Hypothec is a term you hear a lot, whether in connection with a mortgage, securing a business debt or even in certain disputes. But what does this legal concept really mean? More than just a word, it is a powerful mechanism that is essential for securing large debts. Understanding how it works, and above all the vital importance of registering it officially, is fundamental to protecting your rights, whether you are a creditor or a debtor. owner of an affected property. The purpose of this article is to explain the basic concepts of mortgages and to highlight why publicising them is a major issue.
What exactly is a mortgage?
Imagine you are lending a substantial sum of money. Naturally, you want solid security in case the borrower is unable to repay. A mortgage is just that: a guarantee on a property asset (house, flat, land, business premises, etc.). Legally, it is a right granted to the creditor over the property belonging to the debtor (or sometimes to a third party who agrees to guarantee the debt with their property). If the debt is not paid, this right allows the creditor to sell the property and receive priority payment from the sale price.
There are mainly two main families of mortgages. L'conventional mortgage is the result of an agreement, usually signed before a notary, between the creditor and the owner of the property. This is the most common case for property loans. L'legal mortgageIn certain specific situations, for example in favour of a spouse to guarantee his or her rights in the liquidation of the matrimonial property regime, or following a conviction. We will explore these more specific cases in other articles.
A fundamental point to understand is that accessory of the mortgage. As set out in legislation, in particular article 2385 of the Civil Code and subsequent articles, mortgages do not exist in isolation. It is always linked to a claim (a debt) that it secures. If the debt disappears (for example, because it has been repaid in full), the mortgage is automatically extinguished with it. It provides security for the creditor, but does not give him ownership of the property; it simply confers specific rights in the event of non-payment.
Why is registration (advertising) essential?
Having a mortgage is good. Ensuring that it is fully effective is even better. And to do that, one step is absolutely crucial: theregistration of this mortgage with the State. This is also known as land registry. Without this formality, the scope of your cover is considerably reduced.
A mortgage that is not registered, although it may exist validly between the creditor and the debtor who granted it, has virtually no value vis-à-vis other persons. This is known as theunenforceability against third parties. In practical terms, if the debtor has other creditors, or if he sells the property, an unregistered mortgage will not allow you to enforce your rights against these third parties. Article 2418 of the Civil Code is very clear on this point: as far as third parties are concerned, a mortgage only exists and has effect by virtue of its registration.
Registration makes the mortgage fully effective. It makes it public and known to everyone. It's like putting an "official label" on the property, informing anyone (other creditors, potential buyers, etc.) of the existence of your priority right. The founding decree of 4 January 1955 on the reform of land registration, in particular article 30, establishes this principle: unpublished deeds are not enforceable against third parties who have acquired competing rights to the same property and have published them.
The other major benefit of registration is that it determines the rank of the mortgage. Imagine that several mortgages are taken out on the same property to secure different debts. How do you know which creditor will be paid first if the property is sold and the price is not enough to cover all the debts? The answer is simple: the date of registration is decisive. The first creditor to register a mortgage will be paid first, the second, and so on. This is the "prior tempore, potior jure" rule (first in time, stronger in law), applied here via the public registration date. Rapid registration is therefore often a guarantee of security.
The role of the Land Registry Service (SPF)
The key body in this process is the Service de la Publicité Foncièreoften referred to by its acronym SPF. This State body, which is part of the tax administration, replaced what used to be known as the "conservation des hypothèques" (mortgage registry), a name change introduced by the ordinance of 10 June 2010 to better reflect the scope of its remit.
The fundamental task of the FPS is to keep a detailed register of the legal status of all properties within its geographical jurisdiction. It could be compared to a sort of "criminal record" for buildings. It is with this service that all important deeds concerning a property must be filed and registered: sales, donations, but also, and this is what interests us here, the constitution of mortgages. Article 2421 of the Civil Code states that mortgages are registered with the land registry in the place where the property is located.
When you (or more often, the notary acting on your behalf) file the documents required to register a mortgage (the "bordereaux", which we will discuss in another article), the FPS checks that the documents are in order and registers them. The registration is then entered in the property register, which can be consulted by anyone who requests it. It is this publication that informs third parties and gives the mortgage its full force. The SPF therefore plays an essential role in ensuring the transparency and security of property transactions and guarantees.
What are the risks of an unregistered mortgage?
Not registering a mortgage, or registering it late, exposes the creditor to considerable risks that can destroy the very usefulness of the security he thought he had obtained.
The most obvious risk is the loss of priority. Suppose you have a conventional mortgage on a property, but you do not register it immediately. If, in the meantime, another creditor obtains a judgment against your debtor and promptly registers the legal hypothec resulting from that judgment, that creditor will be paid before you in the event of forced sale of the property, even if your mortgage agreement was earlier. Your failure to publish relegates you to a lower rank, or even deprives you of any payment if the sale price is insufficient.
The other major risk is the impossibility of exercising the resale right. This right, which is an essential feature of the mortgage, allows the creditor to seize the property even if it has been sold by the debtor to a third party. However, this right of pursuit only exists if the mortgage has been registered. before the sale itself is not published. If you do not register your mortgage, and the debtor sells the property, you will no longer be able to take any action against the buyer: the property has been removed from your debtor's assets, and your unpublished guarantee does not "follow" the property. You therefore lose your main pledge.
Imagine the following scenario: company A lends money to company B, and obtains a mortgage on B's premises, but delays registering it. In the meantime, company B, which is in difficulty, quickly sells its premises to company C, which publishes its title deeds. Shortly afterwards, Company B filed for bankruptcy. Company A, whose mortgage had not been registered prior to the sale, could neither seize the premises, now owned by C, nor claim priority over the sale price (which could have been used elsewhere). In the absence of registration, the mortgage guarantee proved to be illusory vis-à-vis third parties. Registration is therefore not a mere administrative formality; it is the act that really gives life and force to the mortgage in the eyes of the rest of the world.
The complexity of the rules governing mortgages and their publication often makes legal advice essential to secure your rights. If you are a creditor and wish to secure a debt, or if you are an owner and have questions about the charges on your property, a precise analysis of your situation is necessary. For a personalised study of your case and tailored advice, our team is at your disposal.
Sources
- Civil Code (in particular articles 2385 et seq. on the definition and types of mortgages; article 2418 on the effects of registration and ranking; article 2421 on the place of registration)
- Decree no. 55-22 of 4 January 1955 reforming land registration (in particular article 30 on opposability to third parties)
- Order no. 2010-638 of 10 June 2010 abolishing the system of mortgage registrars (creation of SPFs)
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