Legal mortgages and liens on real estate: key changes

The reform of securities law Ordinance no. 2021-1192 of 15 September 2021 changes the landscape of real estate guarantees. Special real estate liens will be replaced by legal mortgages. The aim of this overhaul is to simplify and modernise a complex and sometimes archaic legal system. The stakes are high for sellers, lenders and purchasers of buildings.

The disappearance of special real estate liens

Special real estate liens are a thing of the past. The ordinance abolishes them purely and simply. A major feature of these liens (vendor, moneylender, co-partitioner) was their retroactivity. Once registered within the legal time limit, they took precedence on the date of the deed.

This mechanism created legal uncertainty. Registrations made between the time the lien was created and its publication created problems of ranking. The computerisation of land registration services has made this system obsolete. Registration deadlines have been reduced to the point where retroactivity has become superfluous.

Liens arising before the Ordinance came into force are "assimilated to legal mortgages, without prejudice, where applicable, to the retroactivity of their rank". Those not yet registered may still be registered under the old rules.

The new special legal mortgages

The former special real estate liens become special legal mortgages. Article 2402 of the Civil Code lists them:

1. The seller's claim is secured on the property
2. A moneylender's claim for the purchase of a building is secured on the building itself
3. The claims of the syndicat des copropriétaires are secured on the lot sold
4. The co-sharer's claim is secured on the shared immovable property
5. Claims against a deceased person are secured on the estate property

These special legal mortgages rank on the date of registration. Retroactivity disappears. However, article 2403 maintains the link between the seller's resolutory action and the special mortgage. This action can no longer be brought after the mortgage has lapsed.

The case of the syndicate of co-owners deserves attention. The syndicate's legal mortgage (3° of article 2402) is "exempt from registration" and "takes precedence over all other mortgages for the current year and for the last two years due". For previous years, it takes precedence over the vendor's and moneylender's mortgages.

General legal mortgages modernised

General legal mortgages remain but have been reduced and modernised. Article 2393 lists them:

1. Claims of one spouse against the other
2. Claims by minors or adults under guardianship
3. Claims by the State against its accountants
4. Claims of the legatee
5. Funeral expenses
6. Judgment claims
7. Treasury receivables
8. Receivables from social security funds

The spouses' legal mortgage is limited to the regime of participation in acquests. The legal mortgage attached to "judgments of condemnation" (point 6) is the former "judicial" mortgage. This reclassification puts an end to terminological confusion. This mortgage results directly from the law and not from the judge.

General legal mortgages apply to all the debtor's real estate. They are exempt from all registration formalities. However, they do not have a right of pursuit and "are exercised over immovables only in the absence of sufficient movables".

More flexible use of conventional mortgages

Article 2414 of the Civil Code introduces a major reversal: "a mortgage may be granted on present or future immovable property". This change abandons the old principle prohibiting mortgaging future property.

The notarial deed must "specifically describe the nature and location of each of the properties". In practice, it will only be possible to register the mortgage once the grantor has become the owner. However, the future property mortgage is now valid.

The rechargeable mortgage, created in 2006, abolished in 2014 and then partially reinstated in 2014, remains limited "to the guarantee of professional claims". Article 2416 maintains this restrictive configuration.

Article 2390 clarifies the extension of mortgages to accessories: "The mortgage extends to the interest and accessories of the secured claim. This extension benefits the third party subrogated to the claim". This provision puts an end to disputed case law which limited the effect of legal subrogation to legal interest only.

The new classification of real estate securities

The fundamental principle remains that of Article 2418Mortgages "take precedence on the day they are registered". This principle applies to legal, judicial and contractual mortgages, including those that replace the former special real estate liens.

There are some important exceptions:

• The legal mortgage of the syndicate of co-owners takes precedence over all others for the last three years
• If registrations are made on the same day, the legal mortgage takes precedence over the judicial mortgage, which takes precedence over the conventional mortgage.
• Between legal mortgages of the same date, the vendor's mortgage takes precedence over the lender's mortgage
• Between conventional mortgages of the same date, the mortgage based on the oldest title takes precedence.

Article 2419 also regulates the conflict between mortgagees and pledgees where the pledge relates to immovables by destination. Ranking is determined "by the dates on which the respective titles were published, notwithstanding the right of retention of pledgees".

Article 2420 deals with the special case of a rechargeable mortgage. It ranks on its initial date for all beneficiary creditors in relation to conventional mortgage creditors, even if they pre-date the reloading agreement.

It is still possible to purge mortgages, but this has been adapted for pledged immovables by destination. Article 2472 includes the pledgee in the judicial purge procedure. They must be informed and may make a higher bid if the price is insufficient.

To optimise your property guarantees and secure your transactions in this new legal frameworkOur team of lawyers can help you every step of the way. Contact us for a detailed analysis of your situation.

Sources

• Order no. 2021-1192 of 15 September 2021 reforming the law on securities
• Civil Code, articles 2375 to 2474 (version in force since 1 January 2022)
• Decree no. 2021-1887 of 29 December 2021 on the implementation of the reform