Mortgage: Types,Rights and Duties of Mortgagor

Introduction

A mortgage is a kind of security given by the mortgagor for repayment of the loan to the mortgagee. Thus, if the borrower is unable to repay the loan or becomes insolvent, it protects the lender, as he acquires the right over the mortgaged property. Mortgagor and mortgagee are the parties who have an important role to play during mortgage of a property. Various statutes available in India deals with a mortgage. Following legislation deal with mortgage such as The Transfer of Property Act, 1882– Sections 58-104, which are mentioned in Chapter IV deals with the significant part of mortgage, the Civil Procedure Code, 1908– The procedural part of mortgage of immovable property is dealt in , Indian Contract Act, 1872– Any contract related to mortgage and its general principles are mentioned in it.

Definition of Mortgage

As per section 58 of Transfer of Property Act, 1882, A mortgage is the transfer of an interest in immovable property for the purpose of securing the payment of money advanced, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.

What are mortgagor and mortgagee?

The person who transfers the interest in a specific immovable property is called the mortgagor.

The transferee or person in whose favour the interest is being transferred is known as mortgagee.

What is mortgage money?

The principal money and interest of which payment is secured for time being is called mortgage money.

What is mortgage deed?

The instrument by which the transfer is affected is called a mortgage deed. It is a kind of agreement which legally binds both the mortgagor and mortgagee. 

Essential conditions of a mortgage:

1. There is a transfer of interest to the mortgagee.

2. The interest created in specific immovable property.

3. The mortgage should be supported by consideration.

Kinds of Mortgage

There are six kinds of mortgage which are recognized under the Transfer of Property Act, 1882. They are discussed in the act from section 58(b)-58(g). Following are the different kinds of mortgage:

  1. Simple Mortgage [section-58(b)]-

In this mortgage, the mortgagor does not transfer immovable property to the mortgagee but agrees to pay the mortgage money.

The mortgagee agrees on a condition that in the event of not paying the mortgage money the mortgagee has every right to sell the property and can use the proceeds of the sale and such a transaction is called a simple mortgage.

2.  Mortgage by conditional sale [section-58(c)]-

In this mortgagee places three conditions to the mortgagor, and the mortgagee shall have the right to sell the property if:

a. Mortgagor defaults in payment of mortgage money on a certain date.

b. As soon as the payment is made by the mortgagor the sale shall become void.

 c. On the payment of money by the mortgagor, the property is transferred and   such a transaction is called a mortgage by conditional sale.

3. Usufructuary Mortgage [section-58(d)]-

In this mortgage, the mortgagor delivers the possession of the property to the mortgagee and authorises the mortgagee to retain such property until the payment is made by the mortgagor and further authorise him to receive the rent or profit arising from such mortgaged property and to appropriate the same instead of payment of interest. Such a transaction is called a Usufructuary transaction.

4. English Mortgage [section-58(e)]-

In this mortgage, the mortgagor transfers the property absolutely to the mortgagee and binds himself that he will repay the mortgage money on the specified date and lays down a condition that on repayment of money mortgagee shall re-transfer the property. Such a transaction is called an English mortgage transaction.

5. Mortgage by deposit of title deeds [section-58(f)]-

In this mortgage where a person is in Calcutta, Madras, Bombay and in any other towns as specified by the state government and the mortgagor delivers to a creditor or his agent the documents of title of immovable property with an intent to create security and then such a transaction is called Deposits of title-deeds.

6. Anomalous Mortgage [section-58(g)]-

A mortgage which is not any one of the mortgages mentioned above is called an anomalous mortgage.

Rights of Mortgagor

Following are the rights given to a mortgagor given by the Transfer of Property Act, 1882:

  1. Right to redemption
  2. Right to transfer mortgaged property to a third party instead of re-transferring
  3. Right of inspection and production of documents
  4. Right to accession
  5. Right to improvements
  6. Right to a renewed lease
  7. Right to grant a lease

1Right of Redemption (section 60)-

It is one of the important rights of the mortgagor is the right to redeem the mortgage.

Once the money has become due on the specified date the mortgagor has the right to get back the mortgaged property on paying the money to the mortgagee.Right to redemption is a statutory and legal right which cannot be extinguished on the entering into any agreement.

