Mortgage in French law

History

The Greco-Roman heritage

The mortgage is born in Greece , it is public and special, the Romans will take over the mortgage and its advertising device throughout the republic and the early days of the empire. But the empire ends with a conception of the general and occult mortgage, which offered no one the guarantees indispensable to the serenity of business relations.

In Gaul, then France in the Middle Ages , the law is no more than “usances or coustums”, a mixture of what was preserved in each country of the usages of the ancient Gauls, Roman laws, laws and customs of Franks and other peoples of Germanic origins, Merovingian and Carolingian capitulars and particular rules given by the lords to the inhabitants of the territories they control.

The kingdom of France is the product of various and often antinomic influences, it is not surprising that on the level of the law this has resulted in “an incoherent mixture of Roman laws with the various customs that were formed in the countries of the France, during the first centuries of the monarchy, and especially under the first kings of the third dynasty ⁴ “.

In France the drafting of customs continues with various arrangements of the rules on the end of the xv ^th century and the first half of the xvi ^th century.

In terms of mortgages he highlighted a generally fairly uniform conception of the nature and effects of mortgages, but revealed profound differences on two important points:

• In the first place on the method of constitution of the mortgage, a dividing line is drawn between the countries where:
  • The mortgage was the subject of an act or a report which gave him a certain date. In these pledge countries, the mortgage was special and published.
  • Those, on the other hand, where every contract passed a notarial act, every judgment carrying a condemnation or acknowledgment of debts, carried a constitution of a general and occult hypothec on all the present and future property of the debtor.
• Secondly, three different regimes existed for purges ⁵ :
  • In the North and all the countries of pledge, the system of purge letters prevailed,
  • In Brittany, Appropriance was used. It was not strictly speaking a system of purges but a means of consolidating property rights.
  • In the rest of France the purge resulted from decrees or sales by authority of justice, which will quickly become voluntary decrees.

It is the unification of these scattered systems and antagonists that absolute monarchy will have to attach from the second half of the xvi ^th century.

The modern period

From the end of the xvi ^th century, the history of law of real estate sureties merges with that of the innuendo and the emergence of the status of mortgages

The entire security law will be reorganized in Book IV of the Civil Code by the order of 23 March 2006 on security ⁶ .

Nature of the mortgage

The nature and the characteristics of the mortgage result from the provisions of articles 2393 ⁷ and following of the Civil Code: “The mortgage is a real right on the buildings assigned to the discharge of an obligation. It is, by its nature, indivisible, and subsists in full on all the buildings affected, on each and on each portion of these buildings. She follows them in a few hands they pass. “.

The mortgage is a real right accessory

The mortgage consists of the assignment of an immovable to the guarantee of a debt, without dispossession of the debtor. It constitutes an ancillary right incidental to the claim.

It therefore presupposes a claim for which it guarantees payment and to which it remains closely bound.

It is not essential that the debt exists at the time of the constitution of the mortgage: it can guarantee a future or eventual debt.

Under this security, registered in the mortgage office, the creditor not paid at maturity, has the option to seize the property in any hand he is and to be paid by preference on the price.

The accessory right of the real right conferred by the mortgage also results that it automatically terminates when the claim is canceled by the waiver of the mortgagee or extinguished by payment and it follows the claim in the case of transfer of it.

Mortgage is a real estate right

Real estate security, the mortgage can only be built on buildings.

Indeed the civil code states:

• in Article 2397 of the Civil Code, “only mortgages are liable to:
  • real estate that is in commerce, and their accessories deemed immovable;
  • the usufruct of the same goods and accessories during the time of its duration “.
• in article 2398 of the civil code, “the furniture has no continuation by mortgage”.

The mortgage retains the character of a real estate right by virtue of its compulsory constitution on immovable property.

As an exception to the provisions of Article 2398 of the Civil Code, the prohibition against mortgaging furniture does not apply in respect of ships, boats and aircraft which, by reason of their easy individualisation, are liable to mortgage (C.Civ., Article 2399).

The mortgage is an indivisible right

Each part of a mortgage building guarantees the entire debt and every fraction of the debt is secured by the entire building.

