Mortgage Under the Transfer of Property Act
In simple words, we can define mortgage as a legal agreement by which a bank, building society (creditor), etc lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title by the debtor to the creditor becomes void once the debt is fully paid off.
The Transfer of Property Act describes mortgage as “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 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.”
In Indian Law, there are six different types of mortgages. It is of vital importance to identify the type of mortgage because different rights and liabilities arising in different types of mortgage.
Different Types of Mortgage
1) Simple mortgage
In this type of mortgage, there is a personal undertaking by the mortgagor to repay the loan but the possession and enjoyment of the property mortgaged remains with the mortgagor. Upon failure by the mortgagor to pay off the mortgage loan, two remedies are available to the mortgagee. One is to obtain a money decree against the mortgagor on the basis of the undertaking and the other is to obtain a decree for the sale of the mortgaged property. If the proceeds of the sale do not sum up to the total amount of loan, the balance may be recovered by personal action. If there is excess it is to be returned to the mortgagor.
2) Mortgage by conditional sale
Here the mortgagor ostensibly sells the property on the condition that –
The sale shall become absolute on a certain date if there is a default of payment of mortgage money on such date or
The sale shall become void on payment of mortgage money on such specified date or
The buyer (mortgagee) shall transfer (re-transfer) the property to the seller (mortgagor) on such payment of mortgage money.
3) Usufructuary Mortgage
In this case, there is a delivery of possession. The Mortgagee shall retain possession of the mortgaged property until the mortgage money is repaid and shall be entitled to receive the rents and profits arising from such property and to appropriate the same towards the principal or the interest or both. when the loan is repaid by the appropriation of rent and profits arising from the property, only then the property can be redeemed by the mortgagor. There is no personal liability and there is no remedy available to the mortgagee by means of sale or foreclosure. The mortgagee’s right to retain possession for an indefinite period till the loan is discharged.
4) English Mortgage
There is a transfer of property that is mortgaged with a personal covenant to pay back the mortgage money on a specified date but subject to the proviso that the property shall be transferred back to the mortgagor once the mortgage money is paid off to the mortgagee.
5) Mortgage by deposit of title deeds
This type of mortgage is effected by the deposit of title deeds with the mortgagee with the intention that they should be security for the debt. The possession of the property is not given but only the title deed is deposited. The remedy is thus by suit for sale.
6) Anomalous Mortgage
A mortgage which is not a simple mortgage or an English mortgage or a mortgage by usufructuary mortgage or a mortgage by deposit of title deed or a mortgage by conditional sale is called an anomalous mortgage.
Formalities for Creating a Mortgage
- Where the principal money secured is one hundred rupees or more, a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. ‘Registered’ would mean registered in any part of the territories to which this Act extends under the law for the time being in force regulating the registration of documents.
- Where the principal money secured is less than one hundred rupees, registration is not necessary. It may be effected merely by the delivery of possession of the property.
Rights of Mortgagees
The mortgagee has two rights, one against the person of the mortgagor and the other against the mortgaged property. For the former, the mortgagee may personally sue the mortgagor for the money he had undertaken to pay back otherwise he shall use the profits of the property as in case of a usufructuary mortgage or get the mortgaged property sold as in the case of a simple mortgage, English mortgage, and mortgage by transfer of title deeds. He may have foreclosure as a remedy as in the case of mortgage by conditional sale and thus, become the owner of such property which has been mortgaged.
The mortgagee has a right to sue for the mortgage money in the following cases:
- Where there is a personal undertaking by the mortgagor / where the mortgagor binds himself that he would repay the mortgage money. It must be noted that just because a mortgage is a secondary remedy for the recovery of money, it cannot be assumed that the primary remedy of suing on the loan also exists. The period of remedy for sung personally now for 3 years.
- Where due to any other reason other than a default on the part of the mortgagor or mortgagee, the mortgaged property is wholly or partially destroyed (let’s say by a natural calamity/Act of God) or when the property is rendered insufficient (under section 66 of this Act) giving the mortgagor a reasonable ground to provide further security and he fails to do so.
