Buying a Home: The Hypothec (Mortgage)

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As part of our series on buying a home, this article focuses on hypothecs.

What is a hypothec? 

A hypothec (the Quebec legal term for a mortgage) is always linked to an obligation. If you have an obligation to pay someone money, the hypothec 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 hypothec on your home, you are still the owner.  The hypothec is just there to guarantee you will pay back the loan.

Buying a house . . . and its debt

A hypothec remains attached to a home even when it is sold. You can therefore buy a home and its hypothec, even though you were not the person who took out the loan. You will have to pay back the loan guaranteed by the hypothec. 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 hypothec, creditors can take steps to recover any unpaid debts. For example, a bank could have your home sold!

Beware of “legal hypothecs”!

Normally, a hypothec can’t be registered on a home without the owner’s agreement. However, this is not the case for “legal hypothecs”.  These can be created in certain situations, without the owner’s agreement.  Legal hypothecs 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 hypothec”.

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 hypothec in the days following the sale!

The seller must inform you of any legal hypothecs 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 hypothec 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.

The syndicate has 15 days from the date you make your request to provide you with a statement of any fees owed by the seller. If it doesn’t do this, you are not responsible for paying the fees.