What Is the Procedure for Enforcing the Right of Pursuit?
When you grant a mortgage on a property, the beneficiary creditor, called the “mortgagee”, has a right of pursuit on the property.
What is this right, and what does it imply for you? Here is an update on the issue.
Resale right: what is it?
The mortgage is the assignment of an immovable as a guarantee of an obligation without dispossession of the person who constitutes it.
Example: you buy real estate. The bank that grants you a mortgage takes a mortgage registration on your property to guarantee its loan.
The mortgage is characterized by the following:
a preferential right over all or part of the other creditors;
a right of succession for the benefit of the mortgagee.
The mortgagee, therefore, has priority over many other creditors who would benefit from registration on the property. Moreover, he is protected even if other persons acquire the property.
The right of pursuit is the faculty offered to the mortgagee to seize the property in the hands of the third party holder in the event of the sale or transfer of the property to obtain payment of his claim.
This right is enforceable against any third-party holder, regardless of his good or bad faith.
Good to know: the third party holder can be any person who has come into possession of the disputed property due to a sale or transfer (donation, inheritance, etc.).
What is the procedure to apply the right of resale?
To be able to exercise his right of pursuit, the mortgagee must meet three conditions:
His registration must be prior to the transfer of the property to the third party holder.
His claim must be due and payable.
An enforceable title must also establish it.
Good to know: an enforceable title is a legal act establishing a right to a claim.
The right of pursuit is exercised through the procedure of seizure of property, which aims to sell the property by auction.
Materially, the creditor sends by way of a bailiff an order to pay to the third party holder:
This act mentions the possibility left to the holder to pay the debt or to leave the property.
Failing this, the creditor is entitled to pursue the sale of the property by auction.
Rights of the third party holder
As the holder of an immovable, what can you do if a creditor tries to enforce his rights against you?
Several exceptions can be used against a mortgagee:
First, those specific to the debtor (the one who assigned the property to you). For example, if the debtor had a means of nullity or prescription regarding the claim, you can oppose this exception to annihilate the creditor’s right.
You can also use the means specific to the third party purchaser, exception for guarantee or benefit of discussion.
The outcome of the procedure
Apart from these exceptions, as soon as the rights of the mortgagee are founded, three solutions are offered to the third-party holder:
He can “relinquish” the property, as stated, to pay. This means that he renounces acquiring it. This surrender can be made by all third-party holders who are not personally obliged to the debt and who can alienate.
To retain ownership of the property, it is possible to pay the debt to the mortgagee. In this case, the registration is discharged, and the third party holder regains full possession of the real estate. However, this solution is only interesting if the debt or debts are less than or equal to the price of the property.
Another interesting solution remains for the third-party holder to proceed to the “purge of mortgages”.
This is a special procedure that allows him to remain the owner of the property after certain formalities have been completed:
to have the quality of the purchaser of the property ;
not to be personally liable for paying the debt;
to be in a legal capacity to dispose of the property.
If he meets these conditions, the third party holder can purge the property of all mortgages, offering the creditors its acquisition price or its estimated value.
Finally, if the third party holder does not respond to the summons to pay, and if the auction of the property takes place, the third party holder has recourse against the seller to recover the property’s sale price.
Good to know: to avoid this type of inconvenience, it is necessary to take care of the mortgage registrations on a property before any transfer or acquisition. Find out more from the land registry office where the property is located.
Looking for a mortgage specialist in Ontario?
Principal Broker Jason Georgopoulos and a team of professionals at DLC Estate Mortgages will discuss your options and assist you in making an informed decision, as they are keenly aware of the most recent market developments.