Declaration of Unseizability and Judicial Liquidation: When the Mortgage Creditor Can

Imagine: you own a house in La Teste-de-Buch, near the Arcachon basin. To protect your assets, you have made a declaration of unseizability (a notarised deed that prevents your professional creditors from seizing your main residence in case of debts). But then, a mortgage creditor (a bank that lent money secured by a mortgage on that property) demands what is owed, and you are in judicial liquidation (a collective procedure aimed at paying creditors with the debtor's assets). Who wins? The protection of unseizability or the creditor's right?

This question was answered by the French Supreme Court (the highest French court) in a judgment of 5 April 2016 (n°14-24.640). It affirms that a creditor holding a real security (mortgage, pledge, etc.) does not need the authorisation of the supervising judge (the magistrate who supervises the liquidation) to have the property declared unseizable sold by seizure. In short, the declaration of unseizability does not protect the debtor against a creditor who already has a guarantee over the property.

But what does this mean concretely for you, owner, tenant or professional? Let's dive into the details.

The facts: a story like many others

Mr [R], owner in La Teste-de-Buch, had taken out a mortgage loan from a bank, secured by a mortgage (a real right allowing the creditor to seize and sell the property if the debt is not repaid). To protect himself against possible claims from other creditors, he had made a declaration of unseizability of his house (Article L.526-1 of the Commercial Code: allows a sole trader to make his main residence unseizable by professional creditors).

Unfortunately, business goes wrong: Mr [R] is placed in judicial liquidation (a procedure opened by the commercial court when the debtor is in an irremediable cessation of payments). The bank, as mortgage creditor, wants to recover its due and initiates a property seizure (compulsory sale procedure) on Mr [R]'s house. Mr [R] contests, arguing that the declaration of unseizability makes the sale impossible, and that in any event, the bank should have obtained the authorisation of the supervising judge provided for in Article L.643-2 of the Commercial Code (which subjects certain sales of assets in liquidation to the judge's authorisation).

The High Court of Bordeaux rules in favour of the bank. Mr [R] appeals, then brings an appeal in cassation. The French Supreme Court dismisses his appeal: the declaration of unseizability is unenforceable (cannot be invoked) against the mortgage creditor, because the latter benefits from a real security granted before the declaration. And above all, the creditor does not have to ask the supervising judge for authorisation to have the property sold by seizure, because the sale by seizure (property seizure) is a separate enforcement procedure from the collective procedure.

The court's reasoning — explained

The French Supreme Court relies on two texts: Article L.526-1 of the Commercial Code and Article L.643-2 of the same code. The first allows a sole trader to declare his main residence unseizable (or any built or unbuilt land used for professional purposes) to protect it from professional creditors. But this protection has exceptions: it is unenforceable against creditors holding a real security (mortgage, pledge, charge) that was created before the declaration. In other words, if you have mortgaged your house to guarantee a loan, the declaration of unseizability will not protect you against that creditor.

The second text, Article L.643-2, provides that in the context of a judicial liquidation, the sale of the debtor's assets (buildings, business assets, etc.) must be authorised by the supervising judge, except in certain cases. But the Court specifies that this rule does not apply when the creditor holding a real security proceeds with a sale by seizure (property seizure): this sale is an individual enforcement procedure, distinct from the collective liquidation. The mortgage creditor can therefore pursue the seizure without authorisation.

What few people know: the distinction between the sale of assets in liquidation (which requires authorisation) and the sale by property seizure (which does not) is based on the idea that seizure is a right of the creditor, prior to the collective procedure. The French Supreme Court here confirms a consistent line of case law (Civ. 2e, 11 March 2010, n°09-12.251) by applying it to the context of unseizability.

However, note that this solution applies to creditors holding a real security created before the declaration of unseizability. If the security is later, the reasoning would be different.

