Introduction to mortgages
Mortgages are a type of real security that can affect the immovables for sale and thus reduce their equity. The seller guarantees the right of ownership to the buyer and that the immovable is free of mortgages, except those assumed by the buyer, as the case may be.
► DUTIES AND OBLIGATIONS OF THE BROKER
When drafting a brokerage contract to sell
- Indicate the mortgage balance in the brokerage contract to sell and specify in favour of which financial institution.
- Include this information in the Declarations by the seller of the immovable form and provide details under the appropriate section.
- According to the broker’s ethical obligations,1 we recommend that the client consult his financial institution to find out about the amount of the mortgage balance and the penalty he will have to pay if the loan secured by immovable mortgage is repaid prematurely.
When drafting a promise to purchase
- No mention should be made in the promise to purchase regarding the seller’s existing mortgage, since under the Civil Code of Québec, the seller must purge the immovable of any existing mortgage.
- If the buyer wishes to assume the existing mortgage, indicate the number of Annex F - Financing and the total balance of the mortgage on the Promise to purchase form. Then complete the “Assumption of existing mortgage obligations” section in Annex F.
- If the buyer needs to apply for a new mortgage to make the purchase, complete the “New mortgage loan” section of the Promise to purchase.
1Regulation respecting brokerage requirements, professional conduct of brokers and advertising, R.S.Q., c. C-73.1, s. 80, 83, and 84.
Section 2660 of the Civil Code of Québec defines a mortgage as follows:
“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.”
Characteristics of a mortgage
Sections 2660 to 2663 of the Civil Code of Québec set out five characteristics of mortgages.
Real right
First of all, it is a real right. A real right is exercised in relation to the property itself and allows the property to be tracked, regardless of who owns it. This is why the notary who carries out the sale reimburses the seller’s mortgage and obtains a discharge. He will then cancel the mortgage in the Land Register.
Right of preference
The mortgage confers a right of preference, i.e. the right for the mortgage creditor to be paid before other creditors. This right, which implies that the mortgage takes effect and ranks at the time of its publication, is exercised after the right of priority.
Right to follow (resale right)
The mortgage confers a right to follow on the creditor, who can follow the property into whatever hands it may come, even after the sale of the property.
Indivisible
The fourth characteristic is set out in section 2662 of the Civil Code of Québec:
“A mortgage is indivisible and subsists in its entirety over all the charged property, over each item of that property and over every part of that property, even where the property or obligation is divisible.”
Thus, even if the property is divisible by its nature, the mortgage subsists over the whole and every part of the charged property, until full payment of the underlying obligation. The creditor could waive indivisibility and agree that certain parts of the property will be released upon partial payment. This waiver should be recorded in writing in the mortgage deed.
Publication
The fifth and final characteristic is the publication of the mortgage so that the mortgage rights conferred may be set up against third persons.2 In addition to making creditors’ rights enforceable against third parties, the publication establishes their rank. Save for a few exceptions, the very existence of the mortgage does not depend on publication.
2 S. 2663 C.C.Q.
