MORTGAGES OF IMMOVABLE PROPERTY



Introduction – Generally speaking when a person wishes to buy some movable or immovable property for which he is in need of money, then he can take loan by mortgaging his movable or immovable property. 

While most of us would have heard about “Mortgage”, but very few of us are conscious of what it actually means and its implications. Mortgage is a French term which means ‘death contract’. The term ‘death contract’ means that the pledge, promise ends only when the loan is repaid. Mortgage works as a security of the loan amount.Transfer of Property Act, 1882 gives us an intense idea about the different types of mortgages, the rights and liabilities of a mortgagor and mortgagee, the process of redemption of a mortgage and the charges involved.

Basically there are two types of properties i.e., Immovable and Movable Property  Property. 
Immovable Property–Immovable property includes an object which is immovable or which cannot be moved unless it is destroyed or altered. The immovable property is troublesome or challenging to relocate from one place to another. If relocated it can lose its original shape, volume, quantity and quality. Immovable property includes land, houses, premises, trees attached to the earth or ground
Movable Property – Personal property is generally considered a property that is movable, as opposed to real property or real estate. A movable property can easily be moved from one place to another, without changing its shape, size, quantity or quality. Movable property may include vehicles, books, furniture, utensils, etc.

Definition of “Mortgage”, “mortgagor”, “mortgagee”, etc.

According to Sec.58 of Transfer of Property Act, a mortgage is the transfer of an interest in some specific immoveable property for the purpose of securing the –

a) payment of money advanced or to be advanced by way of loan,
b) an existing or future debt, or
c) the performance of an engagement
which may give rise to a pecuniary liability.

Mortgage is the transfer of an interest in specific immovable property. It is given by way of security for a loan. A person who takes a loan and gives some security for repayment of the loan in the form of transfer of some interest in any immovable property, it is called a mortgage of property. The ownership of the property remains in debtor, but some of his interests in the property are transferred to the creditor who has given loan.

The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being arc called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.

Elements of Mortgage -

In order to constitute a mortgage, the following elements must be present in the transaction:-
(1) There must be transfer of an interest.
(2) The interest transferred must be in specific immovable property.
(3) The transfer must be made to secure a loan of money, debt or performance of an engagement which may give rise to a pecuniary liability. 

(1) Transfer of an Interest
Mortgage debt is not an actionable claim under this Act but it is only a transfer of an interest in an immovable property. It is different from sale because in sale there is complete transfer of all the interests in the property whereas in mortgage it is transfer of interest less than ownership.

(2) Specific Immovable Property
The interest created by mortgage must be in some specific immovable property. In mortgage deed the property must be defined specifically and not in general terms.
The property must be immovable property. Things attached to what is embedded in the earth area also included in immovable property. A life insurance policy cannot be a subject matter of a mortgage property because it is not a paid property.

(3) Consideration
The mortgage must be supported by consideration. The consideration may be either money advanced or to be advanced by way of loan, an existing or future debt or the performance of an engagement giving rise to a pecuniary liability. A transfer which is made by way of discharging a debt is not a mortgage. Where the mortgage has already advanced money, the mortgagor may execute the mortgage as security for its payment. The mortgagor may also execute the mortgage deed before he gets the full amount from the mortgagee. It has been held by the Supreme Court that a transaction of mortgage does not become ineffective merely because the mortgagee could not advance the money on the date of execution of the deed.

Types of Mortgages

a) Simple Mortgage - According to Sec. 58(b) of Transfer of Property Act, where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have aright to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money,the transaction is called a simple mortgage and the mortgagee a simple mortgagee. In simple mortgage, possession of the property remains with the mortgagee and he personally covenants to pay the mortgage-money.

A simple mortgage consists of: 
1. A personal obligation, express or implied to pay; and 
2. The transfer of a right to cause the property to be sold. 

The Madras High Court in Sri Raja Papamma Rao versus Sri Vira Pratapa Korkonda HV Ramchandra Razu and Anr held that, the right transferred to the mortgagee is not ownership.
For a simple mortgage, there must be a personal covenant either express or implied; and in the absence of such a covenant, the security is generally but not necessarily a charge.
Section 100 of the Transfer of Property Act, 1882, says that when immovable property of one person is, by act of parties or operation of law, made security for payment of money to another, such person is said to have a charge on the property if the transaction does not amount to a mortgage. If, therefore, the payment of money is secured on land, but no interest in specific immovable property is actually transferred, the transaction will amount to a mere charge.

