The reform of security interests: what has changed?

Security law has undergone two major waves of reform in 15 years. The first in 2006 laid the foundations for modernisation. The second, in 2021, revolutionised certain key aspects. These changes have profoundly transformed the legal landscape for securities, impacting in particular on rights and obligations of the owner of a mortgaged property.

The objectives of the reforms

The aim of the Order of 23 March 2006 was to overhaul a body of law that had become obsolete. The main innovation was the creation of Book IV of the Civil Code dedicated to security interests. This structural clarification made it possible to distinguish between personal sureties and real sureties.

The 2021 reform had more pragmatic ambitions. Its main aims were to :

• Simplifying existing mechanisms
• Reducing sources of legal uncertainty
• Improving the effectiveness of security interests
• Harmonising the applicable rules

Innovations in 2006

This first reform introduced a number of major innovations, in particular strengthening the role of themortgage as the main property security :

1. The creation of the non-possessory pledge
2. The introduction of the rechargeable mortgage
3. The emergence of the reverse mortgage
4. Recognition of trusts as security (supplemented by a 2007 law)

These new features have made it possible to meet certain needs, but have left some grey areas and inconsistencies.

The revolution of 2021

The Order of 15 September 2021 has brought far-reaching changes. Its flagship measure transformation of special real estate liens into special legal mortgages.

The end of special property liens

Before 2021, property liens could be general or special. Special liens (seller's, moneylender's, co-partitioner's, etc.) were retroactive to the date on which the claim arose, if they were registered within a legal period.

This situation gave rise to legal uncertainty. A hypothecary creditor could see his guarantee overridden by a lien registered subsequently.

The reform abolished this category by transforming it into special legal mortgages. Article 2376 of the Civil Code now states that "liens on immovable property are granted by law" and "are general".

Special legal mortgages

This new type of mortgage combines some of the advantages of the old privileges with greater legal certainty. They take effect on the date of their publication, rather than retroactively.

These mortgages benefit:

• Property sellers
• Lenders
• Joint shareholders
• Architects and contractors
• Syndicates of co-ownership

However, the syndicate's legal mortgage remains exempt from publication, like the former lien.

Other important innovations

The 2021 reform has also:

1. Clarified the status of real guarantees by applying certain guarantee rules to them
2. Corrected confusing terminology by calling the mortgage attached to judgments of conviction a legal mortgage (rather than a judicial mortgage)
3. Clarified the rules governing judicial conservatory mortgages
4. Created an article L.643-8 in the Commercial Code establishing a precise classification of creditors in the event of collective proceedings

Practical impact for professionals

For notaries and bankers, these changes simplify day-to-day practice:

1. No more verification of time limits for registering special liens and calculating retroactivity
2. Clear ranking based on registration date
3. Greater predictability of individual rights

For debtors in difficulty, Article L.643-8 of the French Commercial Code provides greater clarity. This article establishes a precise classification of creditors in the event of insolvency proceedings:

• Exclusive rights (ownership, retention) not classified
• Employee superprivilege in the lead
• Legal costs and other liens under insolvency proceedings
• Real estate collateral by ranking
• Then other creditors according to their nature

Things to remember in everyday practice

1. There are now only general property liens (legal fees, salaries).
2. The former special liens have become special legal mortgages
3. The ranking of property security interests is now determined by the date of registration (with some exceptions).
4. The right of retention and property security remain "non-competition" guarantees
5. In the event of collective proceedings, a precise classification is established by article L.643-8 of the Commercial Code

These reforms have succeeded in modernising and streamlining a complex body of law. They provide a more secure and predictable framework for all economic players. Mortgages remain the king of real estate securities, but each type of security now has a clear place in the legal system. To help you navigate this new law and ensure the compliance of your transactions, don't hesitate to consult a lawyer specialising in mortgages and sureties.

Sources

• Order no. 2006-346 of 23 March 2006 on securities
• Order no. 2021-1192 of 15 September 2021 reforming the law on securities
• Civil Code, articles 2284 to 2488-12
• French Commercial Code, article L.643-8