Understanding the legal hypothec
Planning to build your next home and never heard the term “legal construction mortgage” before? You need to be careful. It could play a very nasty trick on you.
In fact, it’s better to be well informed in order to make an informed choice in this type of transaction. Your RE/MAX real estate broker will be able to guide you, but in the meantime, here’s some information.
What’s the difference between a conventional mortgage and a legal construction mortgage?
A conventional mortgage is a loan granted to the owner to finance the purchase of a property, whether it’s a single-family home, condo, plex, cottage, etc. On the other hand, the hypothèque légale de la construction is a mechanism for securing the claims of builders and renovators arising from the work they carry out on a building. Ultimately, a construction legal hypothec allows the building on which it is registered to be sold in court, with the proceeds used to pay off the builder’s, renovator’s or material supplier’s claims.
How does a legal hypothec work?
Before a legal hypothec can be implemented, several steps must be taken to comply with the law:
1. Denunciation of the contract.
The legal hypothec of a contractor or supplier of materials who contracts directly with the owner arises from the simple fact of entering into the contract. On the other hand, suppliers, subcontractors and other parties who have not entered into a contract directly with the owner must disclose the existence of their contract to the owner.
2. Publication deadline
The construction legal hypothec must be published within thirty (30) days of completion of all work on the construction project. This means that a contractor who performed carpentry work at the very beginning of the construction site will have more time to publish his construction legal hypothec than a contractor who performed electrical work, for example.
3. Notice of exercise
This notice of exercise is used to inform the owner of the mortgage holder’s intention to exercise it. It must be published in the Land Registry within six (6) months following the publication of the mortgage. After this period, the mortgage holder no longer has a mortgage recourse and an application to cancel the mortgage may then be submitted.
4. Exercising the mortgage recourse
When all notices have been published, the holder of the legal construction mortgage can then exercise his mortgage recourse against the owner.
Owners: what to do if a legal construction mortgage is published on your property or if you are under a mortgage recourse?
Given the risks of seeing your property sold in court, as mentioned above, do not delay in consulting a lawyer. A legal advisor will be able to advise you adequately in this type of situation. In addition, if you hire a general contractor to build your property, make sure that the contractor has paid all of his subcontractors and other stakeholders in the construction project before paying him the full purchase price. The notary involved in the transaction will be able to advise you on this subject!
