What Is a Mortgage? Legal Nature in Quebec and Canada

Q: What is the difference between a mortgage and a mortgage loan?

The mortgage (hypothec) is the security (real right) encumbering the property, while the mortgage loan is the financial obligation to repay the borrowed amount. The mortgage secures the loan. In other words, the loan is the debt and the mortgage is the lender's right over your property in case of default. This distinction is established by the Civil Code of Quebec in articles 2660 and following.

Q: What are the rights of a hypothecary creditor in Quebec?

The hypothecary creditor holds two main rights: the right to follow (art. 2660 CCQ), which allows the creditor to follow the property into the hands of any subsequent purchaser, and the right of preference (art. 2660 CCQ), which grants the creditor priority of payment over ordinary creditors in case of forced sale or realization of the security.

Q: Does a mortgage transfer property ownership to the lender?

No. In Quebec, a mortgage grants the creditor a real right over the property, but the debtor (borrower) remains the owner. The creditor can only take possession of the property by exercising hypothecary remedies in case of default, following the procedures set out in articles 2748 to 2794 of the CCQ.

Q: How are mortgages regulated in Quebec?

Mortgages are governed by the Civil Code of Quebec (articles 2660 to 2802). Fédéral lenders are supervised by OSFI (Office of the Superintendent of Financial Institutions), and mortgage brokers in Quebec are regulated by the AMF under the LDPSF. The mortgage deed must be executed by a notary and published in the Quebec Land Registry.

Q: Why is it important to understand the legal nature of a mortgage?

Understanding the legal nature of a mortgage allows the borrower to better grasp their rights and obligations, negotiate knowledgeably with lenders, and make informed decisions when purchasing, renewing, or refinancing. This understanding also helps assess the consequences of default and the creditor's available remedies.

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What Is a Mortgage? Understanding the Legal Nature of This Security

For many Canadians, the word "mortgage" is synonymous with a home loan. However, from a legal perspective, the mortgage and the mortgage loan are two distinct realities. In Quebec civil law, the hypothec (mortgage) is an accessory real right — a security that encumbers immovable property to guarantee the performance of an obligation. The loan, on the other hand, is the principal obligation: the sum of money the borrower undertakes to repay according to agreed terms.

The Legal Framework in Quebec: The Civil Code of Quebec

In Quebec, mortgages are governed by Book Six of the Civil Code of Quebec (CCQ), specifically in articles 2660 to 2802. Article 2660 CCQ defines the hypothec as a real right on movable or immovable property, charged to secure the performance of an obligation. This right gives the creditor the right to follow and the right of preference. Quebec distinguishes itself from other Canadian provinces through its French-inspired civil law system, meaning Quebec mortgage rules differ significantly from the common law applicable elsewhere in Canada.

The Parties Involved: Creditor and Debtor

The hypothecary relationship involves two main parties. The hypothecary creditor is the lender — typically a bank, a Desjardins caisse populaire, or a private lender — that advances the funds and obtains a real right over the property as security. The hypothecary debtor is the borrower — the property owner — who agrees to encumber their property to guarantee loan repayment. It is essential to understand that the debtor remains the owner of the property throughout the duration of the hypothec. The creditor holds only a right over the property, not ownership itself.

The Fundamental Rights of the Hypothecary Creditor

Right to Follow: The right to follow (art. 2660 CCQ) allows the hypothecary creditor to follow the immovable property into the hands of any subsequent purchaser. If the borrower sells the property without repaying the hypothec, the creditor retains the right over the property and can exercise remedies against the new owner.

Right of Preference: The right of preference (art. 2660 CCQ) grants the hypothecary creditor priority of payment over ordinary (unsecured) creditors when the security is realized. This means the hypothecary creditor will be paid before unsecured creditors in the event of a forced sale of the property.

Real Security: How It Protects the Lender

The mortgage constitutes a real security, as opposed to a personal security (such as a surety). This means the guarantee is attached to the property itself, regardless of who holds it. For the lender, this security represents considerable protection: in the event of default, specific hypothecary remedies are available under articles 2748 to 2794 of the CCQ, including the right to sell the property under judicial authority, to take the property in payment, or to take possession for purposes of administration.

The Role of Regulatory Bodies

Several regulatory bodies oversee mortgage activity in Quebec and Canada. The Office of the Superintendent of Financial Institutions (OSFI) establishes prudential guidelines for fédéral financial institutions, including qualification ratios and mortgage stress tests. The Autorité des marchés financiers (AMF) supervises mortgage brokers in Quebec under the Act respecting the distribution of financial products and services (LDPSF), ensuring consumer protection and professional competency. The Canada Mortgage and Housing Corporation (CMHC) plays a key role in mortgage loan insurance for down payments under 20%.

What Every Quebec Borrower Should Remember

Understanding that the mortgage is a security and not the loan itself is the first step toward better managing your mortgage file. This knowledge allows you to better evaluate the implications of refinancing, renewal, or switching lenders. When you sign a mortgage deed at the notary's office, you are granting the lender a real right over your property — a serious commitment that deserves to be understood in depth. An AMF-certified mortgage broker can guide you through this process and explain the nuances of your mortgage contract.