Property Mortgages are contractual agreements that allow individuals to obtain financial resources from a lender by using real property as security. As specified in the Transfer of Property Act of 1882, these agreements exist in many formats, each outlining distinct rights and responsibilities for the parties concerned. These categories include several types of property mortgages, such as the simple mortgage, conditional sale mortgage, usufructuary mortgage, English mortgage, equitable mortgage, and anomalous mortgage. Each kind is subject to its specific legal regulations. The default remedies include foreclosure, property sales, and redemption rights, which protect the interests of all parties involved. Property Mortgages include a legal structure that guarantees the integrity of contracts and protects creditors in property purchase transactions.
What is a property mortgage?
A legal contract where an individual borrows money from a financial institution, like a bank, in order to buy a property. The property is the collateral for the loan, allowing the lender to take possession through foreclosure in case the borrower fails to make payments. Mortgages typically involve regular payments comprising both principal and interest, with the loan terms specifying details such as the interest rate, loan duration, and other conditions.
A mortgage is a collateral provided by a borrower, the debtor (mortgagor), to guarantee loan repayment to the lender, the creditor (mortgagee). The purpose of a property mortgage is to provide collateral for the loan or any other obligation. It refers to the conveyance of a restricted ownership right in real estate.
Property Mortgages in India are defined under Section 58 of the Transfer of Property Act Section 2(17) of the Indian Stamp Act.
As per Section 58 of the Transfer of Property Act of 1882, a mortgage is a legal document that allows one person to transfer or create a right over a specified property to secure the money that has been or will be advanced as a loan or to fulfil an existing or future debt or obligation.
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Mortgage Classifications and Remedies
Simple Mortgage [Section 58(B), The Transfer of Property Act, 1882]
A simple property mortgage is a type of mortgage where the mortgagor agrees to personally pay the mortgage money without giving possession of the mortgaged property. If the mortgagor fails to make the payments as agreed, the mortgagee has the right to sell the mortgaged property to pay off the mortgage debt. The mortgagee in this type of transaction is called a simple mortgagee.
Elements:
Personal liability of the mortgagor: The mortgagor, or borrower, is obligated to personally return the debt, which might be either mentioned or implied by the loan agreement’s provisions.
Non-receipt of Possession: Under a basic mortgage arrangement, the borrower, the mortgagor, maintains ownership and management of the property. The lender, referred to as the mortgagee, has a limited security interest that is restricted only to the mortgaged property. This security interest does not include any rights to collect rentals or profits from the property, as outlined in Section 68.
Right to Sell the Property: If the borrower (mortgagor) fails to make the required payment, the lender (mortgagee) has the authority to sell the property, pending permission from the court. This legislative mandate guarantees a fair and equitable procedure. The funds obtained from the sale are first used to repay the loan and any accrued interest. Any remaining amount is then given back to the borrower.
Enrolment: A simple property mortgage must be documented and registered by Section 59 to be legally legitimate. This criterion is applicable without exception, even in cases where the secured sum is less than 100 rupees.
Remedies available to the mortgage lender:
The lender has two options if the borrower does not reach the payback date. The lender can commence legal proceedings against the borrower to recover the debt, leading to a clear-cut monetary judgment. Alternatively, the lender can request the court’s approval to sell the property used as collateral to reclaim the remaining balance. Both proceedings must be commenced within a rigid 12-year period from the date the loan was first granted to maintain these legal rights.
Conditional Sale Mortgage [Section 58(C), The Transfer of Property Act, 1882]
Section 58, clause (c) states: A property mortgage by conditional sale refers to a situation where the mortgagor appears to sell the mortgaged property, but with the condition that if the mortgage money is not paid by a specific date, the sale will become final. Alternatively, if the payment is made, the sale will be void, or the buyer will transfer the property back to the seller. In this case, the party holding the mortgage is known as a mortgagee by conditional sale. For a transaction to be considered a mortgage by conditional sale, the condition must be clearly stated in the document that affects or claims to affect the sale.
