CONCEPT OF MORTGAGE UNDER TRANSFER OF PROPERTY ACT, 1882
A borrower needs to give some securities for repayment of the loan to the lender, a mortgage is such kind of security. The objective of a mortgage is to secure the debt or other obligations protecting a lender even if the borrower becomes insolvent. This article talks about the concept of mortgage.
The Transfer of Property Act defines Mortgage under Section 58 (a) a:
“A mortgage is the transfer of an interest in the specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”.
The transferor of a mortgage is called a mortgagor, while the transferee is called a mortgagee.
ELEMENTS OF A MORTGAGE
There are following essential characteristics of a mortgage:
- Transfer of an interest: The word “transfer of an interest” signifies that the interest which passes to the mortgagee is not ownership, or dominion which, notwithstanding the mortgage, resided in the mortgagor. There is a transfer of only some interest and not of the whole interest of the mortgagor. Hence, it is simply a transfer of interest in the immovable property while the ownership still remains with the mortgagors.
- Specific immovable property: In a mortgage, the immovable property must be distinctly specified. The word ‘specific’ is distinguished from the word ‘general’.
- Consideration of mortgage: The consideration is the third essential element of a mortgage, and it may be either:
- Money advanced or to be advanced by way of loan.
- An existing or future debt
- The performance of an engagement giving rise to pecuniary liability.
TYPES OF MORTGAGE
There are six types of mortgage. They are:
A simple mortgage
When a mortgagor binds himself personally, expressly, or impliedly, to pay the mortgage-money without delivering possession of the mortgaged property, in that event, if he fails to pay according to his contract, the mortgagee has a right to sell the mortgaged property, so far if it may be necessary in payment of the mortgage money, and such transaction is called a simple mortgage. The essential elements of a simple mortgage are:
- The mortgagor should have bound himself personally to repay the loan.
- The mortgagor transfers the right to have the mortgaged property sold in the event of his failure to repay.
- The possession of the property is not delivered to the mortgagee.
Mortgage by conditional sale
The Transfer of Property Act defines a mortgage by conditional sale as an ostensible sale on condition that upon repayment, the buyer shall transfer the property to the seller. Essential elements of a mortgage by conditional sale are:
- The mortgagor must ostensibly sell the immovable property
- There must be condition that either-
- On the repayment of the money due under the mortgage on certain date, the sale shall become void, or the buyer shall retransfer the property to the seller, or
- In default of payment on that date the sale shall become absolute.
- The condition must be embodied in the document which effects or purports to affect the sale.
Therefore, this is a mortgage in which the ostensible sale is conditional and intended simply as a security for the debt.
The characteristics of an usufructuary mortgage are:
- The possession of the property is transferred to the mortgagee. If the possession is not delivered, the mortgagee may sue for possession or for the recovery of the mortgage money under section 68(d).
- The mortgagee is to get rents and profits in lieu of interest or principal or both.
- No personal liability is incurred by the mortgagor. The mortgagor cannot be sued personally for debt. The mortgagee is only entitled to remain possession of the mortgaged property till the principal and interest are defrayed according to the terms of the agreement of the mortgage.
- The mortgagee cannot foreclose or sue for sale.
A transaction in which the mortgagor binds himself to repay the mortgage money on a certain date, and transfers the mortgage property absolutely to the mortgagee, but subject to a proviso that he will transfer it to the mortgagor upon payment of the debt is said to be an English mortgage. Thus, the main features of this mortgage are that:
- The mortgagor should bind himself to repay the mortgage money on a certain day.
- The mortgaged property should be transferred absolutely to the mortgagee.
- Such absolute transfer 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 appointment day.
Mortgage by deposit of title-deeds
A mortgage by deposit of title deeds is a form of mortgage recognized by Section 58(f) of the Transfer of Property Act which provides that it may be affected in certain towns where a person delivers to a creditor or his agent, the documents of title to immovable property with intent to create a security thereon. The essential requisites of such a mortgage are:
- A debt
- Deposit of the title deeds
- An intention that the deed shall be security for debt
Anomalous mortgage has been defined as a mortgage which does not fall under any of the five types mentioned above. Anomalous mortgage includes:
- A simple mortgage usufructuary: It is a combination of a simple mortgage and a usufructuary mortgage in which the mortgagee has the possession and pays himself the debt out of the rents and profits. There is also a personal undertaking as well as a right to cause the property to be sold on the expiry of the date fixed for payment.
- A mortgage usufructuary by conditional sale: In this transaction, the mortgage is in possession as an usufructuary mortgage for a fixed period and if the debt is not discharged at the expiry of the period, he gets all the rights of a mortgagee by conditional sale. In case the debt is not paid within the time fixed, the mortgagee gets the right of foreclosure, that is a right to deprive the mortgagor’s right of redemption.
MODE OF TRANSFER IN A MORTGAGE
There are three ways in which property may be transferred by way of mortgage. They are:
- Registered Instrument: In case of a mortgage other than a mortgage by deposit of title deeds, if the principal money secured is Rs 100 or upwards, a registered instrument is compulsory.
- Delivery of Possession: When the principal money secured is less that Rs 100, a mortgage may be brought in effect either by a registered instrument or by delivery of possession.
- Deposit of Title Deeds: A mortgage by deposit of title deeds is not necessary to be written and it is only valid in certain towns specified in Section 58(f).
Author: APURVA .,
3rd Year, Fairfield Institute of Management and Technology, GGSIPU