Mortgage of Property

Introduction

Under the Indian legal system, properties are divided into two categories – movable and immovable properties. Transfer of Movable property is governed by the Sale of Goods Act, 1930 whereas transfer of immovable property is governed by the Transfer of Property Act, 1882.

Before this Act came into force there was practically no law as to real property in India. The Act was enacted with the object to amend the law relating to the transfer of property by the act of parties. The Act also excludes from its purview the transfers by operation of law, i.e., by sale in execution, forfeiture, insolvency, or intestate succession. The scope of the Act is limited as it is confined to transfers inter vivos and excludes testamentary succession, i.e., transfer by will.

What do you mean by Mortgage of property?

A mortgage is a type of land transfer in which the transferor exchanges a property as collateral on a loan to the transferor. The transferee becomes the mortgagee and the transferor becomes the mortgagor. In ancient times the mortgage was a promise where the transfer of ownership was influenced either by property conveyance or conditional conveyance. In a mortgage, the conveyance of property for the procurement of loans and the re-conveyance to the mortgagor for the settlement of the debt is of considerable significance

 A transfer of an interest in an immovable property has been mentioned under Section 58 of the Transfer of Property Act,1882, which means that the mortgagor only transfers an “interest in the property” to the mortgagee and not the property when securing a loan for current or potential liabilities or debts. This suggests that the mortgagee is obligated by statute to re-convey the particular interest to the mortgagor until the object of the mortgage is fulfilled.

The transferor is called Mortgagor, and the transferee is called Mortgagee. The principal money and interest the payment of which is secured for the time being is called the Mortgage Money and the instrument by which the transfer is effected is called a Mortgage Deed.

Essentials of Mortgage

  1. Transfer of Interest: The first thing to note is that a mortgage is a transfer of interest in a 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 favor of the mortgagee. After the 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 favor 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.
  1. 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.
  1. To Secure the Payment of a Loan: Another characteristic of a mortgage is that the transaction is for the purpose of securing the payment of a loan or the performance of an obligation which may give rise to a pecuniary liability. It may be for the purpose of obtaining a loan, or if a loan has already been granted to secure the repayment of such loan. There is thus a debt and the relationship between the mortgagor and the mortgagee is that of debtor and creditor.

Types of Mortgages

  1. Simple Mortgage: In a simple mortgage, the mortgagor 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.
  2. Mortgage by Conditional Sale: Under such a mortgage, the lender can put a certain number of conditions that the borrower must follow in terms of repayment. These conditions may include the sale of the property if there is a delay in the monthly installments, an increase in the rate of interest due to a delay in repayment, etc. Foreclosure means the loss of right possessed by the mortgagor to redeem the mortgaged property. Without the foreclosure order, the mortgagee will not become the owner of the property.
  3. Usufructuary Mortgage: Under this form of mortgage, the mortgage 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 mortgagee reserves the right to recover the property when the money is repaid.

The mortgagor is not personally liable to repay the mortgage money. So, the mortgagee cannot sue the mortgagor 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.

  1. Mortgage by Deposit of Title Deeds: When a debtor delivers to a creditor or his agent a document of title to immovable property, with an intention to create a security thereon, the transaction is called a mortgage by deposit of title deeds. Such a mortgage is restricted to the towns of Kolkata, Mumbai, Chennai, Cochin, Kanpur, Ajmer, Mysore, Ellora, Bikaner, Bombay, Jodhpur, Coimbatore, and other towns notified by the State government for this purpose in the Official Gazette(K.J. Nathan v. S.V. Maruthi Rao, A.I.R. 1965 S.C. 443). This type of mortgage requires no registration and is popular in the case of banks. This form of mortgage is also known as an equitable mortgage.

(Sulochana and Others Vs. The Pandyan Bank Ltd. And Another, AIR 1975 Mad 70) It was held in the said case that the debtor need not produce the documents and deposit the same in person in any of the towns mentioned in that Section. If the intention was to deposit the documents in the towns mentioned and the documents were duly forwarded, such deposit shall be deemed to have been made in the towns specified in the Section.

  1. Anomalous Mortgage: Section 58(g) of the Transfer of Property Act provides that “a mortgage which is not a simple mortgage, a mortgage by conditional sale, usufructuary mortgage, an English mortgage, or a mortgage by deposit of title deeds within the meaning of this section is called an anomalous mortgage”. Thus, an anomalous mortgage is a combination of various other mortgages, for example, a usufructuary mortgage may be created and the mortgagee shall have the right of sale. We have already noticed that in a usufructuary mortgage only possession is given to the mortgagee and there is no right of sale. But in an anomalous mortgage, the right of sale along with the possession of the property may be given. We have also seen that in the case of a usufructuary mortgage, there is no personal liability on the part of a mortgagor but if the mortgagor assumes personal liability to pay the mortgage money, it will be an anomalous mortgage.

English Mortgage: Section 58(e) states that where the mortgagor binds himself to repay the mortgage money on a certain date and transfer the mortgaged property absolutely to the mortgagee but subject to the proviso that he will retransfer it to the mortgagor upon the payment of the money agreed, the transaction is called the English Mortgage. Therefore, the remedy available for this type of mortgage is a sale of the property to recover the debt.

