Taking in payment

With certain exceptions, the choice of mortgage remedy rests with the creditor and is mentioned in the notice of exercise.

Taking possession for administration purposes and sale by the creditor are the remedies for creditors holding a mortgage on the property (movable or immovable) of a business, while taking in payment and sale under judicial authority are remedies relating to all property (movable or immovable), whether consumer or business.

The taking in payment is the remedy by which the creditor takes back the property in payment of the debt. This type of mortgage remedy:

• can be exercised on both movable and immovable property
• can be exercised on personal or consumer property or business property
• extinguishes the debt.¹

Example: A bank has granted Jean-Pierre a mortgage of $200,000. Jean-Pierre is in default and still owes the bank $160,000. The immovable is now worth $325,000. If the bank takes the property in payment, the bank will make an excellent profit, and Jean-Pierre will owe the bank nothing, since the taking in payment extinguishes his obligation. The bank will never choose this recourse if the property is worth less than the amount of the debt. In this case, it will choose the remedy of sale under judicial authority, and will probably take personal action against Jean-Pierre for the amount still owing following the sale.

Section 2778 of the Civil Code of Québec states,

2778: “Where, at the time of registration of the creditor’s prior notice, the debtor has already discharged one-half or more of the obligation secured by the mortgage, the creditor shall obtain authorization from the court before taking the property in payment, unless the person against whom the right is exercised has voluntarily surrendered the property.”

2779: “Later ranking mortgage creditors or the debtor may, within the time allotted for surrender, require the creditor to abandon the taking in payment and sell the property himself or cause it to be sold under judicial authority; they must first have registered a notice to that effect, reimbursed the creditor for the costs he has incurred and advanced the amounts needed for the sale of the property.

The notice shall be served on the creditor, the grantor or the debtor, and the person against whom the mortgage right is exercised, and its registration is declared in accordance with the Book on Publication of Rights.

Later ranking creditors who require the creditor to proceed with the sale shall also furnish him with security that the property will be sold at a price sufficient to ensure full payment of his claim."
 

¹ S. 2782(1) C.C.Q.