The seizure of property is an enforcement measure with far-reaching consequences, which is not limited to the relationship between a creditor and his debtor. Other people, whose status and rights are often misunderstood, may find themselves involved when the seized property has been sold or used as collateral. These include the third party holder and the real guarantor, two players whose legal positions are quite distinct. Understanding their role is essential for anyone faced with such a situation, whether as a purchaser of a mortgaged property or as a guarantor. A foreclosure lawyer is essential to navigate the complexities of this procedure. The purpose of this article is to clarify the protections and options available to these stakeholders in the course of a foreclosure.
The third party holder of the mortgaged property: definition and resale right
A third party holder is a person who has acquired a property on which a mortgage has previously been registered, but who is not personally liable for the debt secured by the mortgage. They are in a special position: they are the owner of a property that serves as security for the debt of another. This is a tricky position to be in, not least because the mortgagee benefits from what is known as a "droit de suite".
This right, enshrined in Article 2461 of the Civil Code, is an essential prerogative of the mortgagee. It allows them to seize the property to obtain payment of their claim, regardless of who owns the property. So even if the original debtor has sold the property, the creditor can take legal action directly against the new purchaser, the third party holder. This raises the question of whether it is possible to selling a mortgaged houseA transaction that exposes the buyer to this risk.
Conditions and scope of resale rights
For the creditor to be able to exercise his right of resale, he must have a claim that is certain, liquid and due, evidenced by a writ of execution, and his mortgage must have been duly published before publication of the deed of sale to the third party holder. The procedure begins with the service of a summons to pay on the principal debtor. The third party holder is then served with a summons to pay equivalent to a seizure. This summonses the third party either to pay the debt secured by the mortgage or to relinquish the property.
It is important to note that the third party holder is only liable for the value of the property (the "propter rem" obligation), and not for his entire personal assets. Faced with the threat of seizure, the law offers several ways out and defence mechanisms.
The third party holder's defence against seizure of property
Faced with the threat of seizure, the third-party holder is not helpless. The Civil Code offers them several strategic options to protect their interests. Each of these options has its advantages and disadvantages, which must be carefully weighed against the specific situation, in particular the amount of the debt and the value of the property.
Disinterest: offering the purchase price
The most direct solution for the third party holder is to pay the registered creditors. If he has not yet paid the sale price to the seller (the original debtor), he can offer this sum to the creditors. If the purchase price is sufficient to cover the debts, this option puts an end to the legal proceedings and secures his property. If the price is lower than the debts, it may still be in the third party holder's interest to pay the senior creditors. By paying them, he is subrogated to their rights, i.e. he becomes the holder of a first-ranking mortgage on his own property, which discourages lower-ranking creditors from initiating a seizure.
Surrender of the building: an abandonment of possession
Surrender, provided for in article 2467 of the Civil Code, is a more radical option. It involves the third party holder relinquishing possession of the property to the creditors. This procedure enables the third party to free himself from his mortgage obligation. A trustee for the relinquished property is then appointed, and the seizure proceedings continue against the trustee. The main advantage for the third party holder is that his name is not associated with the forced sale, thereby preserving his reputation and credit. This option is only available to third-party holders who are not personally liable for the debt and who have the legal capacity to dispose of the property. It is not possible, however, if the sale price has not been paid and the amount is sufficient to satisfy the creditors.
The benefit of discussion: referring the creditor to the principal debtor
An old and complex mechanism, the benefit of discussion allows the third party holder to ask the pursuing creditor to seize in priority other properties mortgaged for the same debt and still in the possession of the principal debtor. The conditions for invoking this benefit are very strict: the third party holder must not be personally liable for the debt, the creditor must hold a general mortgage, and the third party holder must advance the costs necessary to pursue the other assets. Because of its complexity and limited scope, this defence is rarely used in practice.
The warranty exception: a defence against eviction
The warranty exception is a defence based on the principle that "he who owes a warranty cannot evict". It may be invoked by the third party holder when the creditor suing him is also the one who owes him a guarantee against eviction. This situation arises, for example, if the creditor has inherited the property from the original seller and therefore owes the same guarantee as the latter. In this case, the creditor cannot logically try to evict the person he is supposed to be protecting.
