To safeguard their advances, a bank accepts different types of securities during the lending and creates a charge upon them. When land/buildings and fixed assets which are permanently fastened to the earth is offered as a security, it is charged by a mortgage in favour of the bank. When movable goods are offered as a security, these are charged as pledge or hypothecation. Paper securities are lien or assigned in favour of the bank. The law relating to the different types of securities are defined in the concern Acts.
Definition of Mortgage
The mortgage is defined in Transfer of Property Act 1882 Section 58(a). As per the Act:
“A mortgage is the transfer of an interest in specific immovable property to secure the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”.
The transferor is called a ‘mortgagor’, the transferee a ‘mortgagee’; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a ‘mortgage-deed’.
Interest in the property & possession: The mortgagor only parts with the interest in the property and not the ownership. A mortgage is not merely a contract but it is a conveyance of an interest in the mortgaged property. As regards the possession, except for the usufructuary mortgage, the possession remains with the mortgagor.
Essential features of mortgages
Essential features of mortgage are as under:
- Loan amount: Mortgages can be created to cover general balances, existing payments as well as future loans or advances.
- Relationship: there must be a creditor and debtor relationship (or contract of guarantee) between the bank and the mortgagor at the time of deposit of title deed.
- Future debt: actual existence of the debt is not necessary. Even an application for debt and its acceptance establishes this relationship.
- Effective date: a registered mortgage (and equitable mortgage) becomes effective from the date of mortgage (Section 47 & 48 of Indian Registration Act).
- Enhanced limits: To cover the enhanced bank limits, a supplemental registration deed is required because the mortgage already does not cover the enhanced amount.
- Repayment of loan: On repayment of the debt, the mortgage does not remain valid.
Types of Mortgages
Different types of mortgages are as under: Types of mortgages defined in Transfer of Property Act 1882 Section 58(b) to 58(g).
- Simple Mortgage: (Sec. 58b)- Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage money, and agrees, expressly or impliedly, that, in the event of his failure to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee. Features of a Simple mortgage are:
- The mortgagee has no power to sell the property without court intervention.
- The mortgagee has no right to get any payments out of the rents and produce of the mortgaged property.
- The mortgagee is not put in possession of the property.
- Registration of the mortgage is compulsory if the principal amount secured is Rs. 100 and above.
- The mortgagor is personally liable also.
- Mortgage by Conditional Sale: (Sec. 58c)-In this, the mortgagor ostensibly sells the mortgaged property on conditions that on default of payment of the mortgage money, the sale shall become absolute on such payment being made, the sale shall become void or the buyer shall transfer the property to the seller. Features are as under:
- Sale is ostensible and not real.
- If money remains unpaid as per the agreement, the sale becomes absolute. The mortgagee by applying to court can get a decree in his favour where after the mortgagor loses the right of redemption.
- The mortgagee can sue for foreclosure.
- No personal liability for repayment of the loan.
- Usufructuray Mortgage: (Sec. 58d)- Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorizes him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in place of interest, or payment of the mortgage money, or partly instead of interest or partly in payment of the mortgage money, the transactions called a usufructuary mortgage and the mortgage a usufructuary mortgagee. Features are as under:
- Mortgagee in actual legal possession of the property, till dues, are repaid.
- The mortgagee has the right to receive rents and profits accruing from the property.
- No personal liability of the mortgager.
- No time limit specified
- Sale is not allowed.
- English Mortgage. (Sec. 58e)- Where the mortgagor binds himself to repay the mortgage money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed, the transaction is called an English mortgage. Important features are:
- Personal liability to pay on a specified date
- Absolute transfer of property to the mortgagee, subject to re-conveying (re-transfer) the property if the debt is repaid.
- Equitable Mortgage or Mortgage by Deposit of Title Deeds. (Sec. 58f)-Where the mortgagor delivers (at notified places) to the mortgagee, the documents of title to the immovable property to create a security thereon to secure a loan. The transaction is not to be reduced to writing. In case of non-payment, the mortgagee can sue for sale but he cannot foreclose the mortgaged property. According to Section 58 (f) of Transfer of Property Act 1882, where a person delivers to a creditor or his agent documents of title to immovable property, with the intent to create a security thereon, the transaction is called a mortgage by deposit of title deed. However, the Act makes the provisions of this Section applies only to Bombay, Calcutta, Madras and other towns as may be notified by the State Governments by notification in the Official Gazette. Important features are:
- The deposit can be made at Calcutta, Bombay and Madras or places notified by the State government only.
- This territorial restriction does not affect the location of the property i.e. property can be located anywhere in India.
- There should be a deposit of title deed (preferably original) of the property to secure a debt. U/s 96, the provisions which apply to a simple mortgage shall, so far as may be, apply to a mortgage by deposit of title deeds.
- Anomalous mortgage. (Sec. 58g)- A mortgage that is not simple, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds within the meaning of this section is called an anomalous mortgage.
MORTGAGE – AT A GLANCE
|Mortgage Type||Defined in Transfer of Property Act||Ownership||Personal Liability of Mortgager||Registration with Sub Registrar||How was the mortgage created?|
|Simple||Section 58(b)||Mortgagor||Yes||Yes||Mortgage Deed|
|conditional sale||Section 58(c)||Mortgagor||No||Yes||Mortgage Deed|
|Usufructuary||Section 58(d)||Mortgagor||No||Yes||Mortgage Deed|
|English||Section 58(e)||Bank||Yes||Yes||Mortgage Deed|
|Equitable||Section 58(f)||Mortgagor||Yes||No||Oral Assent|
Terms related to the Mortgages
Second Mortgage: A mortgagor after giving 1st mortgage can create 2nd and even subsequent mortgage on the same property. The mortgage will rank in priority according to the dates of their creation.
Right of Foreclosure (Sec 67): On default by the mortgagor, the mortgagee in certain types of mortgages, has the right to obtain a decree (before the decree has been made or money has been paid) from a court to the effect that the former be debarred forever to get back the mortgaged property. Such a right is called the Right of Foreclosure. A suit for foreclosure must be filed within 30 years from the date of mortgage money becomes dues.
Right of Redemption (Sec 60): On liquidation of the debt, the mortgagor has the right to get back (redeem) the document relating to the mortgaged property, where possession has been given, to get back the possession and where the title has been transferred, to get retransferred. This right is known as the right of redemption, which can be exercised at any time before the decree for sale or foreclosure has been passed by the court.
Marshalling Securities (Sec 81): If the owner of two or more properties mortgages them to one person and then mortgages one or more of the properties to another person, the subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage-debt satisfied out of the property or properties not mortgaged to him, so far as the same will extend, but not to prejudice the rights of the prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties.
Limitation Period of Mortgage: The limitation period for a mortgage is 12 years from the date mortgage money becomes due. For the right of foreclosure and the right of redemption, it is 30 years.