These principles are applicable in particular:

• in case of division of the building (sale in several lots, dismemberment in bare ownership and usufruct); the mortgage subsists in full on each fraction of the building; also the creditor can demand the payment of the totality of his claim on the sufficient fraction of his choice;
• in case of division of the claim (death of the creditor leaving several heirs); each beneficiary may avail himself of the hypothec on the entire encumbered immovable;
• in case of division of the debt (death of the debtor leaving several heirs); the beneficiary (ies) of the mortgaged building must be responsible for all the debt. This solution results from Article 873 of the Civil Code which states that “the heirs are liable for the debts and expenses of the estate, personally for their share of the estate, and mortgage for all; […] “

Thus, the law prevents the mortgagee from pursuing each debtor to the extent of his share and removes, for his benefit, the risk of insolvency of one of them.

Scope of the mortgage

According to article 2297 of the Civil Code ⁸ only mortgages are allowed:

• real estate that is in commerce, and their accessories deemed immovable;
• the usufruct of the same goods and accessories during the time of its duration;
• improvements that occur in the building, to which the mortgage expressly extends.

Goods which could be mortgaged

This question covers:

• on the one hand the real estate rights susceptible of mortgage;
• on the other hand, what goods must bear the rights that may be mortgaged.

Real rights can be mortgaged

The mortgage most often relates to the property right itself. But various real estate rights resulting from a dismemberment of the property are also likely to be mortgaged.

Real property rights liable to mortgage include:

• the right of property , which should not be confused with the thing itself;
• the surface right or limited right of ownership on the surface of the ground;
• the bare ownership which has the advantage of bearing on a perpetual right. When the usufruct is extinguished, the mortgage then extends to full ownership;
• the usufruct , but the mortgage on it “for the duration of its duration” ends when the extinction of the usufruct (Civil Code, article 2397 paragraph 2) occurs;
• the right of the lessee holding an emphyteutic lease whose expiry entails the extinction of the hypothec;
• undivided property rights (common parts of condominiums).

On the other hand, other real estate rights that can not be alienated are not susceptible to mortgage. This is the case with the right of use and habitation , the right of joint ownership , and land rights , when considered in isolation.

However, the mortgage registered on a fund incidentally bears on easements or right of joint ownership attached to this fund.

Property susceptible of mortgages

Buildings by nature

As stated in Article 2397 of the Civil Code, only immovable property that is “in commerce” may be mortgaged, that is to say, seizable and alienable property, the mortgage must lead, in the absence of voluntary payment of the debtor, the forced sale of the pledge, only the buildings likely to be alienated can be encumbered with mortgage.

This condition excludes from the domain of the mortgage the buildings that make up the public domain of the State , the departments and the communes, whereas the buildings of the private domain are in commerce and can, as a result, be mortgaged.

Similarly, immovable property may not be the subject of a mortgage registration which, although belonging to private individuals, is inalienable or unseizable under the law or convention.

The hypothec can, in principle, be granted only on immovable property (C.Civ., Article 2419). The building must already belong to the one that constitutes the guarantee. Article 2420 of the Civil Code, however, provides an attenuation to the rigor of this rule.

Accessories

By accessories are meant active easements, the right of joint ownership of the buildings by destination, the products of the building and the fruits not detached.

These ancillary real estate can not be mortgaged in isolation. Firstly, the rights in question can not be detached from the building to which they relate, and secondly, the buildings by destination remain normally fixed to the immovable by nature. Conversely, the principal mortgage on the building extends to them.

In the event that the building by destination is detached from the fund by the will of the owner to be sold separately, it becomes legally a piece of furniture and is no longer part of the mortgage pledge; the creditor nevertheless retains the right of preference over the price.

Improvements

The acquired mortgage extends to all improvements that have occurred in the mortgaged property. (Article 2397 paragraph 4 of the Civil Code). It is not necessary in this case to distinguish whether these improvements constitute immovables by nature or only immovables by destination or, moreover, whether they emanate from the principal debtor (settlor) or from a third party holder of the building.