Fundamental Components:
The Muslims established the notion of a mortgage by conditional sale, also known as ‘bye-bil-wafa’ in Islam, in response to the restriction in their faith on charging interest on borrowed money. This property mortgage allowed them to repay their principal and interest while maintaining a clean conscience.
Including the condition in clause (c) of Section 58, as established by Section 19 of the Transfer of Property (Amendment) Act of 1929, was a notable change. This provision stipulates that a transaction cannot be considered a mortgage unless the need for repurchasing is clearly stated in the instrument that affects or claims to affect the sale.
This amendment states that for a transaction to be classified as a property mortgage by conditional sale rather than an outright sale, the need for repurchase must be clearly stated in the same instrument used to carry out the sale. It is important to note that this change does not apply retroactively. After this condition is said, it is essential to include the buyback provision in the original sale deed rather than dividing it between two papers (one being the sale deed and the other having requirements for reconveyance), even if they are completed at the same time.
The parties’ purposes are crucial in establishing the transaction’s character. Documents describing the terms for transferring the property back to the original owner should not falsely claim to be mortgaged. If someone argues otherwise, they must provide proof to the court, as shown in the case of Pandit Chunchun Jha v. Sheikh Ebadat.
Under the conditions of a property mortgage by conditional sale, the individual who borrows the money (mortgagor) is not personally responsible for repaying the obligation. As a result, the lender is prohibited from including any other properties owned by the borrower in this transaction, going against the established premise of “No Debt, No Mortgage.”
Furthermore, the Privy Council emphasised the unique characteristic of absolute ownership in the Thumbuswamy v. Hossain Rowthen case. This highlights that if a condition is violated, the sale deed will be carried out, converting the transaction into a complete sale with no further responsibilities between the parties.
Remedies available to the mortgage lender:
This property mortgage arrangement involves the mortgagee not having actual possession of the property. Instead, they get limited ownership, which may become full ownership if the mortgagor fails to meet their obligations. The mortgagee’s recourse resides in foreclosure rather than sale, which may only be obtained by a court decision. The lender has the authority to commence a foreclosure order by Section 67 of the Transfer of Property Act, Rules 2 and 3 of Order 34, Civil Procedure Code, alone when the borrower neglects to make punctual payments, leading to the completion of the sale.
Usufructuary Mortgage, [Section 58(D), The Transfer of Property Act, 1882]
In Section 58(d), a Usufructuary Mortgage allows the borrower to keep possession and use of the property while the lender receives the generated income or profits.
Section 58, clause (d) clearly defines a usufructuary mortgage, which occurs when the person who borrows the money (mortgagor) gives or promises to provide the person who lends the money (mortgagee) control of the property. The mortgagee is granted the authority to maintain possession until the mortgage debt is fully settled, collect rental income and other earnings, and allocate them towards interest payments or mortgage repayment.
Fundamental Components:
Possession Delivery: The mortgagor provides or promises to give possession to the mortgagee as collateral. Physical delivery is not required when the deed is executed; an inferred commitment is sufficient.
Income from Rent and Profits: The mortgage holder can obtain rental income and financial gains until the loan is fully repaid. Appropriation may occur in place of interest, principal, or both, depending upon the specific conditions of the mortgage.
Zero personal accountability: The mortgagor is not personally liable for the mortgage’s repayment. The mortgagee uses rental income and profits from the property to repay the mortgage without any specified time restriction for the length of the mortgage.
Remedies available to the mortgagee: If the mortgage holder does not get possession, they can initiate legal action to regain ownership or reclaim the funds provided. If possession is granted, the mortgagee maintains ownership of the property until all obligations are fully paid off.
The usufructuary mortgagee does not have the option to foreclose or sell the property, but they may reimburse themselves using the property’s revenues.
Usufructuary mortgagor’s entitlements
Section 62 confers to the usufructuary mortgagor the right to regain ownership in the following circumstances: The mortgagee has the authority to receive payment from the income generated by the property, and the mortgage debt has been settled.
