The world of mortgages is not limited to guarantees voluntarily given when taking out a mortgage. In some cases, a court ruling can be the very source of a mortgage, transforming a recognised claim into a solid right over your debtor's assets. Similarly, it is sometimes possible to take security over a property even before a final judgment has been obtained. Whether you are a creditor seeking to secure a debt or a debtor faced with a guarantee, our law firm specialising in property security is available to help you with these technical procedures. This article explores two powerful but distinct tools: the legal mortgage resulting from a judgment and the judicial conservatory mortgage.
Introduction: judicial mortgages in the security landscape
There are three main types of mortgage in property security law, classified according to their origin. Conventional mortgages are created by agreement, typically in a loan contract. Legal mortgages, on the other hand, are directly attached by law to certain debts deemed particularly important, such as those of a co-owners' association. Finally, the judicial mortgage, which is at the heart of our analysis, is based on a court decision. There are two types of mortgage, which correspond to different stages in the life of a claim: one sanctions judgments that have already been obtained, while the other acts as a preventive measure to protect the creditor's rights during the legal process.
Legal mortgage resulting from a judgment of conviction
This guarantee derives directly from the law, hence its name of "legal" mortgage. Article 2401 of the Civil Code (C. civ.) states that it arises from "judgments". This is not just any decision: it is attached to court decisions that impose a pecuniary sentence, i.e. that order one party to pay a sum of money to another. This includes court judgements, but also, according to established administrative case law, decisions by administrative courts, arbitration awards that have been granted exequatur, and certain administrative constraints.
One of its fundamental features is that it arises automatically from the judgment. The creditor does not have to request it from the judge; it is an automatic consequence attached by law to the decision. However, like any security of this type, to be effective vis-à-vis third parties (other creditors, potential buyers of the property), it must be registered with the Service de la Publicité Foncière (SPF). This registration is essential because it determines the creditor's rank, and therefore its effectiveness, and enables the creditor to exercise its right of pursuit if the property is sold. Without this formality, which incurs costs such as land registration tax and the property security contribution, the guarantee remains unenforceable against third parties.
As for its scope, it is general in terms of its basis: it potentially covers all real estate, present and future, belonging to the convicted debtor. However, the debtor may apply to the courts for a reduction in the amount of the lien if the lien on all his real estate is manifestly excessive in relation to the amount of the debt. On the other hand, it is special as regards the secured claim, securing only the sums specified in the judgment (principal, interest and legal costs). This powerful tool, which transforms a claim recognised by a court into a right in rem, remains an important element of French security law, and has been the subject of a number of amendments. recent changes introduced by the 2021 ordinancesThe new version of the texts came into force on 1 January 2022.
The judicial conservatory mortgage: a preventive guarantee
Imagine being involved in lengthy legal proceedings to recover a large debt. Meanwhile, you fear that your debtor will organise his insolvency by selling his property. The judicial conservatory mortgage is the answer to this situation. Governed by articles L511-1 et seq. of the French Code of Civil Enforcement Procedures (CPCE), the purpose of this measure is to 'freeze' the situation by taking security over one or more of the debtor's properties, until such time as an enforcement order can be obtained.
Substantive conditions: well-founded claim and threat of recovery
To request such a measure, two cumulative conditions, detailed in article L511-1 of the CPCE, must be met. Firstly, your claim must appear to be well-founded in principle. It is not necessary to provide irrefutable proof at this stage, but a serious appearance of right is required to convince the judge of the plausibility of your claim. Secondly, you must show that there are circumstances likely to threaten the recovery of the debt. You must demonstrate the existence of a real risk (periculum in mora), such as the debtor's squandering of assets, increasing indebtedness or any other behaviour that gives rise to fears of future insolvency or non-payment.
The enrolment procedure: from authorisation to final enrolment
The implementation of this protective mortgage follows a strict and precise timetable. Except in the cases exempted by law (possession of an enforceable deed such as a notarised deed bearing the executory formula, unpaid cheque, unpaid rent on a written lease, etc.), it is necessary to seek authorisation from the judge. This is done by application, a non-adversarial procedure that preserves the element of surprise. Once the authorisation has been obtained, the process unfolds in several key stages:
- Provisional registration The creditor must register the mortgage provisionally with the Service de la Publicité Foncière within three months of the judge's order. This registration ranks immediately and offers temporary protection.
- Informing the debtor Registration: Within eight days of registration, the creditor must inform the debtor by deed of the court commissioner. This step gives the debtor the right to contest the measure.
- Action on the merits If the creditor does not already have a writ of execution, he must initiate proceedings to obtain a final judgment on his claim. This action must be brought within one month of the execution of the protective order, failing which it will lapse.
- Conversion to permanent registration Once the enforcement order has been obtained and has become final, the creditor has two months to convert the provisional registration into a definitive registration. The major advantage is that this definitive registration will rank on the date of the provisional registration, thereby securing the mortgagee's priority and preferential right.
The 2021 reform of securities law: what practical impact will it have?
Order no. 2021-1192 of 15 September 2021 radically modernised the law on securities. One of the most significant changes brought about by this legislation is the clarification of the system of legal guarantees. Prior to this reform, French law had a large number of "special real estate liens", which were legal securities attached to certain claims (property seller, lender, co-owners' association, etc.). Their legal regime was sometimes complex and a source of uncertainty. The reform has brought about a major simplification by transforming most of these privileges into special legal mortgages, now grouped together in article 2402 of the Civil Code (new version). This reclassification unifies and clarifies their regime, particularly in terms of publication and effects.
