Are you planning to build your next home and have never heard the term "legal construction mortgage" before? You need to be careful. It could play a very nasty trick on you.
In fact, it's better to be well informed in order to make an informed choice in this type of transaction. Your RE/MAX real estate broker will be able to guide you, but in the meantime, here's some information.
What's the difference between a conventional mortgage and a legal construction mortgage?
A conventional mortgage is a loan granted to the homeowner to finance the purchase of a property, whether it's a single-family home, condo, plex or cottage. On the other hand, a legal construction mortgage is a mechanism for securing the claims of builders and renovators arising from the work they carry out on a building. Ultimately, the legal construction hypothec allows the building on which it is registered to be sold in court, with the proceeds used to pay off the builder's, renovator's or material supplier's claims.
How does a legal mortgage work?
Before a legal hypothec can be implemented, several steps must be taken to comply with the law:
1. Denunciation of contract
The legal hypothec of a contractor or supplier of materials who contracts directly with the owner arises from the simple fact of concluding the contract. On the other hand, suppliers, subcontractors and other parties who have not entered into a contract directly with the owner must disclose the existence of their contract to the owner.
2. Publication deadline
The construction legal hypothec must be published within thirty (30) days of the completion of all work on the construction project. This means that a contractor who performed carpentry work at the very beginning of the construction site will have more time to publish his construction legal hypothec than a contractor who performed electrical work, for example.
3. Advance notice of exercise
This exercise notice serves to inform the owner of the mortgage holder's intention to exercise the mortgage. It must be published in the Land Register within six (6) months of publication of the mortgage. Once this period has elapsed, the mortgage holder no longer has a mortgage recourse, and a request for cancellation of the mortgage may be submitted.
4. Mortgage recourse
Once all notices have been published, the holder of the legal construction mortgage can exercise his hypothecary recourse against the owner.
Landlords: what to do if a legal construction mortgage is published on your building or if you have a mortgage recourse?
Given the risks of having your property sold in court, as mentioned above, don't delay in consulting a lawyer. A legal advisor will be able to advise you properly in this type of situation. In addition, if you hire a general contractor to build your property, make sure that he has paid all his subcontractors and others involved in the construction project before paying him the full purchase price. The notary involved in the transaction will be able to advise you in this regard!