Author-Sushree Sangita Panda, Birla Global University, Bhubaneswar
INTRODUCTION
Mortgage is one of the most significant components of property law as it gives permission to people to receive funds or loans to purchase property. Simply Mortgage is something when a person gives a specific immovable property to another person and receives money against that property as a loan amount. That property acts as a security for the payment of future debt. It is a transfer of Partial interest for future payment which creates a pecuniary liability on the same. In India, Transfer of Property Act, 1882 governs the creation, redemption, enforcement, functions etc of the mortgage. Transfer of Property act 1882 also governs various typer of property transfer as well among which Mortgage is one. This research article dives into the elaborating description of the concept ‘MORTGAGE’ along with its principles, essentials, components, effects etc. The rules regulating mortgages under the TP Act incorporate important elements from property law, such as the redemption and priority principles. This study investigates key case laws and academic interpretations to gain insight into the actual implementation and interpretation of mortgage law under the TP Act.
Keywords (Minimum 5):
Mortgage, Transfer of Property Act, 1882, Property law, Immovable property, pecuniary Liability, Repayment of future debt.
Meaning, Definition & Explanation
According to section 58 of Transfer of Property Act 1882, “Mortgage is the transfer of an interest of an immovable property for the purpose of securing money in advanced, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability.”
Simply we can say mortgage is one kind of security given by the borrower who is also known as a Mortgager to another party which is known as Mortgagee, on for paying back the loan amount. This concept of Mortgage is only applicable in Immovable of property. By giving Mortgage, the Mortgager does not transfer the ownership right but only Transfers some right over that specific immovable property to the Mortgagee like In case the borrower fails to pay back the loans the mortgagee has the right to the authority over that property or to sale it for receiving its debt back. Furthermore, more often Mortgage is subjected to certain legal requirements such as registration the instrument to assure their legitimacy and enforceability.
Historical Background / Evolution
The concept “mortgage” has very ancient historical roots which can be traced back in various ancient civilizations. In the clay tablets which were received from Ancient Mesopotamia Civilization has also some traces of Mortgage. In that era also people used to give their property as collateral for loans. This method was also way too much common in ancient Egypt civilization. In Egypt civilization people used to lent their property to temples or rich person to get loans and when they pay the amount back, they used to receive their property back. In 1750 BCE, in BABYLON there was the first legal system which had framed some rules which were related to security for Loans.
In ancient India there was also the practice of Mortgage which has been traced in “ ARTHASHASTRA” which talks about different types of loans which were secured by some guarantees. Another Ancient legal sculptures known as “DHARMASASHTRA” also addresses the issue of Mortgage in it along with the rights and liability of Borrowers and Lenders. Thus, the ancient practice of Mortgage unfolds the utilization of property as a collateral for loans by representing the universal requirement of security against the loans.
Comparison with other Countries
A comparison of Mortgage statues in various countries indicates a wide diversity of legislative structure and methods of governing property financing and security arrangement for the same. Although the legislative framework for rules and regulation of every nation is different from each other and every nation has its own peculiarities and antecedents, but a strong yet deep examination of mortgage laws all across the globe reveals its universal concept and theme of the procedure. The followings are some brief details about Mortgage laws of different countries;
- UNITED STATES
The Mortgage regulation in US is governed by state laws. But certain federal rules like TILA[1] and RESPA[2] also plays a pivotal role to governing those Mortgage laws. The extensive usage of mortgaged-backed securities and secondary mortgage market are two specific features which Distinguishes the US mortgage system from the mortgage system of other nations. The eviction procedure in US differs from state to state. Some states require judicial foreclosure while some states permit non judicial foreclosure as well.
- UNITED KINGDOM
In UK mortgage laws are regulated by two statues The Law of Property Act 1925 and Land Registration Act 2002. In UK market there are various types of options available for Mortgages like fixed-rate mortgages, variable-rate mortgages, interest only Mortgages etc. For safeguarding the rights of Borrowers, the foreclosure procedure in UK includes judicial hearings and strong regulatory rules.