The Hon’ble Supreme Court in Dattatraya Shanker Mote & Ors vs Anand Chintaman Datar & Ors, held that, a charge is wider than a mortgage and as such a mortgage is included in it also. Hence, every mortgage is a charge, but every charge is not a mortgage. 
The characteristic of a simple mortgage is that possession is not given.

The Bombay High Court in Anaji Thamaji Patil versus Ragho Bhivraj Patil and Anr held that, the mortgagee under a simple mortgage has no right whatsoever to actual possession of the mortgaged property or any possession at all.

b) Mortgage by conditional sale - According to Sec. 58(c) of Transfer of Property Act, where the mortgagor ostensibly sells the mortgaged property: 

On condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or
On condition that on such payment being made the sale shall become void, oron condition that on such payment being madethe buyer shall transfer the property totheseller,
The transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale. 

A mortgage by conditional sale is an ostensible sale which ripens only on the breach of condition as to payment into an absolute sale. An Ostensible sale means a sale which apparently looks like a sale but in reality it is not a sale but a security for debt.
The essential of this form of mortgage is that with the default of payment the transaction is closed and the mortgage security becomes the absolute property of the mortgagee. The mortgagor’s right of redemption will be lost only by a decree for foreclosure.

The Madras High Court in Ramasami Sastrigal versus Samiyappa-Nayakan, held that, there is no personal liability on the part of the mortgagor to repay the debt.
The Hon'ble Supreme Court in the case of Raj Kishore v. Prem Singh held that, unless and until condition of mortgage by conditional sale is embodied in the document that purports to effect the sale, then such transaction would not constitute a mortgage by conditional sale because the mortgage by conditional sale is described by Section 58 (c) of the Transfer of Property Act and the proviso below sub-section provides that "provided that no such transaction shall be deemed to be  a mortgage by conditional sale unless the condition is embodied in the document which effects or purports to effect the sale."

c) Usufructuary Mortgage – According to Sec.58(d) of Transfer of Property Act, “where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee, and authorities him to retain such possession until payment of  the mortgage-money, and to receive the rents and profits accruing from the property and to appropriate the same in lieu of interest, or in payment of  the mortgage-money, or partly in  lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee”.

Patna High Court in the case of Nanekeshwar Prasad v. Nand Gopal Ram, held that, where an usufructuary mortgagee, who is to appropriate the rent of the property in lieu of interest on the mortgage loan, subsequently lets out the property to the mortgagor under a “kerayanama” executed by the mortgagor, the claim for rent by the mortgagee against the mortgagor is a claim arising under the mortgage and hence the mortgagee cannot execute a decree for rent obtained against the mortgagor, by sale of the equity of redemption.

d) English Mortgage – According to Sec. 58(e) of Transfer of Property Act, “where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
In English mortgage, the property is absolutely transferred to the mortgagee with a condition that, when the debt is paid off on the given date, the mortgagee will retransfer the property to the mortgagor.

The Calcutta High Court in Hindusthan Laminators Pvt. Ltd. Versus Central Bank of India, was of the view that, an English Mortgage closely resembles an absolute sale with a condition of repurchase.
The Madras High Court in Narayana Versus Venkataramana held that, the three essentials of English Mortgage are 
(i) the mortgagor should bind himself to repay the mortgage-money on certain day; 
(ii) that the property mortgaged should be transferred absolutely to the mortgagee: and
(iii) that such absolute should be made subject to a proviso that the mortgagee will reconvey the property to the mortgagor, upon payment by him of the mortgage-money, on the date on which the mortgagor bound himself to repay the same.

(f) Mortgage by deposit of title-deeds or Equitable Mortgage - According to Sec.58(f) of Transfer of Property Act, “where a person in any of the following towns, namely, the towns of Kolkata, Madras and Mumbai, and in any other town that the State Government specify in this behalf, furnishes to a creditor or his agent, documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds”. This is a special type of mortgage because here the execution of mortgage deed is not necessary. The rule of equity is that mere deposit of a document of title without writing or without word of mouth, will create in equity a charge upon the property which is referred in the deed. Mere deposit of title deeds of an immovable property by mortgagor to mortgagee is sufficient.

