Mortgage Default in Quebec: Understanding the Process and Your Rights
Mortgage default is a situation every borrower wants to avoid, but one that is essential to understand. In Quebec, the recovery process is rigorously governed by the Civil Code of Quebec, offering significant protections to borrowers while allowing lenders to protect their interests. Default most commonly occurs due to missed payments, but it can also result from failure to meet other contract conditions, such as failure to maintain home insurance or voluntary détérioration of the property.
Steps in the Recovery Process
- Late notice and initial communication: After one or two missed payments, the lender will contact the borrower by phone or in writing to understand the situation and attempt to find an amicable solution. This is the ideal time to be proactive and discuss a repayment plan.
- Formal notice of default (mise en demeure): If the default persists, the lender sends a formal notice of default, a legal notice specifying the outstanding amount, accumulated interest, and the deadline to remedy the default. The notice is generally sent by registered mail or served by bailiff.
- Prior notice of the exercise of a hypothecary right: If the borrower does not remedy the default after the notice, the lender serves a prior notice of the exercise of a hypothecary right. This formal legal document must be registered at the Quebec Land Registry and specify the remedy the lender intends to exercise.
- 60-day period (immovable property): From the registration of the prior notice at the Land Registry, the CCQ grants a 60-day period for residential property. During this period, the borrower can remedy the default by paying all arrears, interest, and costs, which ends the process.
- Exercise of the hypothecary remedy: If the 60-day period expires without the default being corrected, the lender may exercise the remedy announced in the prior notice. The court intervenes in most cases to protect the borrower's rights and ensure the process meets CCQ requirements.
The Four Hypothecary Creditor Remedies
- Taking in payment
- The hypothecary creditor asks the court to award ownership of the property in full satisfaction of the debt. Once taking in payment is granted, the lender becomes the owner and the borrower is released from the remaining debt, even if the property's value is less than the amount owed.
- Sale under judicial authority
- The court orders the sale of the property and the sale proceeds are distributed according to creditor priority. If the sale proceeds are insufficient to cover the debt, the borrower may remain responsible for the balance in certain circumstances.
Protecting Your Rights in a Default Situation
The CCQ provides important protections for borrowers in default situations. The right to remedy the default during the 60-day period is fundamental and cannot be waived by the mortgage contract. Additionally, the borrower can contest the lender's remedy before the court if they believe the process has not been followed. In the case of taking in payment, the borrower is released from the remaining debt, which provides protection against a deficiency if the property's value is less than the amount owed. It is strongly recommended to consult a lawyer or notary specializing in mortgage law in Quebec if you receive a prior notice of exercise, in order to fully understand your options and protect your rights.