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Mortgage

Mortgage

A Mortgage is a kind of security given by borrower who is the debtor (mortgagor) for repayment of loan to the lender who is the creditor (mortgagee). The object of a mortgage is to secure the debt or other obligation. It is a transfer of limited interest in property.

A Mortgage is transfer of an interest in immovable property.

Section 58 of transfer of Property Act and section 2(17) of Indian stamp act, define Mortgage.
A Mortgage is defined as:
Mortgage Deed includes every instrument whereby for the purpose of securing money advanced or to be advanced, by way of loan or an existing or future debt, or the performance of an engagement, one person transfers or create to or in favour of another, a right over or in respect over or in respect of specified property.

Mortgage is a transfer, but not the transfer of ownership rights and the main purpose of mortgage is a transfer of an interest to secure the payment of money advanced as loan

According to section 58 (a) of transfer of Property Act, A mortgage is transfer of interest in specific immovable property for purpose of securing:
  1. The payment of money advanced by way of loan.
  2. An existing or future debt, or
  3. The performance of an engagement which may give rise to a pecuniary liability.

The transferor is called a ‘Mortgagor’ and the transferee a Mortgagee.
The principle money and interest of which payment is secured for time being are called the
‘Mortgage- money’ and the instrument by which the transfer is effected is called ‘ mortgage – deed’.

Elements Of A Mortgage:

The chief elements of a motgage are:
  • Two parties are there.
  • Transfer of an interest.
  • Interest made in specific immovable property.
  • Transfer must be to secure the payment of a loan or to secure the performance of a contract.

Two Parties Are There:

The person who actually mortgage the property is a mortgagor, but a mortgagor includes a person deriving title under the original mortgagor, eg : Heirs, executors who drive their title from the mortgagor.

Transfer Of An Interest:

Must be transfer of an interest in immovable property. It is not transfer of ownership like in sale but only interest with a hope that in future the property will be taken if repay the loan.
A mortgage is transfer of an interest and create a right in rem, but mere ‘agreement to mortgage’ at a future time is not a mortgage.

Specific Immovable Property:

In order to create a Mortgage, it is essential to specify the immovable property. Otherwise it would be void for vagueness. It is a security against the loan and the property exist and there is no doubt in property.

Consideration Of Mortgage:

A mortgage must be supported by consideration, which may be either money advanced by way of loan, or an existing or future debt, or the performance of an engagement giving rise to pecuniary liability.

The object of mortgage being t secure debt, a transfer which is made by way of “Discharging Debt”, is not a mortgage. Like in leading of neha sha v Murlidhar(1903).

A Mortgage is not always executed for securing debt which has already arisen. A Mortgage can be executed for securing payment of money ‘ to be advanced’ in future. Execution of mortgage by itself does not give rise to a debt.

Example : A took a loan from B and B demanded papers of his property as security so A transfer the interest.

The property to be mortgaged must be a specific one, i.e., it can be identified by its size, location, boundaries, etc.

The actual possession of the mortgaged property need not always be transferred to the mortgagee.

The interest in the mortgaged property is re-conveyed to the mortgage on repayment of the loan with interest due on.

In case the mortgager fails to repay the loan, the mortgagee gets the right to recover the debt out of the sale proceeds of the mortgaged property.

Money Deed:

Section 55 (2) of the Act, talks about some relevant covenants or agreements which the parties are required to enter into for the conveyance of immovable property such as lease, sale, Mortgage, gifts etc. The mortgage deed is an instrument or a legal document containing terms and conditions relating to the Mortgage. The deed provides the lender with the interest and legal rights over the property. All the rights and interests over the property that the borrower has pledged as collateral are legalized in the Mortgage Deed. In case of any default or failure to pay the loan amount, the lender can claim his legal rights over the property.

Kinds Of Mortgage:

The nature of right transferred in mortgage depends upon the form or kind of the Mortgage.
Section 58 of TPA there are six kinds of mortgage.
  • Simple Mortgage [sec. 58(b
  • Mortgage by conditional sale[ sec. 58(c)]
  • Usufructuary Mortgage [sec. 58(d)]
  • English Mortgage [sec. 58(e)]
  • Equitable Mortgage [sec. 58(f)]
  • Anomalous Mortgage [sec.58(g)]

Sub- Mortgage:

A mortgage debt being an immovable property, thr mortgagee can assign his interest in the mortgaged property. A mortgage by mortgagee of his interest under the original mortgage is called a sub-mortgage. A sub mortgage is entitled to a decree for sale of a mortgage rights of his mortgagor
The different type of mortgage are described as
  1. Simple Mortgage:

    In a simple mortgage, the mortgagor retains the possession of the property with himself, covenants personally to pay the mortgage money, and agrees that in default of payment the mortgagee shall have the right of realising the debt by causing the property to be sold under an order of court. In this only interest in transferred.

    Hence the following 3 conditions are necessary for single mortgage:
    • The mortgagor retains the possession of mortgaged property;
    • The mortgagor must personally undertake to pay the mortgage money
    • The parties must expressly or impliedly agree that in the event of mortgagor failing to pay according to his contract, the mortgagee shall have a right to cause the mortgage property to be sold.

     
  2. Possession Not Transferred:

    In simple mortgage there is transfer of the property of mortgagor to mortgagee.
    A simple mortgage with possession is a simple usufructuary which would fall under class of anomalous mortgage.
    Since the mortgagee is not put into possession of property, he has no right to satisfy the debt out of the rent and profits, nor can he acquire the absolute ownership of mortgaged property by foreclosure.
    The mortgagee may, therefore sue a mortgagor for the mortgage-money or may proceed against the property or both.