Equitable mortgage is a lien upon real estate of such a character that it is recognised in equity as a security for the payment of money and it is treated as a mortgage. A mortgage of a merely equitable estate or interest is also so called. Such a mortgage may exist by a deposit with the lender of money of the title - deeds to an estate. They must have been deposited as a present, bona fide security. No particular formality is necessary in order to make a valid mortgage between the parties thereto. If the transaction resolves itself into a security, whatever may be its form, in equity it is mortgage. 

The term "equitable estate" means a right or interest in land, which not having the properties of a legal estate, but being merely a right of which courts of equity will take notice, requires the aid ofsuch court to make it available.

The Hon’ble Supreme Court in K.J. Nathan v S.V. Maruthi Rao and others laid down that the essential requisites of a mortgage by deposit of title deeds are i) debt, ii) deposit of title deeds, and iii) an intention that the deeds shall be security for the debt. Under the Transfer of Property Act a mortgage by deposit of title - deeds is one of the modes of creating a legal mortgage where under there will be transfer of interest in the property mortgaged to the mortgagee.

(g) Anomalous Mortgage –According to Sec.58(g) of Transfer of Property Act, “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”. Anomalous mortgages are usually a combination of two mortgages.

Some of the forms of anomalous mortgages are given below:
a) A mortgage with possession containing a covenant to pay the principal and interest.
b) A mortgage with possession having a stipulation that the transferee should appropriate the rents and profits for a specified term of years and then give back the land.
c) A mortgage with the mortgagee to remain in possession and the mortgagor to repay in installment with interest or to redeem at any time.
d) A mortgage without possession with the mortgagor not to redeem before five years and the mortgagee given a right offore closure.
e) A mortgage having a covenant to pay interest, but without any covenant to repay the principal and the mortgagor subsequently depositing certain title - deeds not mentioned in the mortgage as additional security.

Registered Mortgage and Equitable Mortgage – Advantages and Disadvantages

Based on the transfer of title to the mortgaged property, mortgages are divided into types namely:
1. Registered  Mortgage
2. Equitable Mortgage

Registered Mortgage
In a registered mortgage, the legal title to the property is transferred in favor 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 re-transferred to the mortgagor.
The method of creating a charge is expensive as it involves registration charges and stamp duty.

Equitable Mortgage
An equitable mortgage is affected by the delivery of documents of title to the property to the mortgagee.
The mortgagor through Memorandum of deposit undertakes to grant a legal mortgage if he fails to pay the mortgage money.

Advantages
  1. No registration is required for an inequitable mortgage and so stamp duty is saved.
  2. It involves minimum formalities.
  3. The information regarding such a mortgage is kept confidential between the lender and the borrower. So the reputation of the borrower is not affected.
Disadvantages
  1. If the mortgagor fails to repay, the mortgagee must get a decree for the sale of the property. Getting a degree is expensive and time-consuming.
  2. The borrower may hold the title deeds not on his account, but in the capacity of a trustee. If an equitable charge is created, the claim of the beneficiary under the trust will prevail over the equitable mortgage.
  3. There is the risk of a subsequent legal mortgage in favor of another party. If the equitable mortgagee parts with the security, even for a short period, the debtor may create a second legal mortgage over the same property.

Sub – Mortgage & Second – Mortgage

Sub-Mortgage: When a mortgagee mortgages the property mortgaged to him to another person as a security, then it is called sub-mortgage.

Second-Mortgage:  Where mortgager needs further loan against security of the immovable property already mortgaged, he creates another mortgage on the same property then it is called the second mortgage. The second mortgage can be made to same in favour of the existing mortgagee or any other person.

Records maintained by CERSAI  to help searching frauds in respect of security offered to the banks:

The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the SARFAESI Act, 2002.The records maintained by the Central Registry (CERSAI) will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as the fraudulent sale of property without disclosing the security interest over such property.

The transactions relating to mortgage by deposit of title deeds to secure any loan or advance granted by banks and financial institutions are to be registered in the Central Registry. It may be noted that under the provisions of Section 23 of the SARFAESI Act, 2002 particulars of any charge creating the security interest over property is required to be filed with the registry within 30 days from the date of creation.


"This article is authored by Mr. Amit Sonwane, you can reach out to him at son.ameet.999@gmail.com"

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