The mortgagee can use the rents and profits to fulfil the agreed-upon payment conditions. Once the specified payment period ends, the mortgagor must either make the payment or deposit the mortgage money in court.
English mortgage, [Section 58(E), The Transfer of Property Act, 1882]
An English mortgage is when the borrower agrees to repay the loan by a specific or particular date and transfers property ownership to the lender. However, there is a condition that the lender will transfer the property upon full payment of the loan to the borrower.
In an English mortgage, the mortgagor is personally responsible for repaying the obligation by the agreed-upon date, which is a crucial aspect of the mortgage arrangement.
Fundamental Components:
Solution for Default: In the event of the mortgagor’s failure to meet their obligations, the mortgagee has the option to sell the property that is serving as collateral to recoup the remaining debt.
Type of Property Transfer: Although the property is transferred without any conditions, there are mechanisms for it to be returned if the person who borrowed money to buy it repays the loan. This establishes a legal right for the borrower to reclaim property ownership.
There are two possible scenarios when it comes to repayment: Upon the mortgagor’s prompt repayment, the property previously transferred without any conditions is returned to the mortgagor.
If the person who borrowed the money to buy the property (the mortgagor) fails to return the loan per the agreed terms, the mortgagee/ lender can sell the property as a right. However, the mortgagor will still be responsible for the remaining debt.
Mortgagee’s entitlements: The mortgagee has the right to take possession, regardless of whether the entrance right is explicitly mentioned until the outstanding sum is fully returned.
Suppose the person who borrowed the money to buy the property lives in it; in that case, they have the right to make money from it without explaining anything to the person or institution that lent them the money. In contrast, if the mortgagee is in possession and earns income, these earnings decrease the mortgagee’s obligations.
Equitable Mortgage under English Law: An equitable mortgage in English Law is distinguished from a legal mortgage by depositing title deeds without the need for further formalities or written paperwork. This particular mortgage, intended explicitly for expedited funding, is not subject to the Law of Registration, so it qualifies as an oral transaction.
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Statutory regulations and essential components:
Debt Prerequisite: A mortgage requires a debt, which may be current or anticipated, to form the foundation for the loan.
Transfer/Conveyance of Title Deeds: The borrower’s provision of the lender with title deeds is a vital transaction component.
Purpose of Deeds as Collateral: The deposited deeds must clearly and explicitly intend to serve as collateral for the loan, highlighting the primary objective of the transaction.
Geographical limitations: Equitable mortgages are geographically restricted to the precise locations where deeds are transferred rather than being determined by the condition or location of the property.
Presence of Debt: Clause (f) outlines the construction of an equitable mortgage to guarantee the payment of money that has been or will be loaned or a current or future obligation.
Title-Deeds Deposit: Physical delivery is not necessary; constructive delivery is sufficient. The submitted documents must be genuine, directly connected to the property, and function as tangible proof of ownership.
Anomalous Mortgage [Section 58(g)]
Section 58, clause (g), states: An anomalous mortgage refers to a kind of mortgage that does not fall into the following categories –
- simple mortgage,
- mortgage by conditional sale,
- usufructuary mortgage,
- English mortgage, or
- mortgage by deposit of title documents as defined in this section.
Clause (g) was implemented to safeguard customary mortgages by specifying that an anomalous mortgage is a fusion of two or more mortgage varieties. Section 98 of the Transfer of Property Act (TPA) states that the rights and responsibilities of the parties involved in an anomalous mortgage are established by their agreement as stated in the mortgage deed and, in some instances, by local customs.
Available Remedies:
Under an anomalous mortgage, the mortgagee can engage in ‘foreclosure’ and ‘selling’ activities if the mortgage agreement permits it. Failure to repay a loan gives the mortgagee the authority to assume property ownership.
Redemption Right of the Mortgagor:
The mortgagor may exercise their right of redemption by using the mortgage deed, obtaining a court order, or following the relevant legislative rules unless limited by a prior agreement. This right is only restricted when parties take action to prohibit it.