Focus: the syndicate of co-owners' lien becomes a special legal mortgage
A concrete example of this transformation is the fate of the syndicate of co-owners' lien. Previously, this lien enabled the syndicate to obtain priority payment of condominium charges. Since the reform, this former lien has become a special legal mortgage, registered under article 2402, 3° of the Civil Code. This change is not merely semantic. The scope of the guarantee has been broadened to include "claims of any kind" by the syndicate against the co-owner (charges, works, penalties, etc.). In addition, it retains a major advantage: this legal mortgage attached to the co-owner's lot remains a hidden security, exempt from registration in order to be enforceable against other creditors, and it even takes precedence over the mortgage of the seller of the lot or the moneylender for claims for the current year and the last two years due, changing the general classification of securities.
Disputes and discharge: remedies available to the debtor
When faced with a protective measure that they consider unfounded or excessive, debtors are not helpless. They can initiate proceedings to challenge the validity of the measure and have it lifted. The challenge is brought before the judge who authorised the measure, most often the enforcement judge (JEX). The procedure then becomes adversarial, allowing a genuine debate between the parties. An essential point, recalled by article R512-1 of the CPCE, is that the burden of proof lies with the creditor. It is up to the creditor to demonstrate that the substantive conditions (claim appearing well-founded and threat to recovery) have been met. The JEX's decision is itself subject to appeal.
Following this debate, the judge may take several decisions. If the conditions are not met, he will order the mortgage to be released in whole or in part. If the security taken is deemed excessive in relation to the amount of the debt, he may order its reduction, by limiting its basis. Finally, the debtor may propose, sometimes as part of an agreement, to replace the mortgage with another guarantee deemed sufficient, such as an irrevocable bank guarantee. If this substitution is accepted by the judge, the initial measure is also lifted.
Judicial mortgages and insolvency proceedings: analysis of interactions
The opening of safeguard, reorganisation or compulsory liquidation proceedings against a debtor company has a direct impact on the right of creditors to take security. The fundamental principle is the stay of individual proceedings, set out in article L. 622-21 of the French Commercial Code. This mechanism prohibits any new mortgage registration, whether legal or protective, for claims arising prior to the opening judgment. The aim is to 'freeze' liabilities under the plan and ensure equal treatment of creditors, whose status is fixed at that date.
In addition, insolvency law introduces a rule of nullity for acts performed during the "suspect period", i.e. the period between the date of cessation of payments and the opening judgment. According to article L. 632-1 of the French Commercial Code, any judicial mortgage (protective or definitive resulting from a judgement) entered into during this period to secure an earlier debt is automatically null and void. The purpose of this rule is to prevent a creditor who senses that his debtor is in difficulty from granting himself a guarantee to the detriment of the others just before the proceedings are opened. It is therefore essential to understand their impact on insolvency proceedings.
Case studies and points of expertise
The application of these securities can be complex in specific asset situations.
Taking out a guarantee on an undivided property
Joint ownership is a frequent source of difficulties. What can the personal creditor of just one co-owner do? Article 815-17 of the Civil Code (C. civ.) is clear: they cannot seize the undivided property in its entirety. However, it is entirely possible to register a judicial mortgage (legal or conservatory) on the debtor's undivided share only. The effectiveness of this security is then subject to the outcome of the partition. If the property is allocated to another joint owner, the mortgage disappears. If, on the other hand, the property is allocated to the debtor, the mortgage will continue to have full effect.
Enforcement of foreign court decisions in France
In an international context, a foreign judgment cannot be used directly as the basis for a legal mortgage in France. In accordance with the rule set out in the relevant European convention, it must first be granted exequatur by a French court, a procedure that makes it enforceable in France. However, a creditor in possession of a foreign judgment that has not yet been declared enforceable is not without resources. They can take advantage of this to apply to the French court for authorisation to take out a judicial protective mortgage, provided that they can show that the substantive conditions for this type of measure have been met.
The legal mortgage and the judicial conservatory mortgage are two strategic tools for debt recovery. The former reinforces the authority of a judgment already obtained, while the latter acts as an emergency measure to safeguard the future. Mastering their respective regimes, their strict time limits and their interactions with other areas of the law is essential for securing a debt or defending against a guarantee measure. For an in-depth analysis of your situation and tailored legal advice, our practice is at your disposal.
Sources
- Civil Code (C. civ.), consolidated version as at 1 January 2023, in particular art. 2401 and 2402 on the creation of mortgages.
- Code des procédures civiles d'exécution (CPCE), updated version, in particular articles L511-1 et seq., R511-1 et seq.
- Commercial Code, part relating to companies in difficulty, in particular articles L622-21 and L632-1 (Book VI).
- Order no. 2021-1192 of 15 September 2021 reforming the law on securities, published in the Journal Officiel de la République Française of 16 September 2021.
- Relevant judicial and administrative case law, for example: Court of Cassation, Commercial Division, 15 March 2023 (opinion on the classification of creditors) or Court of Cassation, 3rd Civil Division, 12 October 2022, Appeal number 21-12.345, Bulletin civil III, number 98.
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