Rights of Mortgagor

  1. Right to Redemption (section-60)

It is one of the most important rights of a mortgagor given under section of the Act. This right puts an end to mortgages by returning the property of the mortgagor. The right to redeem further grants three rights to the mortgagor:

• Right to end mortgage deal.

• Right to transfer mortgaged property to his name.

• To take back possession of the property in case of delivery of possession.

 In the case of Noakes & Co. vs. Rice (1902) AC 24, Rice was a dealer who mortgaged his property, premise, and goodwill to N subject to the provision that if R paid back the whole amount, the property would be transferred back to his name or any other person’s. A covenant was attached that stated whether or not the amount is due, R would only sell Malt liquor by N on his premises. Because of this covenant, R had difficulty in redemption and it didn’t give him absolute right over his property. House of Lords held that anything which clogs this right is bad and they came up with the concept that ‘once a mortgage always a mortgage and said that a mortgage could never be irreducible.

This principle was added to protect the interest of a mortgagor. Any condition or provision which prevents a mortgagor from redeeming his mortgaged property is a clog on the right of redemption. The right to redemption continues even though the mortgagor fails to repay the loan amount to the mortgagee. 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.

Exceptions to the right– The right to redeem has three exceptions. It can be extinguished under the following cases:

  • By the act of parties
  • By operation of law
  • By decree passed by the court
  1. Right to Renewed Lease (section-64) If the mortgagor is entitled to the mortgaged property is a leasehold property and during the duration of the mortgage, the lease gets renewed then, on redemption the mortgagor is entitled to have the benefit of the new lease. This right is available to the mortgagor unless he enters into any contract to the contrary with the mortgagee.
  1. Right to Improvements (section-63A) According to this right if the mortgaged property has been improved while it had the 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 the mortgagee unless:

• Improvements made by the mortgagee were to protect the property or with the prior permission of the mortgagor.

• Improvements were made by the mortgagee with the permission of the public authority.

  1. Right to accession (section 63) Basically, accession means any addition to property. According to this right mortgagor is entitled to such accession to his property which is in the custody of the mortgagee. There are two types of accession:
  • Artificial accession- It is when the mortgagor made some efforts and it increased the value of the land.
  • Natural accession- The name itself defines i.e., without any man-made efforts.

In case an accession is made to the property due to the efforts of the mortgagee or at his expense and such accession is inseparable, the mortgagor, to be entitled to such succession, needs to pay the mortgagee the expense of acquiring such accession. 

Rights of Mortgagee

  1. Right to foreclosure

As per this section, once the time has lapsed to pay the mortgage money or at any time before the decree for the redemption of the mortgaged property has been passed after the payment of the loan amount, the mortgagee can redeem the property or get a decree from the court to sell the property.

In the case of (K. Vilasini v. Edwin Periera, AIR 2009 SC 104), it was noted that an order of foreclosure is passed only after determining the kind and nature of the mortgage and the parties who are operating within the mortgage.

The right of foreclosure is usually invoked when the mortgagor fails to pay the debt amount in the given period and his right to redeem the property has also expired due to default in his payment. Thus, the mortgagee can file a suit of the decree to debar the mortgagor from his redemption rights.

  1. Right to Sell

As per this section, the mortgagee has the right to sell the mortgaged property without getting a decree or order from the Court. When the mortgagor fails to pay the mortgage money in the stated period, the mortgagee is entitled to sell the property to recover the mortgage money without the intervention of the court.

But there are only certain conditions under which the mortgagee has the right to sell the property without the permission of the Court. They are-

  • Where the mortgage is an English Mortgage and the mortgagor and mortgagee are not Hindus, Muhammadans, Buddhists,s or a member of any race, sect, tribe, or as stated by the official gazette of the State government.
  • Where this power of the mortgagee is explicitly stated by the mortgagee in the mortgage deed and the mortgagee is itself government and the property is located in specified towns i.e., Calcutta, Madras, or Bombay originally.
  1. Right to Accession

Accession is the additions made to the mortgaged property as stated above, and this section mentions that after the date of execution of the mortgage deed if any additions are made to the property, then even the mortgagee shall have rights over those accessions for the purpose of its security of his mortgage money. This section is quite the opposite of section 63 where the mortgagor has the right over any accession made by the mortgagee, but under this section, the mortgagee can claim over the acquired accession as part of the security and only enforce his authority on them.

  1. Right to Sue

The mortgagee has the right to sue the mortgagor in the following cases to retrieve his mortgage money-

  • Where the mortgagor is personally bound himself to pay the debt
  • In the case where the mortgaged property is completely or partially destroyed without any fault of the mortgagee
  • In the case where the mortgagee is destitute from the whole or part of the security by any faulty act of the mortgagor
  • In a specific mortgage, where the mortgagee is entitled to possession of the security but the mortgagor fails to do so the Court can put a stay on all the suit and proceedings as per the suit filed by the mortgagee until the mortgagee exhausts all its remedies or abandons the security property and if decided in favor of the mortgagor, re-transfers the property.

Reference:-

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