What this means for you — concretely

For the landlord owner (who rents out a property): if you have declared your building unseizable, but a mortgage was registered before, the creditor can seize the property despite the declaration. Example: you own a flat in Pessac that you rent out, and you took out a mortgage loan in 2015. In 2020, you make a declaration of unseizability. In case of judicial liquidation in 2023, the bank can seize the flat without authorisation from the supervising judge. You cannot oppose it by invoking the unseizability.

For the professional creditor (bank, supplier): this decision confirms your rights. You do not have to wait for the supervising judge's authorisation to start a property seizure if you hold a mortgage. This speeds up recovery. However, note that if the collective procedure is opened before the seizure, you must comply with the liquidation rules (declaration of debt, etc.).

For the purchaser (person who buys the seized property): the sale by seizure is public, and the purchaser receives a property free of any mortgage (the creditor is paid from the price). But they must be vigilant: the debtor may contest the procedure, which delays the sale.

undefined, I encountered a case where an entrepreneur in La Teste-de-Buch had declared his house unseizable, but the bank had a mortgage. Liquidation occurred, and the bank seized. My client thought he was protected, but the case law was clear: he lost his house. If you are in this situation, you must check the date of the mortgage relative to the declaration of unseizability.

Four tips to avoid this type of dispute

• Anticipate real securities before declaring unseizability. Before making a declaration of unseizability, check whether mortgages or other guarantees already exist on the property. If so, the declaration will not protect you against those creditors. Better to negotiate a release (discharge) or a restructuring of the debt.
• Consult a lawyer lawyer before any declaration. A notary can draw up the deed, but only a property law lawyer can analyse the risks in light of your asset situation and existing creditors. The cost of a consultation (€45 with Maître Zakine) is negligible compared to a loss of property.
• In case of financial difficulties, act quickly. If you are in cessation of payments, a safeguard or judicial reorganisation procedure may be preferable to liquidation. These procedures allow individual claims (seizures) to be frozen and a plan to be negotiated.
• If you are a creditor, check the date of your security. If your mortgage is before the declaration of unseizability, you can seize without authorisation. If it is later, the declaration is enforceable against you, and you must follow the collective procedure.

Further analysis: related case law and developments

This decision is part of a line of judgments protecting creditors holding real securities. One can cite Cass. com., 11 March 2010, n°09-12.251, which already held that the mortgage creditor can pursue the property seizure despite the judicial liquidation, without authorisation from the supervising judge. The French Supreme Court here extends this principle to the case of the declaration of unseizability.

On the other hand, for unsecured creditors (without security), the declaration of unseizability remains fully enforceable: they cannot seize the property, even in liquidation. The jurisprudential trend is therefore to strengthen the position of secured creditors, to the detriment of the debtor's protection. The future may see relaxations: the Macron law of 2015 already extended the scope of unseizability, but the French Supreme Court seems to want to maintain the balance in favour of mortgage creditors.

What you absolutely need to remember

FAQ:

1. What is a declaration of unseizability? It is a notarised deed that makes your main residence unseizable by professional creditors (those linked to your activity). But it does not protect against creditors who have a mortgage on the property.
2. Can I seize a property declared unseizable if I am a mortgage creditor? Yes, without authorisation from the supervising judge, provided the mortgage was created before the declaration of unseizability.
3. What should I do if I am in judicial liquidation and a creditor seizes my unseizable property? Check the date of the mortgage. If it is before the declaration, the seizure is legal. If it is later, you can contest. Consult a lawyer quickly.
4. What are the timeframes? Property seizure generally lasts 4 to 6 months. The sale may be suspended if you start an over-indebtedness procedure or a reorganisation plan.

Checklist:

• ☐ Before declaring unseizable, list all real securities burdening the property.
• ☐ If a mortgage exists, consider discharging it or renegotiating the loan.
• ☐ In case of liquidation, inform the supervising judge of the situation.
• ☐ Consult a lawyer to assess your options.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of procedure — and often much more. Book an appointment →