What is a legal mortgage?
First of all, the definition of a legal hypothec: it is a protective measure taken by certain creditors to guarantee payment of sums due to them. A legal hypothec enables a creditor to take security over the property of his debtor(s). In the event of non-payment, the creditor can take the property encumbered by a legal mortgage to secure payment.
Click on the following link for a definition from the Larousse dictionary.
Claims that can give rise to a legal mortgage :
Article 2724 of the Civil Code of Quebec (hereinafter C.C.Q.) stipulates that only four claims may give rise to a legal hypothec. There are four types of legal hypothecs in Quebec: the legal hypothec resulting from government claims, the legal hypothec of construction, the legal hypothec of the syndicate of co-ownership and the legal hypothec resulting from a judgment.
How do I publish a legal mortgage?
The procedure and deadlines for properly registering a legal mortgage may vary depending on the type of mortgage.
Legal construction mortgage :
To register this type of hypothec, follow the instructions set out in articles 2726, 2727 and 2728 C.c.Q.
First, article 2726 C.c.Q. provides that legal construction mortgage is acquired only in favor of architects, engineers, material suppliers, workmen, contractors or sub-contractors, by reason of the work requested by the owner of the building, or by reason of the materials or services they supplied or prepared for this work.
Secondly, article 2727, paragraph 1 C.c.Q. provides that this hypothec subsists, even if it has not been published in the land register within 30 days of completion of the work. Paragraph two of the same article stipulates that the legal hypothec will be maintained after the said 30-day period if a notice designating the encumbered immovable and indicating the amount of the claim is registered and served on the owner of the immovable.
Finally, paragraph three of article 2727 C.c.Q. provides that the hypothec will naturally lapse, six months after completion of the work, if the creditor has not published an action against the owner of the building or registered a notice of exercise of a hypothecary right.
The legal hypothec of co-ownership :
Under article 2729 C.c.Q., the legal hypothec of the syndicate of co-owners applies to the share of a co-owner who has been in default of payment of his share of common expenses for more than 30 days. This means that if a co-owner fails to pay his or her share of common expenses for more than 30 days, a legal hypothec of the syndicate of co-owners may be registered on his or her fraction of co-ownership. This measure is designed to guarantee payment of common charges and protect the interests of the syndicate of co-owners.
In addition, this article stipulates that the registration of a notice “indicating the nature of the claim, the amount due on the day of registration of the notice, the amount provided for charges and debts for the current fiscal year and those of the two following years” must be made to acquire this type of legal hypothec.
Legal mortgage benefits :
As a creditor, there are many advantages to registering a legal mortgage. They include the following four benefits:
- Hypothecary recourse: Creditors holding a legal hypothec have the possibility of exercising hypothecary recourse to recover their unpaid claim. They can therefore seize and sell the mortgaged property to pay off the loan. These remedies offer a legal and effective way of recovering sums owed.
- Priority of payment: In the event of sale or seizure of the mortgaged property, creditors holding a legal mortgage have priority of payment over other creditors. This means they are more likely to be repaid in full before other unsecured creditors.
- Opposability to third parties: When a legal mortgage is registered in the land register, it becomes opposable to third parties. This means that anyone interested in the property, such as a future buyer, will be informed of the existence of this mortgage and will have to take it into account in real estate transactions.
- Financial security: For creditors, taking out a legal mortgage is a measure of financial security. This gives them the assurance that their investments in construction work, building renovation or the supply of materials will be protected. This fosters trust and encourages creditor participation in real estate projects.
Legal mortgage – disadvantages :
While registering a legal hypothec has a number of advantages, it also has a number of disadvantages:
- Contested claims can lead to litigation
A legal mortgage contested by the debtor can lead to major disputes between the creditor and the debtor. For example, if the legal hypothec is taken without a legal verification, the creditor could take a legal hypothec when he did not meet the conditions to do so. This could lead to major litigation.
- A legal hypothec provides security, but it remains in place until it is disposed of.
The mortgage must be cancelled before it ceases to have any effect.
Conclusion
In short, legal hypothecs in Quebec offer protection to creditors. They are registered in the land register and give creditors mortgage recourse in the event of default. These legal mortgages have a number of advantages, but it’s important to remember that they can also have a number of disadvantages.
[1] Civil Code of Québec, RLRQ, c. CCQ-1991, (hereinafter “C.c.Q.”).
