan he gives him a mortgage on his house. The notarial deed that creates the mortgage indicates that it relates to an amount of $ 220,000. Luke defaults on his obligation to repay the bank. Interest on the loan is $ 20,000. The bank decides to exercise its rights under the mortgage and sell the house. Under the mortgage, she can recover a maximum of $ 220,000. So that will cover the loan and the interest, but not the $ 5,000 she had to pay to sell the house.

A real estate mortgage must be published (registered) in the land register in order to be able to be invoked against a person other than a debtor. (See the question “why should you publish a mortgage”?).

Yes. A debtor can create a mortgage on property other than land or building (for example, a car) in two ways.

First, he can simply return the asset to the creditor. This type of mortgage is called a movable mortgage with delivery.

Then he can create the mortgage in a written document and keep the mortgaged property in his possession. This type of mortgage is called a movable mortgage without delivery. Some things – such as a registered retirement savings plan (RRSP) – cannot be mortgaged in this way.

To learn more about each of these mortgages, see the questions “What is a movable hypothec with delivery?” “And” Is it possible to create a movable hypothec while retaining the property  ? “.

Most movable property (that is, property other than land and buildings) can be the subject of a movable hypothec with delivery. The owner of movable property can decide to grant this type of mortgage on his property. A movable hypothec with delivery is also called a pledge. (Hence the expression “pawnbroker”).

The principle is simple. The mortgage is created when the debtor hands over the asset to the creditor. If the creditor is already in possession of the asset, then the mortgage is created by the debtor’s decision to leave it in the hands of the creditor.

For example, David goes to a pawnshop because he needs to borrow $ 200. The pawnshop, Hubert, agrees to lend him $ 200 in exchange for a movable hypothec with delivery on his watch. David accepts and leaves the watch to Hubert.

Like all mortgages, a movable hypothec with delivery must be published before it can be invoked against anyone other than the debtor. A movable hypothec with delivery is published when the creditor receives the mortgaged property. For example, when David gave his watch to Hubert. A person other than the creditor can also hold the asset if the debtor agrees. In this case, the mortgage will be published when that person receives notice that the property is subject to a movable hypothec with delivery.

A movable hypothec with delivery can also be published (registered) in the Register of Personal and Movable Real Rights (RDPRM). See the question “Why should you publish a mortgage?” “.

Yes, but not for all goods in all cases. The law provides that the property that can be mortgaged and kept varies depending on whether it is done for oneself or for the needs of a business.

A person who does not carry on a business

A person who does not carry on a business can establish a movable hypothec without delivery for:

WARNING  !  the law excludes RRSPs, Registered Retirement Income Funds (RRIFs), Registered Education Savings Funds (FEEE) and Registered Disability Savings Plans (RDSPs).

A person who operates a business

If operating a business, a person could create a non-dispossessional chattel mortgage on other business property (eg computers and business furniture).

A moral person

Legal persons, like companies, can create a movable hypothec without delivery on any type of property.

A movable hypothec without delivery must be created in writing. The document must describe the mortgaged property and specify the amount of money to which the mortgage relates.

The amount of money the mortgage is on is the maximum amount that the creditor will be able to recover under the mortgage. This is usually a higher amount than the amount owed to the creditor by the debtor, because the creditor thus ensures that the mortgage covers not only the amount of the debt, but also interest and other charges, such as charges. costs of foreclosure and sale of the mortgaged property.

A movable hypothec without delivery must be published (registered) in the Register of Personal and Movable Real Rights (RDPRM) to be in effect. See the question “Why should you publish a mortgage  ? ”. There is one exception: a securities intermediary does not need to register a movable hypothec without delivery that it constitutes on securities or intermediated securities. Indeed, the law provides that this mortgage will be automatically published when it is created.

Because this is what allows the creditor to retain his rights to the property even if it is sold. More specifically, the publication of a mortgage generally gives two rights to the creditor:

A droit de suite means that the creditor can exercise his rights under the mortgage even if the mortgaged property is sold or given. The mortgage continues to exist even if the debtor no longer owns the property.

