Types of mortgages
There are various types of mortgages.
Conventional or legal mortgage
Section 2664 of the Civil Code of Québec states that a mortgage takes place only under the conditions and in accordance with the forms authorized by law. A mortgage may be conventional or legal. A conventional mortgage is created by contract between a debtor (or a third party) having the legal capacity to alienate the property and a creditor.1
On the other hand, a legal mortgage results from the law alone and is in favour of certain creditors on their debtor’s immovable property.
Movable or immovable mortgage2
If the mortgage charges movable property, it is said to be movable. If it charges immovable property, it is said to be immovable.
Mortgage with or without delivery3
In most cases, the hypothec is created without delivery of the property. This means that the debtor keeps the property. This is the case for hypothecs on immovable property.
Where the mortgage is created with delivery, it may also be called a pledge. The expression “give property as a pledge” means that the person hands over the property or ownership title to the creditor until the debt is repaid.
Individual or universal mortgage4
It is individual when it relates to one or more specific items of property, whether movable or immovable. A mortgage is universal when it relates to a group of movable or immovable properties forming part of a universality.
It is important to mention that only a (natural or legal) person or a trustee operating an enterprise may grant a universal mortgage.5
Open or closed mortgage6
A mortgage is open when its effects are suspended until the mortgage is closed following the debtor’s failure to fulfil his obligations. The mortgage may relate to present and future movable or immovable property, whether specific or forming part of a universality. This type of mortgage can only be granted by a person or partnership operating an enterprise, and only on the assets of that enterprise.
Unlike a closed mortgage, an open mortgage can extend to all future assets that become part of the debtor’s assets. In other words, the mortgage affects property described in a general and not a specific way.
Example: The mortgage charging a dispensing optician’s inventory gives him flexibility to sell different eyeglass frames and acquire new ones. Without this flexibility, the optician would not be able to sell any of the frames given as collateral to the mortgage lender. The mortgage will ultimately affect only the frames in the shop if the optician defaults on payment. A closed mortgage is one that charges a specific identified asset, such as a home.
This concept must not be confused with the expressions used by financial institutions regarding the term of a mortgage loan, which may be open or closed.
1 S. 2681 C.C.Q.
2 S. 2665(1) C.C.Q.
3 S. 2665(2) C.C.Q.
4 S. 2666 C.C.Q.
5 S. 2684 C.C.Q.
6 S. 2715-2723 C.C.Q.