Among the improvements we can arrange:

• natural improvements (extinction of usufruct or servitude);
• industrial improvements (constructions and plantations).

Thus the mortgage taken on a building land extends to the buildings that are built there. Similarly, in the event of the destruction of the buildings, the hypothec which encumbered them is postponed by right on the constructions built in the same place.

The mortgage base

The basis of the mortgage is the extent of the guarantee offered to the creditor, that is to say the property on which it is established.

This guarantee can be general or special and results in a mortgage of the same nature.

Basis of general mortgages

General mortgages that can guarantee a claim are:

• the judicial hypothec (civic code, article 2412);
• legal hypothecs provided for by Article 2400 of the Civil Code or by other codes or special laws.

They affect all buildings, accessories and improvements included, which the debtor owns and all those who subsequently enter into his patrimony until the moment of his death. They therefore constitute a real right which may affect the debtor’s entire assets but which can not extend beyond the death of the debtor.

The generality of the mortgage is limited by Article 7 of Decree n ^o 55-22 of January 4, 1955 ⁹ on the precise indication of the nature and situation of the buildings encumbered:

• they become effective only when they are published in the Mortgage Office and take rank only on the day of their registration;
• in addition, they only encumber the buildings expressly designated in the registration slips and guarantee the claims only up to the amounts indicated on the said slips (civic code, article 2426).

Conventional Mortgage Base

The mortgage deed must contain a precise indication of the nature and situation of the encumbered immovables (Civil Code, Article 2418).

The debtor is not prohibited from mortgaging all of his properties, but each of them must be individually designated. Any formula carrying a general mortgage is proscribed.

The mortgage is in principle special, that is to say that it concerns only buildings present and individually designated.

This is the case of the conventional mortgage base.

The specialty rule has two aspects, the conventional mortgage must be special:

• as to mortgaged property;
• as to secured claims.

Specialty relating to mortgaged property

Article 2418 of the Civil Code provides that the constitution of a conventional mortgage is valid only if the authentic title constituting the debt or a subsequent act specifically declares the nature and situation of the buildings on which the mortgage is granted.

Moreover, this article refers to Article 2426 of the Civil Code which excludes “any general designation, even limited to a given territorial division”.

It follows that the special mortgage can not, in principle, encumber future buildings (Article 2419 of the Civil Code).

Specialty relating to the claim

The mortgage may be given as security for one or more current or future receivables; in the latter case, they must be determinable (Civil Code Article 2421, paragraph 1). The cause must also be determined in the act (Civil Code Article 2421, paragraph 2).

It is the responsibility of the notary in charge of drafting the mortgage deed to mention, on pain of nullity, the cause of the secured claim (for example, the sum due in repayment of a loan or advance of funds) and to indicate the amount of the claim.

When granted for security of one or more future receivables and for an indefinite period, the grantor may terminate it at any time except for a three-month period of notice. Once terminated, it only remains for the guarantee of the debts which were born before.

In addition, the mortgage must always be granted for a fixed sum mentioned in the notarial deed under penalty of nullity (Civil Code Article 2423, paragraph 1).

Where applicable, the parties evaluate for this purpose any undetermined, contingent or contingent annuities, benefits and entitlements. If the receivable is accompanied by a revaluation clause, the guarantee extends to the revalued receivable, provided that the act mentions it (Civil Code, Article 2423, paragraph 1).

Categories of mortgages

The various categories of mortgages are of legal, judicial or conventional origin.

Their originality is essentially their source, but their regime is identical to that of the conventional mortgage.

In other words, their constitution obeys their own rules, but the registration and the effects of the conventional mortgage form a corpus common to all mortgages.

The legal and judicial mortgages

Legal mortgages are those that result from the law (Civil Code, Article 2396).

They were provided for the benefit of creditors whom the legislator intended to protect in a special way. These creditors possess them by right without the need for a conventional constitution or a judgment. However, they must be registered to be opposable to third parties.

Judicial mortgages result in judgments in favor of the person who obtained them.

Legal mortgages

They result either from the provisions of the civil code or from other special laws.