The purging procedure: releasing the property from security interests
Purge is a procedure that allows the third party holder to release the property from all registered mortgages and liens. To do this, he must offer the registered creditors a sum corresponding either to the purchase price of the property or its estimated value. This procedure has the effect of legally "cleaning up" the property. However, it entails a major risk for the third party holder: any creditor may refuse the offer and request that the property be put up for public auction, provided that they bid at least 10 % higher than the declared price or value. If no one acquires the property at a higher price, the creditor who requested the sale is declared the successful bidder. The third party holder therefore risks losing the property. Because it is cumbersome and because of this risk, purging is not often used.
The real guarantor: status and specific obligations in property seizures
Unlike a third-party holder who acquires an asset that is already subject to a security interest, a real guarantor is a person who voluntarily pledges one or more of his or her own properties as security for the debt of a third party. Their commitment is limited to the mortgaged property, which distinguishes them from personal sureties, whose commitment covers their entire estate.
Legal qualification and distinctions
The legal nature of surety bonds has long been the subject of debate. In a mixed chamber ruling on 2 December 2005, the Court of Cassation clarified its position by describing this commitment as a "real security granted to guarantee the debt of another person", specifying that it is not a guarantee in the strict sense. This distinction is fundamental. A guarantor in rem is not a personal debtor; he is liable only *propter rem*, i.e. in respect of the thing he has pledged as security. Their obligation cannot exceed the value of the mortgaged property. It is essential to understanding the effects of surety bondsThis is because the notarial deed in which the real guarantor makes a commitment constitutes a writ of execution enabling the creditor to directly initiate proceedings for seizure of the property affected.
The prerogatives of a real guarantor: to pay or to forfeit
Faced with the threat of seizure, the real guarantor has two main options, similar to those of the third-party holder. They can choose to pay the principal debtor's debt to release their property from the mortgage. If they pay, they are subrogated to the rights of the creditor and can take action against the principal debtor to obtain repayment of the sums paid.
Alternatively, if the debtor is unwilling or unable to pay the debt, he or she may surrender the property. As in the case of the third party holder, this relinquishment of possession allows the debtor to be released from all legal proceedings. The seizure procedure then continues on the relinquished property. On the other hand, because they have personally granted the mortgage, real guarantors cannot take advantage of the benefit of discussion or the purge procedure, as these mechanisms are reserved for those who have nothing to do with the creation of the guarantee.
Practical implications and risks for the parties
For the third party holder, the acquisition of a property subject to a mortgage is a high-risk transaction that requires maximum vigilance. The first and most important precaution is to check the mortgage status of the property before signing, so that you know exactly what is encumbering it. If the transaction goes ahead, the various defence options (payment, surrender, purge) must be analysed carefully, as they involve very different strategies and financial consequences. The choice will depend on a detailed analysis of the situation, including the value of the property, the amount of the claims and the purchaser's financial objectives.
For the real guarantor, the commitment, although limited to the property affected, is just as perilous. It is a potential act of disposal that can lead to the loss of a major property asset. Often entered into within a family or friendship, the scope of this act is sometimes misunderstood. The real guarantor is directly exposed to the seizure of his property in the event of default by the principal debtor, with more limited means of defence than those of the third party holder. The assistance of a lawyer is therefore essential to assess the scope of such a commitment before signing.
The presence of a third party holder or a real guarantor complicates the seizure of property procedure for the creditor. They have to comply with additional formalities, such as serving the summons twice, and prepare for the specific defences that these parties may raise. These legal situations require highly specialised technical expertise to bring the procedure to a successful conclusion while respecting the rights of all concerned.
Whether you are buying a mortgaged property or considering becoming a guarantor, anticipation and legal advice are your best assets. If you are faced with foreclosure proceedings in one of these capacities, it is imperative that you consult a competent lawyer to analyse your situation and define the most appropriate strategy. Our firm is at your disposal to assist you with these complex procedures.
Sources
- Code of civil enforcement procedures
- Civil Code
- Decree no. 2012-783 of 30 May 2012 relating to the regulatory part of the code of civil enforcement procedures
EN 
FR