What is a mortgage?
A mortgage is the transfer of an interest in an immovable property for the purpose of securing the payment of loan advanced or to be advanced or the performance of an engagement which may give rise to financial liability.
Sec. 58 of the Transfer of Property Act, 1882 defines the transferor as the mortgagor; the transferee as the mortgagee; the principal money and interest of which payment is secured are called the mortgage money, and the instrument (if any) by which the transfer is effected and mortgage is created are called a mortgage deed.
Types of Mortgages
- Simple mortgage– A simple mortgage does not involve giving the possession of the mortgagor’s property to the mortgagee. Here the mortgagor by an express or implied agreement binds himself personally to pay the mortgage money and contracts that in the case of non-payment within the specified time, the mortgagee can cause the mortgaged property to be sold in accordance with law and have the sale proceeds adjusted towards the payment of the mortgage money.
- Mortgage by conditional sale– This type of mortgage entails the apparent sale of property by the mortgagor to the mortgagee on a conditional basis, that on default by the mortgagor, the sale shall become absolute and complete. If the mortgagor repays his loan, the sale shall become null and void.
- Usufructuary mortgage– In a usufructuary mortgage, the mortgagor gives possession to the lender and gives him rights to accrue the rents or income received from that property as repayment towards mortgage money, till the time repayment is complete.
- English mortgage– The mortgagor transfers the mortgaged property to the mortgagee in entirety. However, there is a condition that on complete repayment of the mortgage money, the mortgagee will transfer the property back to the mortgagor.
- Mortgage by deposit of title-deeds-Where a person delivers to a creditor or his agent the documents of title to immovable property, in any of the towns notified (in gazette), with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds. This is also called equitable mortgage and is the most common type of mortgage and is used by banks to secure loans. Mortgage by deposit of title deeds does not require execution of a mortgage deed.
- Anomalous mortgage-A mortgage which is not any one of the above types is called an anomalous mortgage.
Requirement of registration of mortgage deed
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. It may be noted that some states in India have now made registration of mortgage by deposit of title deeds also mandatory.
Rights of Mortgagor
- Right of redemption
At any time after the mortgage money has become due, the mortgagor has a right, on repayment of the dues, to require the mortgagee:
- to deliver to the mortgage-deed and all documents relating to the mortgaged property which is in the possession or power of the mortgagee;
- where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor; and
- at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and to have registered an acknowledgement in writing that any right of the mortgagee has been extinguished.
This right is called a right to redeem and a suit filed to enforce it is called a suit for redemption.
- Obligation to transfer to the third party instead of re-transfer to mortgagor
Where a mortgagor is entitled to redemption, he may require the mortgagee, instead of re-transferring the property, to assign the mortgage debt and transfer the mortgaged property to such third person as the mortgagor may direct; and the mortgagee shall be bound to assign and transfer accordingly.
- Right to inspection and taking copies of documents
A mortgagor, as long as his right of redemption subsists, shall be entitled, at his own cost, to inspect and make copies or take extracts of, documents of title relating to the mortgaged property which is in the custody or power of the mortgagee.
- Right to redeem separately or simultaneously
A mortgagor who has executed two or more mortgages in favour of the same mortgagee shall, when the loan has become due, be entitled to redeem any one such mortgage separately, or any two or more of such mortgages together.
- Accession to mortgaged property
Where mortgaged property in possession of the mortgagee has, during the continuance of the mortgage, received any addition, the mortgagor, upon redemption, shall be entitled to such accession.
- Improvements to mortgaged property
Where mortgaged property in possession of the mortgagee has, during the currency of mortgage, been improved, the mortgagor, upon redemption, shall be entitled to the improvement and the mortgagor shall not be liable to pay the cost thereof, except where such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was made in compliance with lawful order.
- Renewal of mortgaged lease
Where mortgaged property is leased, and the mortgagee obtains a renewal of the lease, the mortgagor, upon redemption, shall have the benefit of the new lease.
- Power to lease
The mortgagor, while lawfully in possession of the mortgaged property, shall have the power to make a lease of the property, which shall be binding on the mortgagee.
Liabilities of mortgagor
- Liability to defend the mortgagor’s title
The mortgagor will be liable, so long as the mortgagee is not in possession of the mortgaged property, to pay all public charges accruing due in respect of the mortgaged property and defend his title to the mortgaged property.
- To pay lease rent
Where the mortgaged property is leasehold, the mortgagor is liable to pay rent payable under the lease and so long as the mortgage exists, pay the rent reserved by the lease, and indemnify the mortgagee against all the claims sustained by reason of non-payment of the lease rent or due to default of any conditions of the lease.
- Keep mortgaged property encumbrance free
Where the mortgage is a second or subsequent encumbrance on the property, the mortgagor will pay interest accruing due on such prior encumbrance as and when it becomes due, and will at the proper time discharge the principal money due on such prior encumbrance.
- Deterioration of mortgaged property
A mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate; but he must not commit any act which is destructive or reduces its value permanently, rendering the security insufficient to cover the mortgage money.
Rights of Mortgagee
- Right to foreclosure or sale
The mortgagee has, at any time after the mortgage money has become due to him, a right to obtain from the court a decree for the sale of mortgaged property. A suit to obtain a decree that a mortgagor shall be absolutely debarred of his right to redeem the mortgaged property is called a suit for foreclosure.
- Right to sue for mortgage money
The mortgagee has a right to sue for the mortgage money, where:
- the mortgagor binds himself to repay the same;
- the mortgaged property is wholly or partially destroyed or the security is rendered insufficient to satisfy the mortgaged debt;
- the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor;
- the mortgagor fails to deliver possession of the mortgaged property after the mortgagee become entitled to the same.
- Right to accession to mortgaged property
If any accession is made to the mortgaged property, after mortgage, the mortgagee, shall be entitled to such addition as security for the mortgage money.
- Renewal of mortgaged lease
When the mortgaged property is a lease and the mortgagor obtains a renewal of the lease, the mortgagee shall be entitled to the new lease.
- Right to proceeds of revenue sale or compensation on acquisition
- Where the mortgaged property is sold owing to failure to pay arrears of revenue or other charges of a public nature or rent due in respect of such property, the mortgagee shall be entitled to claim payment of the mortgage money, out of any surplus of the sale proceeds remaining after payment of such dues.
- Where the mortgaged property is acquired by law, the mortgagee shall be entitled to claim payment of the mortgage money, in whole or in part, out of the amount due to the mortgagor as compensation.
Liabilities of mortgagee in possession
When the mortgagee takes possession of the mortgaged property:
- he must manage the property as a person of ordinary prudence would manage it if it were his own;
- he must try his best endeavour to collect the rents and profits thereof;
- he must, out of the income of the property, pay the government revenue, all other charges of a public nature and all rent accruing due in respect thereof during such possession;
- he must make such necessary repairs of the property as he can pay for, out of the rents and profits thereof, after deducting from such rents and profits the payments of statutory nature and the interest on the principal money;
- he must not commit any act which is destructive or permanently deteriorate the value of the property;
- where he has insured the whole or any part of the property against loss or damage by fire, he must, in case of such loss or damage, apply any money which he actually receives under the policy or so much thereof as may be necessary, in reinstating the property or in reduction or discharge of the mortgage-money;
- The mortgagee is liable for the loss occasioned due to his default in the performance of any of the duties imposed upon him by law.