Legal hypothecs of the Civil Code

They are provided for by Article 2400 and its general. It is :

• the legal hypothec of one spouse over the property of the other;
• the legal hypothec for minors and adults in guardianship over the property of the guardian or the legal administrator;
• the legal hypothec of the State, departments, municipalities and public institutions on the property of accountants and accounting administrators;
• the legatee’s legal hypothec on the property of the estate pursuant to article 1017 of the Civil Code;
• the general privileges of article 2331 of the Civil Code transformed into a legal hypothec to guarantee in particular: the expenses of last illness, the funeral expenses, the payment of the family allowances, the claims of the funds of family allowances or social security.

Legal mortgages provided by other codes or special laws

It is :

• the legal hypothec of the syndicate of co-owners for the guarantee of claims of any kind against each co-owner (article 19 of the law of 10 July 1965 fixing the status of co-ownership of immovables);
• the legal hypothec of the Treasury of article 1929 of the CGI on the buildings of the succession and on woods and forests;
• the legal mortgage of the Treasury for the recovery of taxes of all kinds and fiscal fines (article 1929 ter of the CGI);
• the legal hypothec of the State or departments on the buildings belonging to the recipients of social assistance (Code of Social Action and Families, art L 132-9).

Mortgage Mortgages

The judicial hypothec is that which results from judgments, either contradictory, or by default, definitive or provisional, in favor of the person who obtained them (Civil Code, Article 2412).

It follows from this article:

• any contradictory judgment or by default, definitive or provisional;
• an arbitral award as soon as it has been lodged with the execution order;
• a judicial decision rendered abroad and declared enforceable by a French court.

They are also general mortgages and cover all present and future property of the debtor.

However, this principle is attenuated, in the form, by the rule of the specialty of registration which obliges the creditor to designate exactly the immovables on which he intends to have the registration entered.

The judicial hypothec is special as to the secured claim. It covers the principal amount of the sentence as well as the accessories, interest, damages and expenses; the amount of the claim must be determined or assessed with a view to the registration formality.

The provisional judicial hypothec

The registration of the hypothecary mortgage provided may not be required as soon as the dispute arises but only after the judgment of conviction has been pronounced.

As a result, the judicial hypothec risks having no effect if the debtor has used the procedural delays to organize his insolvency.

To prevent this risk, the legislator has created the judicial mortgage taken as a precautionary measure.

The creditor can thus ensure a guarantee pending the judgment of conviction.

This mortgage, organized by articles L531-1 and following and R531-1 of the CPCE, constitutes in the full sense of the word a judicial mortgage since it has its source in the decision of a judge.

The conventional mortgage

According to Article 2396 of the Civil Code, “the conventional mortgage is that resulting from the agreements” . It is created by a contract concluded between the creditor (the stipulator), who intends to secure his claim by means of a security right, and the debtor (the grantor) who grants it on his property.

This contract is subject not only to the general rules of contract formation but also to specific conditions of validity.

The conditions of form

The mortgage contract must be in authentic form that the decree n ^o 55-22 of January 4, 1955 requires all acts subject to the formalities of land registration.

In addition, Article 2416 of the Civil Code requires that the deed evidencing the conventional mortgage be a notarial act .

The case-law allowed the validity of a private deed deposited in the minutes of a notary, with acknowledgment of the writings and signatures of the parties, but the new Article 710-1 of the Civil Code (introduced by Article 9 of law n ^o 2011-331 of 28 March 2011) deems that such an act can not give rise to land registration formalities.

The mortgage contract is one of the few solemn contracts whose monopoly is entrusted to the notaries.

Fund conditions

Regarding stipulating

The stipulator must hold a claim. According to Article 2423 of the Civil Code, this must be certain and determined by the act.

However, the same article adds that if the claim is indeterminate in its value, the creditor may request registration for an estimated value which he expressly declares.

Moreover, this claim, which is generally current, can be conditional and even eventual. In the latter case, however, it is necessary to indicate, in a sufficiently precise manner, the event that may give rise to the claim in such a way as to be able to distinguish it.

