Guidelines about Mortgage of Immovable Property

While most of us would have heard about Mortgage, very few of us are aware of what it actually means and its implications. Chapter IV of the Transfer of Property Act, 1882, gives us a vivid 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.

Definition of Mortgage

What is Mortgage?

According to Section 58 of this Act, Mortgage is defined as the transfer of an interest in a specific immovable property intended to secure the payment of money advanced or to be advanced in the form of a loan, a current or future debt, or the performance of an engagement giving rise to a pecuniary liability. In simpler terms, mortgage can be defined as the transfer of an immovable property by its owner to another person/entity for the purpose of securing a loan. The property acts as a security for repayment of the loan. This term is commonly associated with banks as they commonly keep immovable property as mortgage while extending a loan.

Types of Mortgage

The person who transfers his interest in immovable property is called the ‘mortgagor’ while the transferee is called the ‘mortgagee.’ The instrument through which a mortgage is effected is called a ‘mortgage-deed.’ There are six different types of Mortgage-deeds:

·  Simple Mortgage:

In this type of mortgage, the mortgagor personally commits to pay the mortgage money, with an explicit or implied agreement to forfeit the property he has mortgaged to the mortgagee in the event of his being unable to pay the loan amount as per the contract.

·  Mortgage by Conditional Sale:

In this type of mortgage, the mortgagor conditionally sells the mortgaged property based on the condition that if he defaults in payment of the mortgage money by a particular date, the sale becomes absolute. The alternate conditions on which the mortgage is made are with regards to the sale becoming void if the payment is made, or the transfer of the property to the seller on the payment being made.

·  Usufructuary Mortgage:

In such a mortgage, the mortgagor explicitly or implicitly delivers possession of the mortgaged property to the mortgagee. He also authorises the mortgagee to retain possession of the property until the mortgaged money is paid back as well as receive rents or profits that accrue from the property in lieu of interests towards the loan extended.

·  English Mortgage:

In this type of mortgage, the mortgagor while binding to pay the mortgage amount to the mortgagee by a certain date, facilitates the absolute transfer of the property to the mortgagee. However, this agreement is subject to the clause that the mortgagee will re-transfer the property back to the mortgagor on payment of the mortgage money.

·  Mortgage by deposit of Title deeds:

This type of mortgage is specific to mortgagors in specific cities like Kolkata, Chennai and Mumbai, besides any other town that the State government has specified. In this type of mortgage, the mortgagor hands over the documents of title to the immovable property as security to the mortgagee, in which case the execution of the mortgage-deed is not mandatory. This type of mortgage is also known as equitable mortgage as per English law, and is commonly used by banks extending loans against mortgage of property.

·  Anomalous Mortgage:

This type of mortgage is an irregular mortgage that is not covered under any of the above categories. It includes a simple mortgage usufructuary as well as a mortgage usufructuary by conditional sale. In this type of mortgage, possession of property by the mortgagee may or may not be delivered.

Registration of Mortgage:

It is not mandatory that all types of mortgages should be registered. However, with regards to equitable mortgages which are created through deposit of title deeds, registration becomes mandatory. For all mortgages besides equitable mortgages, registration is necessary if the value of the loan secured is more than Rs 100.

Right of Redemption:

It denotes the right of the mortgagor to recover or redeem the property on payment of the loan amount. Since a mortgage involves the transfer of interest in immovable property from the mortgagor to the mortgagee, the interest has to be transferred back on repayment of the mortgage amount.