Mortgage security in France: guarantee or mortgage?

The three forms of security for a property loan

Sources: service-public.gouv.fr (fact sheets F786, F789, F34997); ANIL.

From the lender’s lien to the statutory special mortgage (2022)

Order no. 2021-1192 of 15 September 2021 reforming the law on security interests (droit des sûretés), published in the Journal officiel (official gazette) of 16 September 2021, came into force on 1 January 2022 (art. 37). It turned the special property liens (privilèges immobiliers spéciaux) into statutory special mortgages (hypothèques légales spéciales) (ANIL). Since then, the lender’s lien can no longer be registered with the land registry (service de publicité foncière) (service-public.gouv.fr).

The new article 2402 of the Code civil (Civil Code), in force since 1 January 2022, secures on the property “the claim of whoever provided the funds for the acquisition of a property”, provided that the loan deed formally records this purpose and that the seller’s receipt proves payment was made with the borrowed funds (Légifrance).

What does not change for the borrower (service-public.gouv.fr):

• the bank does not need your consent: the security is set out in the loan offer;
• it gives the bank a right of priority to be repaid if the property is seized and sold;
• it remains exempt from land registration tax, which makes it cheaper than a conventional mortgage (ANIL);
• it can secure neither works nor an off-plan purchase (VEFA): in those cases, the bank uses another form of security.

The conventional mortgage

It is created before a notaire, who has it registered with the land registry. It can cover the property being bought or a property you already own. Its cost includes the notaire’s fees, the land registration tax and formality costs; service-public.gouv.fr refers to a mortgage cost simulator. Not to be confused with a judicial mortgage (hypothèque judiciaire), ordered by a judge (service-public.gouv.fr).

Both the statutory special mortgage and the conventional mortgage can be recorded in the deed of sale or in a separate notarised deed (ANIL).

The bank guarantee

The bank usually steers you towards a partner guarantee body (organisme de cautionnement), which undertakes to repay in your place if you default; you can ask the bank to approach another one, and a civil servant can go through their mutuelle (mutual insurer). The guarantor can also be an individual (service-public.gouv.fr).

Costs: set-up costs higher than for a conventional mortgage, but no release fees if you sell during the loan, and part of the costs can be recovered at the end of repayment, subject to conditions (service-public.gouv.fr).

A guarantee from a relative. Since the 2021 reform, an individual guarantor must write a statement specifying that they undertake to pay “up to an amount” written in words and figures; they can now do so electronically. A guarantee that is manifestly disproportionate to the guarantor’s income and assets is reduced to the amount they could afford (ANIL). These rules apply to guarantees entered into from 1 January 2022.

Registration period and release fees

Both mortgages remain registered for the term of the loan plus 1 year. The registration ends automatically, at no cost and with no formalities, 1 year after the last instalment scheduled at the time of registration (service-public.gouv.fr).

An early release (mainlevée) is needed if you sell before repaying in full, if you sell before the registration ends, and sometimes when the loan is bought out by another institution. It is obtained:

1. with the bank’s agreement, by notarised deed (acte authentique) before a notaire, at your expense; the notaire sends it to the land registry, which removes the registration;
2. if the bank refuses, by decision of the tribunal judiciaire (court of first instance) with jurisdiction over the land registry office.

The amount of the release fees depends on the amount of the original loan (service-public.gouv.fr): ask the notaire for a costing before comparing offers.

Which professional to consult

A courtier en crédit (mortgage broker) compares the total cost of the security proposed by several banks, including release fees if you plan to sell before the end of the loan. The notaire (notary) drafts and registers the mortgage, works out its cost and, when the time comes, draws up the deed of release.