Regarding the applicant

The applicant must hold a real right which he agrees to charge. It must have the capacity to alienate buildings. This excludes minors even emancipated, legal and legal prohibitions, persons provided with a judicial council, traders against whom a collective procedure is open (recovery or liquidation).

Specific conventional mortgages

The order n ^o 2006-346 of 23 March 2006 on security has created two new mortgage guarantees: the rechargeable mortgage (Article 14 of the Ordinance) and the reverse mortgage (Article 41). The purpose of these two instruments is to develop mortgage credit for the benefit of individuals and individuals individually engaged in an economic activity and registered in a professional legal advertising register.

The conventional rechargeable mortgage

The conventional rechargeable mortgage allows the constituent of the original mortgage to assign his mortgage to the guarantee of claims other than those mentioned in the constituting act provided that it expressly provides for it, within the limit of the amount determined in the ‘constitutive Act.

The faculty to assign the mortgage, stipulated rechargeable in the deed of incorporation or made rechargeable by the registration of an amendment, to the guarantee of other claims is made by means of a reloading agreement concluded between the debtor having the hypothec and the original creditor or a new creditor.

However the possibility of equity release for consumer credit individuals was abolished from 1 ^st July 2014 and in the new wording of article 2422 of the Civil Code, the refillable mortgage is now possible for a mortgage created for business purposes by a natural or legal person subsequently assigned to the guarantee of professional claims other than those mentioned in the constituting act, provided that it expressly provides for it.

In accordance with Articles 2422 ¹⁰ and 2430 ¹¹ of the Civil Code, the reloading agreement is in the notarised form and is published in the Mortgage Office in the form of a statement on the sidelines of the registration that has just become unenforceable against third parties.

The conservative now since 1 ^st January 2013, the head of the land registration service, is entitled to refuse to mention in the margin if the recharging agreement does not meet these requirements. It is also entitled to refuse the publication of the agreement in the absence of certification by the notary that the claim secured by the reloading agreement does not exceed the available share of the amount provided in the deed of incorporation (or rider) that may be used to guarantee other claims.

Mortgage life loan

Mortgage life loans are conventional mortgages taken as collateral for debts that have not matured.

The mortgage life loan is instituted by Article L 314-1 of the Consumer Code ¹² .

It is a loan agreement “secured by a mortgage on a real estate property of the borrower for exclusive use of housing whose repayment – principal and interest – can be required on the death of the borrower or when the alienation or dismemberment of the property of the mortgaged property if it occurs before the death “.

The borrower’s or his assigns’ debt is capped at the value of the property valued at the end of the term (Article L 314-9 ¹³ of the Consumer Code).

Addressing almost exclusively the elderly, this type of loan allows to obtain liquidity of its patrimony without separating it, contrary to the sale in life. This loan can be useful for supplementing income or coping with unforeseen expenses (dependency, housing repair, etc.).

The registration of the mortgage

Mortgage registration is the formality of advertising ensuring the third-party effectiveness of mortgages and special real estate liens by registration in the mortgage office identifying the creditor and the debtor, indication of the secured claim, and designation of the immovable charged.

This measure is not a condition of validity of the security right which exists solely by virtue of the constituting act and binds the debtor and his successors independently of its publication. But, in the absence of advertising, the mortgage is not binding on third parties, even if they are aware of it.

On the other hand, the registered mortgage is opposable to the purchasers of a real right and the hypothecary creditors, subsequent to the inscription, as well as to the unsecured creditors .

The delivery of vouchers is entered in the register of deposits provided for in Article 2453 of the Civil Code, under certain conditions of form and substance.

This mention on the said register determines the date of registration and the rank of mortgages between them.

However the effects of the inscription are limited in time.

In the most frequent case where the secured obligation is to be paid on one or more specific dates and to the extent that the registration is made before the expiry or the last expiry, the effective date of such registration may not be more than one year after the expiry or the last due date.

The provisions of Article 2434 of the Civil Code ¹⁴ take into account the creation of new mortgage guarantees: the mortgage life loan and the conventional rechargeable mortgage and set the maximum duration of registrations to 50 years that retain these securities.