- CANADA
The Mortgage regulation in Canada is overseen by Provincial laws and some federal rules like CMHC[3] and Bank Acts etc also plays significant Role and Impact on Mortgage laws. The Canadian Mortgage market stands out from the crowd for its high percentage of Homeownership and a diverse range of mortgage which comprises of fixed-rate, variable rate and hybrid mortgages. The procedure of foreclosure in Canada is similar to US.
- INDIA
The Mortgage laws in India is controlled by TPA[4] and SARFAESI[5] act. Mortgage market in India offers a variety of mortgage merchandise like basic mortgage, conditional sale mortgage, Usufructuary mortgage etc. In India the process of foreclosure includes both Judicial and non-judicial approaches.
ESSENTIALS OF MORTGAGES UNDER TP ACT
The Transfer of Property Act,1882 Defines a certain legislative framework to regulate the procedures of Mortgages. Hence, there are certain essential conditions which needs to be fulfilled for the transaction mortgage. Such as;
- TRANSFER OF INTEREST
As per the definition under the Act, Mortgage is a transmission of stake(interest) of a specific immovable property from borrower(mortgager) to the lender(mortgagee) for a specific amount of consideration. This transfer does not mean the entire transfer of Ownership but it generates certain rights to the lender as a security interest. In case of default, the lender of money has the right to acquire or sale the property for foreclosure of the debt.
- THERE SHOULD BE A SPECIFIC IMMOVABLE PROPERTY
The property which will be mortgaged should be the specific and immovable one. There should not be any ambiguous about which property is mortgaged. Everything should be crystal clear about that particular property.
- RIGHT TO SALE
By transferring the rights, the borrower gives certain rights to the lender to exercise over that particular mortgaged property. This right also includes Right to sale for foreclosure of the amount.
- REDEMPTION RIGHT
The Transfer of Property Act also Recognizes the right of the Mortgager to REDEEM his property after repaying the debt amount. When the mortgager will fully pay the debt amount, he has the right to claim his property back. This right protects the interest of Borrower from loosing their property permanently just because of their temporary financial problem.
TYPES OF MORTGAGES UNDER TP ACT
The Transfer of Property Act highlights different types of mortgages in India. Each of them is different from each other as per characteristics and everything. They are;
- SIMPLE MORTGAGE
Simple mortgage is dealt under section 58(b) of TP act. This is the most prevalent category of mortgage in India in which the borrower keeps the control over the collateral with him while transferring the right to sale to the lender. In the event of default, the mortgaged property will be sold by the other party to recover the debt amount. In this case property can also be sold with the permission of court while there is a default in payment of the debt.
- MORTGAGE BY CONDITIONAL SALE
This type of Mortgage is dealt under section 58(c) of Transfer of Property Act 1882. Mortgage by conditional sale means temporary change of ownership of the specific property by mortgager to the mortgagee. When the party pays back the debt amount the mortgaged property will be reverted back to its original owner. Furthermore, any condition which will prevent the mortgager to redeem his property back, will be considered as invalid.
- MORTGAGE BY DEPOSIT OF TITLE DEED
Under section 58(f) of TP Act deals with ‘Mortgage by deposit of title deed’ which is also known as an equitable mortgage. In this type of mortgage, the mortgager deposits the deed of title of the property to the mortgagee as security. However, the ownership still remains with the mortgager and the deposit of title doesn’t grant the permission to the mortgagee to right to sale the property, automatically. In case of default, the mortgagee can only sale the property if there is a separate deed about the sale. This method is primarily used for short term loans or temporary securities.
- USUFRUCTUARY MORTGAGE
This type of mortgage is defined under section 58(d) of Transfer of Property act 1882. This is one of the less prevalent kinds of mortgage, which states that the mortgagee can obtain the possession over the mortgaged property within the loan period. In exchange the mortgagee receives the right to collect rent from that mortgaged property which he will use as an interest amount. Although, the risk of repayment of loan is borne completely by the mortgager.
- ANOMALOUS MORTGAGE
This type of mortgage is dealt under section 58(g) of Transfer of Property Act,1882. This is one type of special arrangement which is made on the basis of specific agreement which is created between Mortgager and Mortgagee. Sometimes, this type of mortgage involves components of different types of mortgages within it.