- Whereby default on the part of the Mortgagor, the mortgagee is deprived of the whole or any part of the security.
- Where the mortgagee was entitled to possession of the mortgaged property but the mortgagor fails to deliver the same or where the delivery of possession is made but there is a disturbance of enjoyment and in possession of such property caused by the mortgagor himself or persons claiming under the title of the mortgagor or a title superior to that. This applies in case of a usufructuary mortgage.
- As regards the right against property, there are two-
A suit to obtain a decree that a mortgagor shall be absolutely debarred of his right to redeem the mortgaged property is called the right to foreclosure.
- Only a mortgagee by conditional sale or a mortgagee under an anomalous mortgage can institute a suit for foreclosure.
- Only a mortgagee by conditional sale or usufructuary mortgage can institute a suit for sale.
Sale without Intervention of Court
The sale of the mortgaged property can be effected without the intervention of the courts in certain cases-
- Where the mortgage is an English mortgage and neither the mortgagor nor the mortgagee is a Hindu or Muhameddan or Buddhist or a member of any other race, sect, tribe, or class from time to time specified in this behalf by the State Government in the Official Gazette.
- Where such a power is conferred on the mortgagee (expressly) by the mortgage deed and the mortgagee is the Government.
- Where along with condition no.2, the mortgaged property or any part thereof was on the date of execution of the mortgage deed situated within the towns of Calcutta, Madras, Bombay or in any other town as specified by the State Government in the Official Gazette.
A mortgagee having the right to exercise such power of sale without the intervention of the court shall be entitled to appoint, in writing and signed by him, a receiver of the income of the mortgaged property or any part thereof. His name should be mentioned in the mortgage deed itself. If no person has been so named or if all persons named are unable or unwilling to act as a receiver for such property, the mortgagee may appoint any person to whose appointment the mortgagor agrees. If still there is a failure then the mortgagee shall apply to the court of the appointment of a receiver and the person appointed by the court shall be deemed to have been appointed by the mortgagee.
Rights of Mortgagor
When we look at the definition of mortgage we often ponder, what if the money is not paid back within specified period? Can the mortgagor be debarred forever from recovering his property?
From the ideas that have forever been alive now that the mortgagor is a person who is in dire need of money and the mortgagee is an unscrupulous moneylender who would drive a very harsh bargain and thus, took birth the notion that the mortgagor should be allowed to redeem his property even after the expiry of time of payment. This is the principle of equity of redemption that arose in favour of the mortgagor.
This right may become barred, however, by the statute of limitations or by a decree of foreclosure obtained by the mortgagee from the court. It is needless to say that the Right to foreclosure of the mortgagee and the right of redemption of the mortgagor is exhaustive of each other. Even in case where a suit for foreclosure has been brought, there is indulgence towards the mortgagor. In such a suit, two decrees are passed, a preliminary and a final decree where the former allows the mortgagor a further period to pay off the debt and redeem the property.
The right to redeem a mortgage, at any time after the mortgage money, becomes due is known as the equity of redemption in English law but it is statutory law in India and hence, a legal right. Under the law of limitation, it subsists for 30 years after the mortgage money has become due. Thus, it could either be extinguished by a decree of foreclosure or when it exceeds the period of time as provided in the limitation Act. Any other attempt to prevent the exercise of the right to redeem the property shall be considered to be a clog.
The mortgagor cannot redeem the property before the mortgage amount has become due other than when there a specific contract between the two parties enabling the mortgagor to redeem earlier. Also, in usufructuary mortgages, the mortgagor can claim the property as soon as the debt is realised from the profits arising out of the mortgaged property.
Besides the mortgagor who has any interest in or any charge upon the property shall be entitled to redemption. Even a creditor of the mortgagor who has obtained a decree from the court for the sale of the mortgaged property can redeem such property.
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