The normal way to avoid the lapse of registration is to request renewal before the expiry of the period after which it ceases to have effect (Civil Code, Article 2435, paragraph 1).

The renewal registration is not considered a new listing with a new rank. Renewal has the effect of keeping the rank of the original mortgage. The mortgage, by the game of successive renewals required before expiry of the expiration period, can be validated indefinitely.

The effects of registration

The registration of the hypothec confers on the creditor who owns it a right of preference and a resale right .

The right of preference

The right of preference gives the creditor, by way of derogation from the principle of the equality of (unsecured) creditors, the right to be paid by preference to other creditors over the proceeds of the sale of the property over which he has a preference.

The right of preference is inherent to the mortgage: it exists as soon as the mortgage is constituted and applies as soon as the value of the property appears in liquid form (payment of the price in case of realization or adjudication). Since the hypothec is a real right, its owner is entitled to receive directly the value of the property.

Between the creditors, the hypothec, whether legal, judicial or conventional, ranks only from the day of the registration made by the creditor for the preservation of the mortgages, in the form and in the manner prescribed by law.

The hypothec inscribed first on an immovable is consequently preferred to that which is inscribed later and so on.

When the deposit has been accepted, the applicant of the registration regularizes the bill deposited with omissions or errors likely to motivate the rejection of the formality, the latter takes rank of the date of the delivery of the note found in the register of deposit.

It is the date of the authentic instrument constituting the mortgage which fixes the rank of the registrations deposited the same day. If the acts are of the same date and filed the same day, they compete with their rank.

The rank of the mortgage, which determines its priority over any other security encumbered on the base, takes effect on the date of its registration.

The resale right

The resale right allows the creditor to have the secured property seized in any patrimony in order to realize his rights. Thus the droit de suite is a right attached to a good (real right) and not to the person who owns or owns the property (personal right).

This right therefore appears as the necessary extension of the preferential right in the case where the immovable has entered the patrimony of a third party holder (or third party purchaser); but it can only be exercised by creditors who have registered their security.

The cost of registration

Expenses occasioned by the registration renewal or cancellation, are broken down into notary fees and taxes.

Ancillary costs of justice or public officer

The assistance of an officer of the court or a public and ministerial officer is mandatory for some of these operations. However, the intervention of these professionals, paid either by a free fee, or a fee paid.

The remuneration of the notary proper (the emoluments) is fixed by a scale defined by decree, it is proportional to the amount of the registration of which it represents about 1.33%.

To this is added the emoluments of formalities which correspond to the fulfillment of certain administrative procedures (checks of civil status, certificate of town planning, copy of the authentic deed of sale, etc.).

Taxes taxes

On the tax side two taxes are applicable: the land registration tax and the contribution of real estate security, since 1 ^st January 2013, replaces the same wages Conservative ¹⁵ .

The property tax (TPF)

It is levied at the proportional rate applicable to conventional or legal mortgage registrations. This rate is 0.71498% of the guaranteed amount in 2014.

This tax is liquidated on the sums guaranteed in capital, interest and accessories, even indeterminate, possible or conditional, expressed or evaluated in the list.

Registrations which escape the proportional tax are subject to a fixed tax of 25 € .

The fixed tax of 25 € is the only one required when depositing purely corrigenda or supplementary slips.

Registrations for renewal do not give rise to the collection of the land registration tax.

Pursuant to Article 845 of the General Tax Code ¹⁶ , registrations of the legal mortgage of the Treasury are exempt from the property tax.

The same article of the CGI specifies that the tax of land registration is not perceived at the time of a registration of judicial mortgage required by the State, but must be paid at the time of the cancellation of the inscription.

The real estate security contribution

The real estate security contribution, which amounts to 0.05% of the guaranteed amount (calculated as in the case of TPF), can not be less than 8 or 15 € depending on the case. She replaces the former salary of the curator.

In case of renewal of registration, the real estate security contribution remains due.

The legal mortgage of the treasury, like the judicial mortgage whose registration is required by the state, give place to the payment of the security contribution real estate according to particular modalities.

See also

• An article in Finance & Strategies for Mortgage Current Accounts  [ archive ]

References