Mortgage of Security
- As per Section 58 a of Transfer of Property Act 1882 “ A mortgage is the transfer of an interest in specific immovable property for the purpose of securing 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 amy give rise to a pecuniary liability.
- In the transaction of mortgage, the person who is transferring the property (transferor/borrower or the person providing the security on behalf of the borrower) is called mortgagor and the person or entity in whose favour the mortgage is created is the mortgagee ( the lender or the bank)
- The principal and the interest involved in the transaction is called mortgage money and the instrument by which the transaction is taking place is called mortgage deed.
Important parts of Mortgage
- Mortgagor who provides the security
- Mortgagee in whose favour mortgage is done
- There should be a debt, which may be existing or future
- The immovable property offered as security
Types of mortgage
- Simple mortgage is also called registered mortgage. In Simple Mortgage, without delivering the possession of the mortgaged property the mortgagor binds himself personally to pay the mortgage money. In case if the mortgagor fails to make payment as per the agreed terms and conditions, the mortgagee will have a right to get the property sold and to adjust for the mortgaged money.
- The simple mortgage is to be created before the sub-registrar after duly stamping the same and registering under Indian Registration Act 1908.
- This method of mortgaging is very much necessary if the mortgagor has the ownership of the property and could not produce all the relevant documents.
Mortgage by conditional sale
In a mortgage by conditional sale, the mortgagor ostensively sells the mortgaged property, on a condition that, the sale will become absolute on a certain agreed date if the mortgagor fails to repay the mortgage money. And the sale will become void if the money is repaid as per the terms and conditions. Sometimes, the condition would such that in case of payment of mortgaged money as per the agreement, the buyer (Lender) will resale the property to the seller (Borrower).
In this type of mortgage the creditor (Mortgagee) is placed in possession of the property and he is entitled to enjoy the income generated by the property (e.g., rent) and appropriate the same towards the interest and principal of the mortgage money. In this mortgage the physical possession is given to the mortgagee and the mortgagee can retail the possession until the payment of mortgage money.
English Mortgage is a registered mortgage by which the entire property gets transferred in the name of the mortgagee and upon repayment of the debt on certain date appointed date, the property will be re-conveyed to the Mortgagor.
Mortgage by deposit of title deeds
- Most popular method in India is ‘Mortgage by Deposit of Titles’ which is commonly known as Equitable Mortgage.
- As per Transfer of Property Act ‘Equitable Mortgage’ is a mortgage by Deposit of Title Deeds of Immovable Property with the mortgagee or his agents with an intention to create a security thereon. There is no necessity to register the Equitable Mortgage. But, as the housing loan frauds are mounting, many states have made it compulsory to register the mortgage.
The three basic requirements for creating Equitable Mortgage are as follows:
- The place of deposit of Document of Title to the Property with the creditor or his agent must be one among the notified areas under Section 58 (f ) of Transfer of Property Act. (Notified area)
- The deposit of title is necessarily made to secure a debt
- Deposits of Title Deeds must be made with an intention to create a security on the property intended to be mortgaged.
Kolkatta, Chennai, Mumbai and any other town which the State Government concerned may by notification in the Official Gazatte, under the provisions of Sec 58 f of Transfer of Property Act.
An Anomalous Mortgage is the one which is not falling under any of the categories discussed above. This type of mortgage is almost non-existent.