Concept of a debt guarantee

Most transactions will be conditional upon obtaining a loan secured by immovable mortgage or the cancellation of an existing mortgage. The properties for sale are sometimes already charged with existing mortgages, which may be conventional or legal, or are subject to a prior notice of exercise. Before going any further, let us take a look at the basic principle behind creditors’ desire to secure their claims.
 

Common pledge of creditors (the debtor’s assets that secure their debt)

A person’s movable and immovable property is charged with the performance of his obligations and is the common pledge of their creditors. This means that all of a person’s assets can be used to pay off all their debts in the event of default.

Creditors may institute judicial proceedings to cause the property of their debtor to be seized and sold. If there are many creditors, the price is distributed proportionately to their claims, unless some of them have a legal cause of preference. Given the risk posed by the fact that all our creditors are equal in relation to our assets, it is logical that some of our creditors, given the size of the debt and the risk involved, want to be preferred over others.

The legal causes of preference are prior claims and mortgages.

First of all, it should be pointed out that the legislation states that certain assets are exempt from seizure¹ or may be exempt from seizure at the debtor’s² discretion.

Assets that are exempt from seizure³ include:

• Movable property belonging to a debtor which furnishes his principal residence and which is used by and is necessary for the life of the household, up to a market value of $7,000 as determined by the seizing officer, except where such movables are seized for sums owed on the purchase price⁴ (under the priority of the unpaid seller)⁵

• The food, fuel, linens and clothing needed for the life of the household

• Instruments of work needed for the personal exercise of a professional activity by the debtor, except where such movables are seized by a creditor holding a mortgage thereon⁶

The assets that the debtor can choose to exempt from seizure⁷ include:

• Consecrated vessels and other things used for religious worship
• Family papers and portraits, medals and other decorations
• Property declared by the donor or testator to be exempt from seizure
• Judicially awarded support
• Part of gross salaries, wages and benefits, as provided for in the Code of Civil Procedure⁸
• Certain pension plan benefits or periodic disability benefits
• A property used as the debtor’s main residence where the debt is less than $10,000, except in cases provided for by law.⁹

Only the concepts of priority and mortgage, which have an impact on real estate brokers’ activities, are covered in this guide.
 

¹ S. 2648 and 2649 of the Civil Code of Québec (C.C.Q.); s. 552, 553, 553.1 and 553.2 of the Code of Civil Procedure (C.C.P.)
² S. 552 C.C.P.
³ S. 553, 553.1 and 553.2 C.C.P.
⁴ S. 2648(1) C.C.Q.
⁵ S. 2651 2º C.C.Q.
⁶ S. 2648(2) C.C.Q.
⁷ S. 552 C.C.P.
⁸ S. 553 (11) C.C.P.
⁹ S. 553.2 C.C.P.