Classification of property security interests: order and priorities

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Security law organises competition between creditors. Who will be paid first if the debtor cannot honour all his debts? This is not a theoretical question. It determines the very effectiveness of guarantees and, in the case of owners of mortgaged propertytheir rights and obligations.

Why classify security interests?

In the event of a debtor's insolvency, his assets are not sufficient to pay off all his creditors. The law must therefore arbitrate between them.

The general principle is simple: "the debtor's assets are the property of the debtor". common pledge of his creditors" (art. 2285 of the Civil Code). Without any specific guarantee, unsecured creditors share the price of the assets in proportion to their claims.

However, some creditors have "legitimate grounds for preference" that allow them to avoid the competition law. Hence the need for classification.

Civil law classification

Exclusive rights outside classification

Some mechanisms are not classified because they confer an exclusive right:

• Security ownership retained ownership (retention of title) or assigned as security (trust)
• Right of retention ability to physically retain an asset until payment is made

These rights place their holders "outside the competition" of other creditors. They are not subject to the law of ranking but impose it on others.

The ranking of real estate liens

Since the order of 15 September 2021, the property liens are all general. The former special liens have been transformed into special legal mortgages.

Property liens take precedence over mortgages (art. 2378 of the Civil Code), even if they have been registered previously. They rank according to the order set out in article 2377 :

1. Privilege of legal costs
2. Privilege on salaries and similar remuneration

These liens are exercised first on movable property, then on immovable property in the event of insufficiency (principle of subsidiarity).

Ranking of mortgages

Mortgages come after liens, but before unsecured creditors. Mortgages are classified according to the date of publication in the Land Registry ("prior tempore, potior jure" principle).

There is one major exception: the legal mortgage of the syndicate of co-owners, which is exempt from publication, takes precedence over all other mortgages for the current year and the two years that have expired.

Filing for bankruptcy

Article L.643-8 of the French Commercial Code has considerably modified theorder of creditors in compulsory liquidation.

Without reproducing the entire order of 15 rows, it should be noted that :

1. Ownership and retention rights remain "out of competition".
2. Procedural claims receive preferential treatment
3. Salary superprivilege ranks 2nd
4. Real estate security only ranks 6th
5. Some common law privileges are relegated to a lower position in the ranking

The economic logic (saving the company) and social logic (protecting employees) take precedence over the purely civil logic.

Exceptions to the general classification

There are a number of special rules that affect the basic classification:

• Rechargeable mortgage retains its initial rank for subsequent reloads
• The conflict between mortgage and pledge on immovable property by destination is governed by the precedence of the advertisement
• Attachmentthe first distrainor takes precedence over all other creditors, including preferred creditors
• Tax mattersthe third-party notice has the effect of immediate attribution

Conflicts between creditors of successive owners

There is one overriding principle: the rights of the creditors of the previous owner take precedence over those of the creditors of the current owner.

For example: a vendor's mortgagee will take priority over all the buyer's creditors, even those with liens.

The only exception to this rule is the legal costs privilege, which is intended to protect the interests of all parties.

This rule derives from the principle "nemo plus juris transferre potest quam ipse habet" (no one may transfer more rights than he himself has).

The classification of real estate securities therefore remains a complex mechanism, torn between civil law and collective procedures, with numerous exceptions linked to economic and social considerations.

To help you navigate this complex legal landscape and optimise your strategy, the assistance of a lawyer specialised in mortgages can prove decisive.

Sources

• Civil Code, articles 2284 to 2488
• French Commercial Code, Article L. 643-8
• Order no. 2021-1192 of 15 September 2021

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