Mortgage Securities and Priorities in Quebec | Complete Guide

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In Quebec, the system of securities and priorities is governed by the Civil Code of Quebec and determines the order in which creditors are repaid when immovable property is sold, whether voluntarily or by judicial authority. Prior claims (art. 2651 C.C.Q.) rank ahead of hypothecs and include legal costs, municipal claims for property taxes and Crown claims. The legal hypothec of construction (art. 2726 C.C.Q.) protects contractors, subcontractors and workers who participated in the construction or renovation of an immovable. It ranks ahead of all other hypothecs on the added value given to the immovable. Mortgage brokers must understand these mechanisms to properly assess the real risk of a loan. A lender granting mortgage financing must ensure no legal hypothec of construction is in effect, as it could rank ahead of its conventional hypothec. Verification at the Land Register and the RPMRR is essential before any disbursement.

Understanding Securities and Priorities in Quebec Law

The Civil Code of Quebec establishes a rigorous priority order among the different types of claims that can encumber immovable property. This system determines which creditor will be paid first upon sale of the property, whether voluntary or by judicial authority. Mortgage brokers must understand this order to properly advise their clients and assess the risks associated with each transaction.

Prior Claims

Prior claims (art. 2651 C.C.Q.) are paid before any hypothec, regardless of its rank. They include legal costs incurred in the common interest of creditors, municipal and school board claims for unpaid property taxes, and Crown claims (taxes and duties). These claims do not need to be published to be enforceable; they are preferred by operation of law alone.

The Legal Hypothec of Construction

The legal hypothec of construction (art. 2726 C.C.Q.) is a crucial protection mechanism for contractors, subcontractors and workers who participated in the construction or renovation of an immovable. It arises by operation of law alone, without need for a contract, and ranks on the added value given to the property by the work. The contractor must publish this hypothec at the Land Register within 30 days after the end of the work to preserve it.

The legal hypothec of construction arises automatically for participants in the work
It must be published within 30 days after the end of the work
It ranks ahead of conventional hypothecs on the added value of the work
Lenders often require a holdback or surety bond for protection

Ranking of Conventional Hypothecs

The rank of conventional hypothecs is determined by the date and time of publication at the Land Register. The first-ranking creditor is repaid before the second-ranking creditor. Rank assignment allows a creditor to yield its position to another. This mechanism is important during refinancing: the new lender will want to obtain first rank, which requires the release or rank assignment of the existing hypothec.

Frequently Asked Questions

What is a prior claim in Quebec?

A prior claim is a claim that, under the Civil Code of Quebec (art. 2651), is paid before hypothecary claims upon distribution of the proceeds from the sale of property. Prior claims include legal costs, municipal claims for unpaid property taxes and certain Crown claims.

How does the legal hypothec of construction work?

The legal hypothec of construction (art. 2726 C.C.Q.) arises automatically in favour of contractors, subcontractors and workers who participated in work on an immovable. It must be published at the Land Register within 30 days after the end of the work. It ranks ahead of other hypothecs on the added value given to the immovable by the work.

Do unpaid property taxes take priority over the lender's mortgage?

Yes. Municipal claims for property taxes are prior claims that rank ahead of all hypothecs, including the first-ranking lender's mortgage. This is why lenders often require taxes to be paid through the mortgage payment or regularly verify the status of property taxes.

Why check the Land Register before granting a loan?

Checking the Land Register confirms the property owner, identifies all existing hypothecs and their ranking, detects servitudes or charges, and verifies the absence of legal hypothecs of construction. This verification is essential to assess risk and déterminé the rank of the new loan.

What is a hypothecary rank assignment?

A rank assignment is an agreement by which a hypothecary creditor agrees to yield its rank to another creditor. For example, a first-ranking creditor may agree to yield its rank in favour of a new lender. This assignment must be published at the Land Register to be enforceable against third parties.