The right to be preferred over the money obtained from the sale of the property means that the creditor who holds a mortgage will be paid before other creditors. Unless the sale brings in a lot of money, he’ll often be the only one getting paid, by the way! (See the question “What happens when a mortgaged property is given or sold”?).

If the mortgage is not published, the sale of the mortgaged property deprives the creditor of his rights. He loses his resale right on the mortgaged property as well as his right to be preferred to other creditors during the sale. It is therefore very rare that a creditor forgets this important formality!

If the mortgage has been published, the sale does not change the rights of the creditor. The latter can exercise the rights resulting from the mortgage even if the mortgaged property has a new owner. This right of the creditor is called the “droit de suite”.

If the debtor does not fulfill the obligation secured by the mortgage, the obligee may, for example, decide to take the mortgaged property as payment or to have it sold, even if it is in the hands of a new owner. The new owner is not obliged to fulfill the obligation secured by the mortgage in place of the debtor; however, he may decide to do so in order to be able to keep the mortgaged property.

For example, George bought a car from Marianne without checking the Register of Personal and Movable Real Rights (RDPRM). If he had, he would have discovered that a credit agency had issued a mortgage on the car. Marianne stops repaying her loan to the credit agency. The credit bureau informs George that she is going to sell his car to recover the money Marianne owes him, unless he pays instead of Marianne. George has a choice. He can let the credit agency seize and sell his new car, or he can repay the amount owed by Marianne and keep the car.

It should be mentioned that the seller of a property must guarantee the buyer that the property is not mortgaged or inform the buyer of any existing mortgage on the property. If he does not, the buyer can sue the seller:

For example, George reimburses the credit agency for the $ 5,400 owed by Marianne to prevent the credit agency from seizing and selling the car. George then has the right to sue Marianne to recover this $ 5,400. Obviously, this remedy may be doomed to failure as Marianne’s financial situation is bad. She wasn’t able to repay that amount to the credit bureau, so she surely won’t be able to pay it back to George any more, even if he gets a judgment against her. That is why it is very important to check the RDPRM!

If the mortgage is not published, the creditor loses his resale right. For example, if the credit agency had not published its mortgage, it would not have had the right to sell George’s car to recover the amount owed by Marianne.

When an asset is encumbered by more than one mortgage, the date, time and even the minute each mortgage was posted becomes very important! This is because mortgages published first take priority over those published later. A creditor who publishes his mortgage before everyone else can therefore exercise his rights under the mortgage first. If the mortgaged property is sold, it may receive the proceeds of the sale as a priority, before the creditors whose mortgage was issued after its own and before the ordinary creditors (that is to say, persons who have no mortgage, but to whom the debtor owes money).

For example, Beatrice owns an apartment building. There are two mortgages on this building. The first was created when she borrowed $ 70,000 from her bank. This mortgage was issued five years ago. The second was created when she borrowed $ 5,000 from a credit bureau. This second mortgage was issued two years ago. If Beatrice stops repaying her two loans, the bank can exercise her rights under her mortgage before the credit agency. For example, the bank may decide to sell the apartment building, regardless of what the credit agency would have liked to do (for example, take the apartment building and administer it).

A debtor has two options if he wants to prevent the creditor from exercising his rights under the mortgage:

In both cases, the debtor must also reimburse the creditor for his costs. A debtor can use either of these options at any time after the creditor has taken possession of the mortgaged property to administer it. If the creditor has instead decided to take the asset as payment, sell it or have it sold, the debtor can only exercise these two options before taking in payment or selling the asset.

Of course, the debtor can always try to negotiate an additional period with the creditor or convince the latter not to exercise his rights under the mortgage, against a partial payment of his debt, for example.

Finally, remember that the creditor may be required to prove to the court that his debtor has indeed breached his obligations. It is not enough to register a notice to trigger the rights provided by the mortgage. This means that the debtor who considers that he has respected his commitments, can very well contest the demand of his creditor.

The mortgage also ends.

For example, Richard gives a mortgage on his house to the bank to secure a loan. Once Richard has finished paying it off, the mortgage lapses because the bond it secures has lapsed.

However, even if the mortgage no longer has legal existence, it still remains registered in the land register or in the RDPRM. This is why it is important to publish (record) the document confirming the end of the mortgage (discharge, release, etc.)

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