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Be careful with legal mortgages at the time of the purchase of a building

Be careful with legal mortgages at the time of the purchase of a building

When you go to the notary, in particular for the purchase of a property, you will be there probably for approximately an hour. That moment when you become an owner is only part of the work which the notary completes in a file. Indeed, an important part of his work is to take care, according to article 1723 of the Civil code of Quebec, to guarantee to the purchaser, on behalf of the salesman, that the building is free of all claims, in particular mortgages and constraints which could burden it. To do that, he carries out an investigation on the titles, which consists of the checking of the history of a building according to acts published in the land register and which makes it possible to draw up the most exact portrait possible of the situation of a property.

Legal mortgage of the construction

Certain rights are unfortunately more difficult to detect, even for the lawyer, because they can exist without being published. This is in particular the case for the legal mortgage in favour of the people who took part in the construction or the renovation of a building. If suppliers of materials, subcontractors, engineers or workmen are not paid by the contractor-general, a legal mortgage in their favour remains during 30 days following the end of the works, at the end of which they have the right to register a notice of legal mortgage on your building to preserve their guaranteed credit. This credit will thus pass before any other mortgage already published (your mortgage loan, in particular). The Regulation respecting the guarantee plan for new residential buildings expressly excludes the obligation for the contractors to guarantee the credits of the people who took part in the construction. The existence of a mortgage on your property, if you do not pay the credit which is connected there, allows to take the building in payment. It is important to understand the difficulties which the lawyer must then face and the mechanisms which are installed with an aim of protecting your property.

The financial lending institutions, in these cases, will possibly ask for the detention of part of the funds during a secure delay of at least 30 days beginning from the end of the works. Thus, it is mentioned in the decision La société hypothécaire Scotia vs. Chrétien (footnote 1) that the only and single means of protecting oneself is to carry out the payments only 30 days after the end of the work, and to have checked the land register as a preliminary. This reserve should be made even in the absence of a financial institution, to protect the purchaser. These mechanisms must be considered and be the subject of an agreement between the purchaser and the manufacturer, ideally at the moment of the preliminary contract, which is written most of the time in the absence of a lawyer or of a notary. Moreover, before the last payments, it is advisable to ask for a proof of payment from all the preferential creditors and to obtain a certificate of the finishing of the work. These methods do not entirely erase the risks, a delay of 30 days being always appropriate before the last installment.

Increased importance for the buildings with condos

This warning is all the more important for projects of divided co- ownerships. The end of this work can also take place within a more or less long delay after your purchase and there are certain uncertainties as for the exact end of the works. These difficulties can lead the notary to suggest the subscription of an insurance of titles to cover the losses caused by the possible presence of such mortgages, protecting you thus for as long a time as you are owner of your housing unit.

Indeed, the people who took part in the construction of the building hold a right on all the units and can register their notice of mortgage on any of the units, even on all of them. Even if the work has been completed for a unit of co-ownership for more than 30 days, the difficulty lies in the fact that it is not protected from the legal mortgages if work on common portions is going on.

Legal mortgage of the syndicate of co-owners

The syndicate of co-owners also has a mortgage which is its own, guaranteeing the sums which are due to it as contribution to the common costs as well as to the contingency funds, when these sums were not discharged during more than 30 days. However, the absence of mortgage or its radiation does not mean the absence of credit on behalf of the syndicate of co-owners. Indeed, the sums due follow the property of the fraction and the third purchaser of a condo can then be personally held to payment of the sums which had been owed by the former owner. It is thus necessary to go, once again, beyond the examination of the titles to the register and to ask a certified state of the common costs due to the fraction in question.

In addition to this checking on the titles, the notary must analyze many legal documents. A detailed attention must be paid to the certificate of localization and the cover of insurance. To this will be added, in the case of divided co-ownership, the declaration of co-ownership, which can prove to be a tiresome document to study, which informs on other aspects of co-ownership, in particular the nature of the rights in parking spaces.

Now that you know part of the difficulties at the time of purchases of new buildings, whether it be a one-family house or a unit of condominium, do not hesitate to communicate with your notary or your lawyer before concluding any offer of purchase, because he will be able to advise you in relation to your particular situation.

1. La société hypothécaire Scotia vs. Chrétien, C.Q. No 200-02-003068-956, March 5, 1996.

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Québec Landlords Association (1)

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