A mortgage is a guarantee that financial institutions usually ask for in exchange for loaning you money.
In Quebec law, the official name for a mortgage is a hypothec.
What is a mortgage?
A mortgage is always linked to an obligation. If you have an obligation to pay someone money, the mortgage guarantees you will pay it.
For a major purchase, such as a home, it’s often necessary to get a bank loan. In exchange for the loan, you give the bank a legal claim on your home. If you don’t repay the loan, the bank can take steps to recover its money, by having your home sold, for example.
Even when there is a mortgage on your home, you are still the owner. The mortgage is just there to guarantee you will pay back the loan.
Buying a house . . . and its debt
A mortgage remains attached to a home even when it is sold. You can therefore buy a home and its mortgage even though you were not the person who took out the loan. You will have to pay back the loan guaranteed by the mortgage. This is known as the creditor’s “right to follow”.
If the sale price is not enough to pay back the loan guaranteed by the mortgage, creditors can take steps to recover any unpaid debts. For example, a bank could have your home sold!
Beware of “legal mortgage”!
Normally, a mortgage can’t be registered on a home without the owner’s agreement. However, this is not the case for “legal mortgages.” These can be created in certain situations, without the owner’s agreement. Legal mortgages can result from:
- claims by the government for unpaid taxes
- claims for money owing due to a court judgment
- claims by people involved in the construction or renovation of a home, for example, workers, architects or suppliers of materials. This is called a “construction mortgage”.
You should pay special attention if construction or renovation work was done recently on the home you’re buying, or if it has not yet been completed. You may face the bad surprise of a construction mortgage in the days following the sale!
The seller must inform you of any legal mortgages affecting the house and is obliged to have them cancelled.
If you buy a condo
Thinking of buying a condo? If so, make sure to ask the syndicate of co-owners (condo association) whether the seller still owes money for the condo fees. The syndicate can register a legal mortgage on the condo if these fees have not been paid.
Be careful! If the fees are still not paid at the time of sale, you will be responsible for paying them. In this situation, you can withhold part of the sale price to pay the fees.
From the date you make a request to the syndicate for a statement of any fees owed by the seller, it has 15 days to provide it. After this deadline, you are not responsible for paying the fees.