    Mortgage By Conditional Sale

    In Mortgage ostensibly sells the mortgaged property, on condition that:
    • On default of payment og mortgage- money on a certain date, the sale is to become absolute
    • On such payment being made, the sale is to become void, or the buyer is to transfer the property to the seller.

    This is, therefore a mortgage in which the ostensible sale is conditional and intended simply as a security for the debt.
    The word “ostensible” means that it has an appearance of sale but is really not a sale.
    The ostensible sale needs not be accompanied with possession.

    For Example: X by a deed, conveys his landed property in outright sale but the second part of the document contains reference for getting suit land redeemed.
    The document will be treated as mortgage by conditional sale.

    In Ismail Kharti v/s Muljibhai Brahmabhatt, the first part of the document spoke of an outright sale, whereas the second part contained provision for redemption of the land.

    A mortgage by conditional sale
    Should be distinguished from a ‘sale with condition for repurchase’. In former, the sale is only ostensible, whereas in the latter it is real sale. In a mortgage, the debt subsists and the right to redeem remains with debtor. But, a sale with a condition of repurchase is not lending and borrowing arrangements, there is no right t redeem but simply a personal right of repurchase is reserved for the seller.

     
  3. Usufructuary Mortgage

    In usufructuary mortgage, the property is given as a security to the mortgagee, who is let into possession and permitted to repay himself out of rent and profits of such property.
    The possession is given to the mortgagee or the mortgagor must expressly or impliedly binf himself to deliver possession. The mortgagor will not be personally liable unless there is a distinct agreement to the contrary.

    The essential conditions of usufructuary mortgage are:
    • Delivery of possession or an express or implied undertaking on the part of mortgagor to deliver it
    • The enjoyment of usufruct by the mortgagee until all his dues under the mortgagee are paid off;
    • The mortgagor does not incur any personal liability to repay the money;
    • There being no personal liability to pay there is no forfeiture and remedies by way of foreclosure or sale not open to the mortgagee.

      Under section 58 (d) no time is fixed for repayment, since the mortgagee is entitled to remain in possession, until the payment of mortgage money, and none can say with any precision when such payment will be completely made. If parties stipulate that mortgage is for a definite period it is no longer a usufructuary mortgage but become an anomalous one.

      There cannot be two different usufructuary mortgages on the same property at same time, as the possession can only be given to one only.

      In usufructuary mortgage, the mortgagee has the advantage to repay himself. But in mortgage by conditional sale no delivery of possession is given.
       
  4. English Mortgage:

    An English mortgage is a transaction in which the mortgagor binds himself to repay the mortgage money on a certain date, and transfer the mortgaged property absolutely to the mortgagor, but subject to the proviso that he will retransfer it to the mortgagor upon the payement of the debt.

    The three essentials of this form of mortgage are:
    • That the mortgagor should bind himself to repay the mortgage money on certain day;
    • That the property mortgaged should be absolutely transferred to the mortgagoee;
    • That such absolute transfer should be made subject to the proviso that the mortgagee will reconvey the property to the mortgagor on payment by him of the mortgage money on the day on which the mortgagor bound himself to repay the same.

      An ‘English mortgage’ resembles a ‘Mortgage by a conditional sale’in so far as both of them belong to that class of securities in which the ownership of the property mortgaged is liable to be transferred from the mortgagor to the mortgagee on default of payment.

      Unlike a mortgage by conditional sale, an English mortgage the mortgagor ordinarily undertakes to pay the debt personally.

      Moreover, in a mortgage by a conditional sale, the mortgagee acquire only a qualified ownership, while English mortgage, he acquires an absolute ownership.
       
  5. Equitable Mortgage:

    A ‘Mortgage by deposite of title deed’ is called as Equitable Mortgage.

    Physical delivery of documents by the debtor to the creditor is mode of deposit. There may be constructive delivery also.

    There is no writing or other formalities are required. Thus,, for a valid mortgage by deposit of title deed, it is not essential to put the deed into writing, but there must be an intension to take the deed as aa security for the debt and if there is such intention, it is sufficient to create a valid mortgage by deposit f title deed even if the deed is not in writing.

    The essentials of Equitable mortgage are:
    • Delivery of title deeds
    • Existence of the debt
    • Specified “Delivery” means delivery of actual possession as aresult of the agreement.

      Document of title:
      If document deposited shows no kind of title in the depositor, no mortgage is created. It is sufficient if the deed deposited bona fide is relate to the property.
       
  6. Anomalous Mortgage

    Section 58(g) of T.P.Act defines Anomalous Mortgage. It is composite mortgage formed by combination of two or more of primary type of mortgage. In this class of mortgage, the rights of the parties are governed by the terms of ttthe instrument.
    A mortgage usufructuary by conditional sale is Anomalous mortgage as here mortgage is in possession as a usufructuary mortgage for a fixed period and if debt is not discharged at the expiry of period, he gets all rights of mortgage by conditional saleLike:
    1. A mortgage with possession containing also a covenant to pay the principle and the interest.
    2. A mortgagor to repay the instalments with interest or to redeem at any time. The mortgagee to remains in possession. Held, it is Anomalous Mortgage.
    3. Combination of mortgage where both are there simple and usufructuary when possession and interest both is transferred.

Mortgage And Charge:

Mortgage is different from charge as:
Section 100 to 101 of the Transfer of Property Act, 1882 deals with Charges of Immovable property. Section 58 of the transfer of property act, 1882 deals with Mortgage of immobile property.

A charge which is created as security for the payment of money may not always be for debt.
A Mortgage is always created only for the payment of a debt.

Conclusion
The concept of mortgage is one of the important concepts under the Transfer of Property Act, 1882 section 58 as it helps in securing the debt to the mortgagor and also helps in redeeming the property as soon as the mortgagor pays back the amount due to the mortgagee.

Written By: Nishtha Kareee

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