Article 2660 of the Civil Code of Québec provides a clear definition of a hypothec:
2660. A hypothec is a real right on movable or immovable property made liable for the performance of an obligation. It confers on the creditor the right to follow the property into whatever hands it may come, to take possession of it, to take it in payment, to sell it or to cause it to be sold and thus to have a preference upon the proceeds of the sale, according to the rank as determined in this Code.
In short, a hypothec is merely an accessory right, (for example, movable or immovable property, such as a building or land) assigned as security for an obligation, such as a debt. Contrary to popular belief, a hypothec is not a loan, but is an accessory right securing the obligation of payment.
As stated in article 2664 of the Civil Code of Québec, a hypothec must comply with strictly determined parameters authorized by law.
2664. Hypothecation takes place only under the conditions and in accordance with the forms authorized by law. A hypothec can be conventional or legal.
As specified in this article, a hypothec can only take on two forms: a conventional hypothec or a legal hypothec.
A conventional hypothec is one created by an agreement or contract between two parties. For example, when buyers want to secure a loan for the acquisition of a building, their bank will usually require a hypothec on the building they wish to buy. In this case, it is the contract drawn up by the notary who took up the claim that will force the buyers to offer the immovable they wish to acquire as a guarantee for the loan granted by their bank.
A legal hypothec is provided by law and is often referred to as a legal action. Moreover, in common law provinces and states, the legal hypothec is referred to as a right thus recalling the exclusive character of this hypothec.
Articles 2724 to 2732 of the Civil Code of Québec which specify the rights and terms of a legal hypothec.
According to the Act, only four (4) types of claims may give rise to a legal hypothec:
2724. The only claims that can give rise to a legal hypothec are:
In addition to the legal hypothec of the State, three (3) other types of claims may give rise to a legal hypothec.
The Hypotek platform only targets these last three claims. It can be used by people who have participated in the construction or renovation of a building, a syndicate of co-owners and by creditors in whose favour a judgment has been rendered.
Personal remedies are the usual procedural recourse when a creditor does not benefit from the privilege conferred by a hypothec. This is generally referred to as an ordinary remedy in which a creditor may assert his rights against his debtor, in accordance with article 2646 para. 1 of the Civil Code of Québec:
Article 2646 para. 1: Creditors may institute judicial proceedings to cause the property of their debtor to be seized and sold.
According to this article, a person to whom money is owed must therefore institute a legal action and pay the costs resulting from it, for example court fees (such as a court stamp, bailiffs, etc.) and extrajudicial fees (such as lawyers’ fees to represent them ).
To further advance judicial proceedings, the one to whom the money is owed (the creditor) will have to prove his claim before a judge and obtain a judgment. Even if it is indisputable that an amount is owed to him (for example, by an invoice or an unpaid notice of assessment), the process for obtaining a judgment is considered lengthy. It can often take more than twelve (12) months between filing a legal recourse and having a judgment rendered by a court. In addition, the judge has six (6) months to his judgment.
It is essential to understand that a judgment does not translate into money. Once the judgment has been rendered, and when the debtor refuses or is unable to pay the amount set forth in the judgment, the creditor must appoint a bailiff to seize and sell the property in payment of the debt.
The creditor must pay the costs of using the bailiffs to seize and sell the property of the debtor who owes him money. Bailiffs are also required to distribute the amounts seized. If the creditors claim together, the price is distributed proportionately to their claims on the same debtor. Articles 2644 and 2646, para. 2 of the Civil Code of Québec provide that all the property of a debtor may be seized and sold in payment of a debt:
2644. The property of a debtor is charged with the performance of his obligations and is the common pledge of his creditors.
Article 2646 para. 2. If the creditors claim together, the price is distributed proportionately to their claims, unless some of them have a legal cause of preference.
In short, the process for personal (or ordinary) remedies are generally long and expensive before a creditor is finally paid. It is also possible that at the end of the court process the debtor is not solvent. This means that a creditor will never be fully paid, even if he has a judgment.
For efficiency and enrichment reasons, the legislature has identified the claims that are protected by law, namely those provided for in article 2724 of the Civil Code of Québec as stated above.
The privilege granted to these claims also makes it possible to obtain an immovable as guarantee of payment without having to take legal action. This guarantee of the immovable property takes effect only after a hypothec is registered and published in Québec’s Land Registry. Once this is done, it is possible to seize the immovable if the debt is not paid.
Unlike personal remedies that apply to all the debtor’s property, hypothecary recourse applies only to the security covered by the hypothec, including the immovable offered as guarantee of payment described in the legal hypothec.
A hypothecary recourse is also more expeditious. It is therefore in the debtor’s best interest to quickly pay their claims if they wish to keep their property. Failing this, the immovable property may be seized by the creditor as payment of his claim.
In other words, creditors who benefit from a legal hypothec are generally favoured by a hypothecary recourse rather than a personal remedy.
If you have a claim that is protected by article 2724 of the Civil Code of Québec and you remain unpaid, you can take action now to receive the amount that is owed.
Whether it is a legal hypothec of construction, of a syndicate of co-owners or following a judgment, the Hypotek platform allows you to publish legal hypothecs and save on legal fees!Register for free!