Private Mortgage Default in Quebec: The Prior Notice of Exercise and Your 60 Days

Payments on a private mortgage have fallen behind, or the loan matured without being repaid. Then a document titled “prior notice of exercise” is served on you. Many borrowers read it as a foreclosure that has already happened. It is not: it is the start of a countdown. Our article on private second mortgages and combined loan-to-value explains how these loans are structured. This one explains what happens when they stop being repaid, and what the borrower can still do.

What a prior notice of exercise is

In Quebec, a mortgage lender cannot take back a property overnight. Before exercising a hypothecary right, the creditor must register a prior notice of exercise in the land register and serve it on the debtor. The Civil Code of Québec makes this a precondition: without the notice, the remedy cannot be exercised.

The notice states the default being alleged and the remedy the creditor intends to use. Whether the lender is a bank or a private individual makes no difference: a private lender holding a hypothec follows the same rules.

That matters for anyone who borrowed from an individual or a small lender. The relationship can feel less formal than with a bank, and the borrower may assume a verbal arrangement or a quick email settles things. Until the default is cured according to the rules, the registered notice stays on the land register and the period keeps running.

The 60-day period for a property

Once the notice is registered and served, the creditor has to wait before exercising its remedy. For immovable property, the Civil Code of Québec provides a 60-day period.

That period is the window in which the borrower is still in control. It is not long: understanding the situation, raising the money or lining up new financing is measured in weeks. When the period starts in your particular file is a question to put to a lawyer or notary as soon as you receive the notice.

Paying what is owed to stop the recourse

During the period, the debtor can defeat the recourse by paying what is owed, meaning the arrears and the costs. In other words, you do not need to repay the whole loan to stop the process: you need to cure the default.

The practical difficulty is knowing the exact figure. It is made up of the missed payments, the interest on them and the costs the creditor has incurred. Read the notice, ask the creditor for a precise statement of what is claimed, and have the calculation checked: a miscalculated amount can sink a payment you thought was enough.

Keep a written record of every exchange with the creditor and every payment made during the period. If the default is cured, that record shows the recourse no longer applies. If a dispute arises, it lets your lawyer or notary reconstruct what was paid, when, and on what account.

Voluntary or forced surrender

If the default is not cured when the period ends, the creditor can require the debtor to surrender the property so it can exercise its remedy. Surrender can be voluntary, when the debtor hands over the property, or forced, when it has to be obtained through the courts.

A voluntary surrender is not a harmless formality. Before signing anything, the borrower should know which remedy the creditor will use next and what it means for the value of the property.

The four hypothecary remedies

The Civil Code of Québec provides four remedies. The prior notice of exercise states which one the creditor intends to use.

• Taking possession for purposes of administration: the creditor manages the property without becoming its owner.
• Taking in payment: the creditor becomes the owner of the property in payment of its claim.
• Sale by the creditor: the creditor sells the property itself.
• Sale under judicial authority: the sale takes place under court supervision.

Taking in payment is restricted. It requires court authorization if the debtor has repaid half or more of the secured obligation. And subsequent creditors, such as a second-ranking lender, or the debtor can require that the property be sold instead.

What to do as soon as you receive the notice

The clock is running, and the order of steps matters:

• Read the whole notice: the default alleged, the remedy announced, the amounts claimed.
• Work out the exact amount needed to cure the default: arrears and costs, confirmed with the creditor.
• Assess refinancing or selling during the period: a new loan that repays the private one, or a sale that pays it off, ends the recourse. Refinancing strategy before maturity is covered in our article on exiting a private mortgage.
• Consult a lawyer or notary quickly to confirm the period, the amount and the protections that apply.

Selling during the period means knowing the property's real value, fast. And if the property ends up sold under judicial authority, the situation then appears on the buyer's side: our article on judicial sales in Quebec describes that process from that perspective. This article does not replace advice from a lawyer or notary on your file.

The worst outcome is not receiving a notice, it is putting it in a drawer. Sixty days go quickly, and each option, paying, refinancing or selling, involves steps that cannot be done in a few days. Acting in the first week leaves you a choice of outcomes; acting in the last one often leaves only the one the creditor announced.