CLASSIFICATION OF MORTGAGE

Transfer of Property Act, 1882 is the statutory law in India that contains provisions for mortgage laws. In simple terms, Mortgage is transferring interest of an immovable property for securing a loan or for a performance of an engagement. Section 58(a) of the Act defines the term mortgage.  The person who mortgages the property, i.e. the transferor is the mortgagor and the person to whom the property is mortgaged, i.e. the transferee is the mortgagee. The instrument used by the parties involved in such transfer is known as the ‘mortgage deed.’[1]

The Section reads as under –“A mortgage is the transfer of an interest in specific immoveable 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.”

ESSENTIALS OF A MORTGAGE

  1. Transfer of Interest: The first thing to note is that a mortgage is a transfer of interest in the specific immovable property. The mortgagor as an owner of the property possesses all the interests in it, and when he mortgages the property to secure a loan, he only parts with a part of the interest in that property in favour of the mortgagee. After mortgage, the interest of the mortgagor is reduced by the interest which has been transferred to the mortgagee. His ownership has become less for the time being by the interest which he has parted with in favour of the mortgagee. If the mortgagor transfers this property, the transferee gets it subject to the right of the mortgagee to recover from it what is due to him i.e., the principal plus interest.
  2. Specific Immovable Property: The second point is that the property must be specifically mentioned in the mortgage deed. Where, for instance, the mortgagor stated “all of my property” in the mortgage deed, it was held by the Court that this was not a mortgage. The reason why the immovable property must be distinctly and specifically mentioned in the mortgage deed is that, in case the mortgagor fails to repay the loan the Court is in a position to grant a decree for the sale of any particular property on a suit by the mortgagee.

CLASSIFICATION

  • Simple Mortgage

In a simple mortgage, the mortgager does not deliver the possession of the mortgaged property. He binds himself personally to pay the mortgage money and agrees either expressly or impliedly, that in case of his failure to repay, the mortgagee shall have the right to cause the mortgaged property to be sold and apply the sale proceeds in payment of mortgage money.

The essential feature of the simple mortgage is that the mortgagee has no power to sell the property without the intervention of the court. The mortgagee can:

  • apply to the court for permission to sell the mortgaged property, or
  • file a suit for recovery of the whole amount without selling the property.
  • Mortgage by Conditional Sale

In this form of mortgage, the mortgager ostensibly sells the property to the mortgagee on the following conditions:

  • The sale shall become void on payment of the mortgage money.
  • The mortgagee will retransfer the property on payment of the mortgage money.
  • The sale shall become absolute if the mortgager fails to repay the amount on a certain date.
  • The mortgagee has no right of sale but he can sue for foreclosure.

Foreclosure means the loss of right possessed by the mortgager to redeem the mortgaged property. The mortgagee has the right to institute a suit for a decree so that the mortgager will be absolutely debarred from his right to redeem the property. The right to foreclosure arises when the time fixed for repayment expires and the mortgager fails to repay the mortgage money. Without the fore closure order the mortgagee will not become the owner of the property.

  • Usufructuary Mortgage

Under this form of mortgage, the mortgager delivers possession of the property or binds himself to deliver possession of the property to the mortgagee. The mortgagee is authorized to retain the possession until the debt is repaid. The mortgager reserves the right to recover the property when the money is repaid.

The essential feature of this form of mortgage is that the mortgagee is entitled to receive rents and profits relating to the mortgaged property till the loan is repaid and appropriate the same in lieu of interest or in repayment of the loan or both.

The mortgager is not personally liable to repay the mortgage money. So the mortgagee cannot sue the mortgager for repayment. He can neither sue foreclosure nor sue for sale of the mortgaged property; the only remedy for the mortgagee is to remain in possession of the property and pay himself out of the rents or profits of the mortgaged property. Since there is no time limit he has to wait for a very long time to recover his dues.

