A mortgage is a valuable guarantee for a creditor. But what happens in practice if the secured debt is not repaid on the due date? What levers does the creditor have at his disposal to recover the sums owed to him thanks to this property security? Far from being a mere mention in a contract, to be fully effective and give the creditor strong legal prerogatives, a mortgage must be regularly registered. The importance of this land registry is crucial to protecting the creditor's interests.
The purpose of this article is to explore the two fundamental rights that mortgages grant to unpaid creditors: the right to preferential rightwhich gives it priority payment of the sale price of the property, and the resale rightThis allows the creditor to "follow" the property even if it has changed ownership. Understanding these mechanisms is essential for any creditor wishing to enforce their guarantee effectively, as well as for the owner of the property. owner of the mortgaged property.
Preferential right: priority payment
The first major advantage conferred by a registered mortgage is the right of preference. This right means that when the mortgaged property is sold (most often following a foreclosure procedure, but sometimes also during a supervised out-of-court sale), the mortgagee will be paid out of the sale price. before other less well-protected creditors.
This priority applies in particular to "unsecured" creditors, i.e. those who do not have any specific security over the debtor's assets. It also applies to other hypothecary creditors whose registration is subsequent to its own. It is the date of registration that determines the ranking and therefore the order of payment between the various mortgagees, as stipulated in article 2418 of the Civil Code. The first registered is the first served.
This right of preference is not exercised automatically. It takes shape during the formal procedure for sales price distribution. It is at this stage that the mortgagee asserts its rank in order to be collocated, i.e. to be allocated its share of the price.
But for what amount does this priority apply? First and foremost, the mortgage guarantees the principal amount of the claim, as stated in the registration. It also covers interest the claim, but with a specific rule set out in Article 2427 of the Civil Code: only interest corresponding to the last three years before the guarantee is triggered have the same priority ranking as the capital. In the case of older interest, the creditor may have taken out specific registrations, which will then have a less favourable ranking (that of their own registration date). Finally, some costs related to the claim or the registration may also be covered by the mortgage, provided that they have been expressly provided for and quantified in the registration form.
Preferential rights are therefore a powerful tool, but their effectiveness depends directly on the quality and date of the initial registration.
Resale rights: follow the property, even if it is sold
What happens if the debtor, before you have even had a chance to take legal action, sells the property that was supposed to secure your debt? This is where the second pillar of mortgage protection comes into play: the right of resale.
Enshrined in Article 2454 of the Civil Code, the resale right allows the mortgagee to seize the property from the person who acquired itIn other words, the mortgage 'sticks' to the property and 'follows' it, regardless of successive changes in ownership. In other words, the mortgage "sticks" to the building and "follows" it, regardless of successive changes of ownership.
For this right to be exercised, one condition is absolutely essential: the creditor's mortgage must have been registered with the Land Registry (Service de la Publicité Foncière) before the deed of sale of the property has itself been published. If the sale is published before the mortgage is registered, the creditor loses the right of resale against the purchaser. This is a further illustration of the vital importance of prompt and correct registration.
The "third party holder" is therefore typically the purchaser of the property, but it may also be a person who has received it by gift, or a legatee by particular title (someone who receives a specific property by will). These people hold the property, but are not the original debtor.
How does the creditor exercise his right of resale? The procedure is formalised. It generally begins with the sending of a summons to pay to the principal debtor (the person who owes the money). Secondly, this act is denounced (officially notified) to the current third party holder of the property. This notification contains a summationIn accordance with article 2456 of the French Civil Code, the third party holder is given formal notice either to pay the debt secured by the mortgage or to "relinquish" the property (which in practice means allowing it to be seized and sold), failing which the property seizure proceedings will be brought directly against him.
The resale right thus transforms the mortgage into a particularly robust guarantee, since it is not annihilated by the simple transfer of the property. It allows the creditor to retain recourse to the property itself, which constitutes the pledge of his claim.
Limits to the creditor's rights
While the preferential right and the resale right give the mortgagee a strong position, their exercise is neither automatic nor without constraints. A number of procedural limitations and conditions must be taken into account.
Firstly, to be able to engage a foreclosure (whether against the original debtor or the third party holder via the resale right), the creditor must generally be in possession of a enforcement order. This is an official document (usually a final judgement or a notarised deed bearing the enforcement formula) establishing the debt in an indisputable manner and ordering the debtor to pay. The mortgage secures the payment, but does not, apart from a few exceptions, exempt the debtor from obtaining this deed in order to enforce the debt.
Secondly, the foreclosure procedure The procedure itself is complex and strictly governed by the Code of Civil Enforcement Procedures (CPCE). It takes place under the supervision of the Enforcement Judge (JEX) and involves deadlines, publications, hearings (particularly the orientation hearing) and potentially disputes. The creditor must scrupulously respect these stages. It can therefore take time for the guarantee to be realised.
Thirdly, and this is a major point, the rights of the mortgagee are profoundly affected if the debtor is the subject of an collective procedure (safeguard, receivership or compulsory liquidation). As soon as the company is declared bankrupt, the principle of suspension of individual proceedings (provided for in article L. 622-21 of the French Commercial Code) prohibits the creditor from initiating or continuing a seizure. In addition, article L. 622-30 of the same code prohibits any new mortgage registration after the opening judgment. Creditors will then be paid as part of the collective proceedings, according to a specific order of priority that may differ from the traditional mortgage order and is often less favourable to the creditor initially guaranteed.
Finally, it should not be forgotten that the value of the property may not be sufficient to cover the entire secured debt (principal, interest, costs), especially if there are other, higher-ranking mortgagees. The mortgage guarantees priority payment on the selling pricebut does not guarantee that this price will be sufficient.
Although secured by strong rights, recovering a debt secured by a mortgage requires a good understanding of the legal mechanisms and procedures applicable. If your debtor defaults on payment, it is important to act diligently and methodically. To analyse your situation and take the most appropriate action to defend your interests, our is at your disposal.
Sources
- Civil Code (in particular articles 2418, 2427, 2454, 2456)
- Code des procédures civiles d'exécution (general principles of property seizure and price distribution)
- French Commercial Code (in particular articles L622-21, L622-30 relating to insolvency proceedings)
EN 
FR