A mortgage is an act of creating a charge on the immovable property. Basically, it is a legal agreement by virtue of a bank or any other similar institution lends money on interest in the exchange of the title of the debtor’s property, subject to a condition that the conveyance of title would become void on the payment of the debt.
The Transfer of Property Act, 1882 talks about mortgage under section 58(a). It states that ‘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 person who transfers his interest is called as the also called the mortgager and the person to whom the interest is transferred is called as the mortgagee.
• The principal amount along with the interest is called as the mortgage money.
• The instrument which recognises or through which is mortgage comes into effect is called as the mortgage deed.
Essentials of a valid mortgage:
1) Transfer of Interest: The basic requirement in a mortgage is to transfer the interest of the specific immovable property. The mortgager or the transferor who possess all the interest in the property transfers the same to the transferee when the mortgages his property in favour of the transferee or mortgagee. The mortgager shall transfer his interest subject to the terms of the mortgage deed and subsequently that mortgagee is entitled to the interest of the transferor till the repayment of dues.
2) Specific Immovable property: In order to give effect to a valid transfer there should be a specific property whose interest is being transferred. It is essential to recognise the property before entering into a mortgage deed, this is done to secure the interest of the mortgagee by deleting the chances of ambiguity in recognising the property in event of non-payment of dues. And this is would also make it easier for the Court to pass any decree for selling of the particular property.
3) To secure the payment of the loan: The main purpose of creating a mortgage is to provide security for the repayment of the loan. The relationship between the mortgager and mortgagee is that of a debtor and creditor and loan took and given by virtue of the mortgage deed occupies the status of the debt. So the basic criteria for entering into a mortgage is secure the loan.
Therefore, the mortgagee’s interest in the property shall terminate upon repaying the dues within the specified time and the mortgager has the right of redeeming or regaining his property after satisfying the terms of the mortgage deed. However, in the event of failure on the part of the mortgager the mortgagee enjoys the right of foreclosure.
The Act classifies mortgages in the following manner:
1) Simple mortgage: In this type of mortgage the possession of the mortgaged property remains with the mortgager only and there is no transfer of possession of the property from the mortgager to the mortgagee. In the event of failure of repayment of the loan, the mortgagee is legally legible to sell the mortgaged property for recovering his dues.
2) Mortgage by Conditional Sale: In this type of mortgage, the mortgager ostensibly sells the mortgaged property to the mortgagee subject to certain conditions: • If the mortgager does not fulfil his obligation of paying the dues on time, then as per the terms of this mortgage, the sale shall become absolute or,
• And if the repayment of the dues is done on time, the ostensible sale shall become invalid and it will have no further effects and consequences.
• And on the repayment of dues, the mortgagee will be under and obligation to re-transfer the mortgaged property back to the mortgager.Provided that no transaction shall be termed as a mortgage until and unless the condition that affects or purports to affect the sale is legally embodied in the sale deed.
3) Usufructuary Mortgage: Under this mortgage, the mortgagee not only enjoys the possession of the mortgaged property but also all the benefits that are received by the property (rent, interest, profits etc.) till the time of repayment of loans and dues. Despite, enjoying all the additional benefits arising out of the property the ownership of the property still remains with the mortgager only. The benefits which are received by the mortgagee are in lieu of the interest or the principal amount of the loan.
4) English Mortgage: It is a type of mortgage wherein the mortgager or transferor binds himself to repay the mortgage money on a specified date along with this the mortgager transfers the property absolutely to the mortgagee. However, the said transfer is subject to a condition that the mortgagee shall re-transfer the property if the mortgager fulfils his obligation of repayment as agreed in the deed.
5) Mortgage by deposit of title-deeds: This is also commonly called an equitable mortgage in England and India. This type of mortgage is most prevalent in the towns of Calcutta (Kolkata), Madras (Chennai), Bombay (Mumbai) and in other towns wherein the respective State Government may by notification in the Official Gazette agree to its applicability. In this type of mortgage, the title document of the specified mortgaged property is delivered by the mortgager to the mortgagee with an intention to secure the debt.
6) Anamolous Mortgage: An anomalous mortgage may be a combination of different types of mortgage or a mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds. Thus, it is a type of mortgage which shall become effective as per the terms and conditions set out by the mortgager and the mortgagee.
Section 58, specifically deals with only those mortgages which are governed by the ‘Transfer of Property Act, 1882. Mortgages are basically a way of raising money by securing a specified immovable property against the loan amount with the transferee. Basically, mortgages deal with the transfer of possession and not of ownership, however, if the terms of the deed are not duly complied with and if the mortgager fails to fulfil his obligation within the specified time, then the mortgagee shall enjoy the ownership or disposal rights as per the terms of the deed.
Written By: Shajeeda Tajdeen
Edited By: Rachit Mehrotra