  • English Mortgage

The English mortgage has the following characteristics:

  • The mortgager transfers the property absolutely to the mortgagee. The mortgagee, therefore, is entitled to take immediate possession of the property. The transfer is subject to the condition that the property shall be transferred on repayment of the loan.
    • The mortgager also binds himself to pay the mortgage money on a certain date.
    • In case of non-repayment, the mortgagee has the right to sell the mortgaged property without seeking permission of the court in circumstances mentioned in section 69 of the Transfer of Property Act.
  • Mortgage by Deposit of Title Deeds

When a debtor delivers to a creditor or his agent document of title to immovable property, with an intention to create a security there on, the transaction is called mortgage by deposit of title deeds. Such a mortgage is restricted to the towns of Kolkata, Mumbai and Chennai and other towns notified by the State government for this purpose in the Official Gazette. This type of mortgage requires no registration. This form of mortgage is also known as equitable mortgage.

On the basis of transfer of title to the mortgaged property, mortgages are divided into two types, namely:

  • Legal Mortgage.
  • Equitable Mortgage.

Legal Mortgage

In a legal mortgage, the legal title to the property is transferred in favour of mortgagee by a deed. The deed is to be registered when the principal money is Rs. 100/- or more. On repayment of the loan, the legal title is retransferred to the mortgagor. This method of creating charge is expensive as it involves registration charges and stamp duty.

Equitable Mortgage

An equitable mortgage is effected by mere delivery of documents of title to property to the mortgagee. The mortgagor through Memorandum of deposit undertakes to grant a legal mortgage if he fails to pay the mortgage money.[2]

Essential Requirements of Equitable Mortgage

  • An equitable mortgage requires three essential features
    • there must be a debt existing or future,
    • there must be deposit of title deeds, are the title deeds should be deposited as security for the debt.
  • Anomalous Mortgage

In terms of this definition an anomalous mortgage is one which does not fall under anyone of the above five terms of mortgages. Such a mortgage can be affected according to the terms and conditions of the mortgager and the mortgagee. Usually it arises by a combination of two or more of the above said mortgages. It may’ take various forms depending upon custom, usage or contract.

SOME POPULAR CASES

In Gopal v. Parsotam,[3] case Justice Mahmood has defined mortgage as under: “Mortgage, as understood in this country, cannot be defined better than by the definition adopted by the Legislature in section 58 of the Transfer of Property Act (IV of l882). That definition has not in any way altered the law, but, on the contrary, has only formulated in clear language the notions of the mortgage as understood by all the writers of textbooks on Indian mortgages. Every word of the definition is borne out by the decisions of Indian Courts of Justice.”

In Kedar Lal v. Hari Lal,[4] case, the Supreme Court has observed that the whole law of mortgage in India, including the law of contribution arising out of a transaction of mortgage, is now statutory and is embodied in the Transfer of Property Act read with the Code of Civil Procedure. The court cannot travel beyond these statutory provisions.

CONCLUSION

In all the above-mentioned various types of mortgage the possession of mortgage property is clearly mentioned making clear who will be having its possession and that too up to what extent, except in two types of mortgage, which are mortgage by conditional sale and another one anomalous mortgage. Sec 58 of Transfer of Property Act 1882 which deals with topic of mortgage remains silent on point of possession in mortgage by conditional sale. And in anomalous mortgage it is completely uncertain that who will have the possession of the mortgaged property because anomalous mortgage is any mortgage which does not come under the above mentioned first five kinds of mortgage. So, in anomalous mortgage everything complete depends on the terms and condition set while making the contract of mortgage.


[1] Mayank Barman, Mortgage and Its Types, (June 24, 2021, 17:24) http://lawtimesjournal.in/mortgage-its-types/

[2] Munnu Prasad, Essential requirements of equitable mortgage, (Mar 12, 2020, 19:43) https://www.coursehero.com/file/p5mndlv/Essential-Requirements-of-Equitable-Mortgage-1-An-equitable-mortgage-requires/

[3] Gopal v. Parsotam (1883) ILR 5 All 121, (157)

[4] Kedar Lal v. Hari Lal, AIR 1952 SC  50.

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