What is a chattel mortgage?

03 November 2018 by National Bank
chattel mortgage

A chattel mortgage is different from a traditional mortgage that you might have for a house, mainly because it is aimed at other types of property, like a car or a business, and that you must put up property as collateral.

What is a chattel mortgage?

If you have bad credit, a chattel mortgage is easier to obtain than a traditional loan. The reason is quite simple: You must put up property, such as a car, land, a business or jewellery, as collateral.

There are many reasons to get a chattel mortgage. An entrepreneur could use it to finance a new project for their business. On a smaller scale, an individual could use it to borrow money by putting up valuable objects as collateral, or, they could use their car to settle a debt. Chattel mortgages are generally granted to an individual by a financial institution.

What happens in case of a default in payments?

If you forget to make payments, a creditor can recover the loaned amount by keeping your property as collateral. They can sell the property themselves or sell it by court order. They can also take possession of it as payment, or, in the case of a business, administer it. However, they cannot do this on the first day that a payment is late. The creditor must give you 10 days’ notice before exercising their rights. The period of notice may depend on the type of property, or the contract you signed with the lender.

Keep in mind that it is possible to prevent the lender from exercising their rights if you fix the problem. You can do this by restarting your payments, for example. You could also try to negotiate with them to find another arrangement if necessary.

Chattel mortgage with or without dispossession

There are two types of chattel mortgages. They can be “with dispossession” or “without dispossession.” Here are the main differences between the two:

Chattel mortgage with dispossession

With this type of chattel mortgage, you must give property to a creditor before obtaining the loan. This is the standard used by moneylenders, as it allows them to quickly and easily get money. However, fees for this type of loan can be very high. You must thoroughly read all of the conditions in the contract.

Chattel mortgage without dispossession

In this case, you do not have to leave an object as collateral to your creditor; you can hold on to it. The property could be a vehicle, a valuable object (e.g. a work of art or jewellery) or even a financial product. There may be certain conditions, such as maintaining insurance on the property in question. This type of mortgage specifies the amount covered by the guarantee, which is generally lower than the total value but higher than the amount borrowed. Why? Because it takes interest and other fees into consideration.

Chattel mortgages with and without dispossession must be registered within their respective provinces. This allows, among other things, for the lender to retain their rights in case of sale of the property in question.

In Quebec, chattel mortgages must be registered with the Register of Personal and Movable Real Rights (RDPRM), whereas in Ontario, the Personal Property Security Act (PPSA) controls and administers the processes involved with chattel mortgages. Anyone who secures payment of a debt by taking a form of collateral should register a financing statement with their province.

Once you have fulfilled all of your obligations and your loan has been repaid, the mortgage will end; however, it will remain with your province’s registry. In order to withdraw the mortgage, you must confirm its completion with the RDPRM (Quebec) or the PPSA (Ontario). Do not forget this very important detail!

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