In the case of Stanley v. Wilde, (1899) 2 Ch 474, it was held that any provision mentioned in the mortgage-deed which has an effect of preventing or impeding the right to redemption is void as a clog on redemption.  

2. Right to transfer to a third party (section 60A)-

Section 60A is inserted by amendment act of 1929, this right provides the Mortgagor with authority to ask the Mortgagee to assign the Mortgage debt and transfer the property to a third person directed by him. The purpose of this right is to help the Mortgagor to pay off the Mortgagee by taking a loan from a third person on the same security.  

3. Right to inspection and production of documents (section 60B)-

As per this section, the mortgagor may inspect anytime the document of title relating to the mortgaged property which is in the custody of the mortgagee. The costs and expenses incurred while inspecting the documents may be borne by the mortgagee.

4. Right to accession (section 63)-

 As per this section, during the subsistence of the mortgage if any accession is made to the mortgaged property where the property is in possession of the mortgagor itself and then the mortgagor has a right to take in accession after the redemption of the mortgage.

5. Right to improvement (section 63A)-

This section 63A is inserted by the amendment act of 1929, according to this right if the Mortgaged property has been improved while it was in possession of Mortgagee, then on redemption and in the absence of any contract to the contrary Mortgagor is entitled to such improvement. The Mortgagor is not liable to pay Mortgagee unless:

Improvements made by the Mortgagee were to protect the property or with the prior permission of Mortgagor or Improvements were made by the Mortgagee with the permission of the public authority. 

6. Right to a renewed lease (section 64)-

As per this section, where the property which the mortgagor has given for mortgage is a leasehold property if the mortgagee renews the leases during the subsistence of mortgage the mortgagor shall obtain the benefit of the lease upon the redemption of the mortgage.

7. Right to grant a lease (section 65A)-

As per this section, a mortgagor shall have the right to grant a lease of which is lawfully in possession with the mortgagee and such lease shall be binding on the mortgagee subject to the following conditions:

A. lease shall be according to the local laws, custom or usages.

B. no rent or premium shall be paid in advance.

C. the lease shall not contain a covenant for renewal.

D. the lease shall come into effect within six months from the date on which it is made.

E. in case lease of buildings, the duration of the lease shall not exceed not more than three years.

Duties of Mortgagor

Section 65 and 66 of the Transfer of the Property Act, 1882 deals with the liabilities or duties of the mortgagor. Following are the duties of a mortgagor:

  1. Duty to compensate mortgagee
  2. Pay the interest time to time
  3. Duty to direct rent of a lease to mortgagee
  4. Duty to avoid waste

1. Duty to compensate mortgagee (section 65[c])-

 As per Section 65(c), the Mortgagor will, so long as the Mortgagee is not in possession of the Mortgaged property, pay all public charges accruing due in respect of the property.

2. Pay the interest time to time (section 65[e])-

As per Section 65(e) of the act, it is the duty of the Mortgagor to pay interest to the Mortgagee on time.

3. Duty to direct rent of a lease to mortgagee (section 65[d])-

 As per Section 65(d) of the Act,  where the Mortgaged property is leased by Mortgagor then it is his duty to direct lessee to pay the rent, etc. to the Mortgagee.

4. Duty to avoid waste (section 66)-

Section 66 of the act imposes a duty on the Mortgagor to not to commit any act which leads to the waste of property or any act which reduces the value of the Mortgaged property.

Conclusion

Consequently, a mortgage is defined as an express transfer of an interest in immovable property as collateral for a loan. Further, one must have got an overview of all kinds of mortgages that exist and are recognized in India and the essential elements of a mortgage that should be kept in mind while constituting a mortgage. A Mortgage-deed comes up with many rights and liabilities for both the parties involved that is mortgagor and mortgagee under the Transfer of Property Act in 1882. Therefore, through the evolution of The Transfer of Property Act of 1882 has to widen the horizon regarding the rights and liabilities of a mortgagor and a mortgagee. This saves them from exploitation and securing the property mortgaged from ill-intentions.

References

https://www.legalserviceindia.com/legal/article-6089-rights-and-liabilities-of-a-mortgagor.html

https://legalraj.com/articles-details/rights-and-liabilities-of-mortgagor-and-mortgagee

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