Loan or debt may be secure or unsecured. Debt is a wider term and it can be in any form. The loan is a specific term and includes cash. Secured loans are of two types i.e. Mortgage and pledge. Chapter IV Section 58 till 98 provides for Mortgage. A mortgage is a loan in which the asset is being used as collateral for the purpose of securing the loan money. A mortgage is a method through which money can be borrowed when in need.
Meaning of the term “Mortgage”
When any person is in need of money than they usually take loans from banks and financial institutions by giving their property as collateral security and repays the amount on a due date together with interest.
A mortgage is also the same procedure but instead of banks and financial institution loan is taken from a private individual by conveying the interest or benefit in immovable property to such an individual who becomes Mortgagee. A person who transfers the interest becomes Mortgagor. For the process of mortgage, it is important for both parties to build the relation of debtor and creditor.
Section 58(a) of Transfer of property act – “A mortgage is the transfer of an interest in 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”.
- Transferor becomes Mortgagor
- Transferee becomes Mortgagee
- The money for which the immovable property is mortgaged is called Mortgage Money.
- The instrument of Mortgage is called mortgage deed
Where the subject matter of security is an immovable property it is a mortgage whereas the subject matter of property is movable it is a pledge and governed by the Indian Contract Act.
“Once a mortgage always a mortgage”
This means that the right of foreclosure in the mortgage is always subject to the discretion of the court, this right can be exercised only when the right of redemption is extinguished by a court. This means that redemption supersedes foreclosure.
Essentials of Mortgage:
- Transfer of Interest
- Specific immovable property
- Securing the money
- Advanced/ to be advanced
- Existing or future debt
- Pecuniary liability
Kinds of Mortgage Section 58(a-g)
There are six kinds of Mortgage in immovable property, namely:
- Simple Mortgage
- Mortgage by conditional sale
- Usufructuary Mortgage
- English Mortgage
- Mortgage by deposit of title/ equitable mortgage
- Anomalous Mortgage
- Simple Mortgage Section 58(b)
- In a simple mortgage, the mortgagor’s possession remains on the subject matter.
- The mortgagor is under a personal obligation to pay the money. He agrees that in case of non-payment the mortgagee shall have the right to sell the property with the permission of the court.
- Mortgagor does not have the right of foreclosure i.e. keeping the property in lieu of mortgage money.
- Mortgage by conditional sale Section 58(f)
Here the property is “mortgaged with a condition” that if the debtor fails to pay the loan amount on the due date then, it shall be considered as sale, and in case if the debtor pays the loan amount on the due date then the sale shall be considered invalid.
Following are the essentials of a mortgage by conditional sale:
- In place of the mortgage deed, a sale deed is executed.
- The mortgage is made subject to a condition that if payment is not made within due date then sale deed would become absolute but if payment is made within due date, the sale deed would become void.
- In this mortgage, the time and duration must be fixed for repayment.
- The mortgagee has the right to foreclosure.
- Possession is not given to the mortgagee.
- A mortgage is not subject to personal obligation.
Remedy for Mortgage by conditional sale is “Foreclosure”. Foreclosure is an order given by court stating that mortgagor will not be allowed to recover back the property and the Period of Limitation is twelve years for exercising this right from the date when the amount becomes due.
- Usufructuary Mortgage Section 58(d)
- In this mortgage, possession is given to the mortgagor till the principal amount and the interest is realized. The mortgagor is not under a personal obligation to repay. The mortgagee can get the subject matter sold with the decree of a court. In Hikmat Ullah v. Imam Ali it was held that the time limit must not be fixed in the usufructuary mortgage if any limit is fixed then it is not a usufructuary mortgage.
- The mortgagor has the right of redemption on payment of mortgage money i.e. getting back mortgaged property by the mortgagor from the mortgagee on payment of mortgage money.
- English Mortgage section 58(c)
- In English mortgage, the mortgagor is bound to pay by a certain date.
- Mortgagor finally transfers the property to the mortgagee with a condition that mortgagee shall re-transfer the property after payment of mortgage money. In this mortgage, the right of ownership is transferred with a condition that after the payment this right shall be retransferred. It is essential that a specific date has to be mentioned for repayment of money and in the event of default, the transfer will become absolute.
- Equitable Mortgage Section 58(f)
- This mortgage is also known as mortgage by deposit of title.
- It is by default applicable in Calcutta, Madras, and Bombay and in any other state which is notified by the state government in its official gazette.
- In this mortgage, the mortgagor delivers to the mortgagee or his agent the documents of the title of his property as a security against the mortgage money.
- This mortgage intends to promote business whereby the opportunity is not lapsed due to competition of mortgage formalities.
- Anomalous Mortgage section 58(g)
- A mortgage that is not covered under the mortgages defined in section 58(b) until section 58(f) is known as an anomalous mortgage.
- This mortgage has features of more than one mortgage in the deed.
- It is also possible that this mortgage may fulfill the conditions defined under section 58(a) but does not fall under any other specific kind of mortgage.
- The terms and conditions of the anomalous mortgages are determined by the parties by mutual agreement.
Author: Pooja Rathore,
Delhi Metropolitian Education, IP university, 3 year BBA LLB