In short, those types of mortgages which are not been mentioned under any of the other above-mentioned types, those will be covered under this Anomalous mortgage category.
In this type of Mortgage is it crucial understand rights and duties of each party as this type of mortgage is based special agreement between the two parties. So before entering into this type of mortgage, legal advice is a must.
- ENGLISH MORTGAGE
This is a type of mortgage which has been defined under section 58(e) of Transfer of Property Act,1882. In this type, there is an absolute transfer of property to the mortgagee but there is a condition that the debt amount needs to be paid in one particular date and after the completion of this procedure the mortgagee will re-transfer the property back to the mortgagor. In this type of mortgage, the mortgager by giving the absolute right over property to the mortgagee creates a binding force upon himself to repay the debt within that decided period. And it is also necessary that the specific decided date should be mentioned in the contract o which the debt should be return back.
MODES OF COMPLETING MORTGAGES
The process of mortgage is simple both simple and crucial at the Same time. For completion there are various modes and methods through which the transaction needs to be passed for getting formalized and finalized. These methods or modes are generally dependable upon the rules and legal requirements of various jurisdiction. They are;
- REGISTRATION
- DELIVERY OF POSSESSION
- DEPOSIT OF TITLE DEEDS
- APPROVAL FROM REGULATORY AUTHORITY
REGISTRATION
As we know as per the general rule of TP Act, every transaction of immovable property more than amount of 100 Rs need to be registered. But there is one exception to this which is ‘Mortgage by deposits of title deeds’. Except this type this general rule of registration applies to every other type of mortgage. When registration is necessary, the mortgage must be in writing and should be attested with 2 or more witnesses. It also needs to be signed and registered as per the provision of registration.
DELIVERY OF POSSESSION
Mere delivery of possession of the property is sufficient to constitute a valid mortgage. Delivery of possession is one of the ground which constructs a valid mortgage and it includes, delivery of possession from mortgagor to mortgagee.
DEPOSIT OF TITLE DEEDS
Mortgage where title deed is deposited, this type of mortgage doesn’t need registration. In this type of mortgage, a person takes some amount as a loan and deposits the title deed of the mortgaged property. This mode of transaction is generally done in the matters which are related to real estate or immovable property.
APPROVAL OF REGULATORY AUTHORITY
In certain cases, execution of mortgage involves approval from the regulatory authority as well. it generally happens when the transaction is involved in financial institutions or regulatory sectors.
CASE LAW
- GLORY AND ANOTHER VS MURUGAN AND ANOTHER[6]
In this case it was held that it is necessary to mention in the mortgage dee that whether that particular transaction is for the mortgage or not. Or else the transaction will be treated as a sale, rather than a mortgage by conditional sale.
- SYNDICATE BANK VS M. SIVARUDRAPPA[7]
In this case the mortgager has claimed that he has mortgaged his property by executing a memorandum of deposits of title deeds. But the Mortgagee, which is the bank, denied the same on the ground of discrepancy in signature of the witnesses who were there for attesting.
In this case the Karnataka High Court held that, the suit for recovery of money is to be dismissed as the mortgagor failed to prove the originality and enforceability of the mortgage deed.
CONCLUSION & COMMENTS
Mortgage is one of the basic yet crucial type of transfer which is dealt under Transfer of Property Act, 1882. It is used in the everyday life of individuals, whenever they need financial help. Mortgage in itself is a very wide concept which gives rise to various rights and circumstances. For determining whether a transaction is a mortgage transaction or not, it need to examine properly that all the essential conditions of the mortgage transaction is fulfilled or not. Hence, in case of mortgage transaction another important factor is intention of the party. However, there is no transaction of ownership in mortgage but temporary possession is there.
REFERENCES
- Books / Commentaries / Journals Referred
- The Transfer of Property act by DR. R.K. SINHA
- Online Articles / Sources Referred
- Statutes Referred
- Transfer of Property Act, 1882
[1] Truth in Lending Act
[2] Real Estate Settlement Procedure Act
[3] Canada Mortgage and Housing Corporation
[4] Transfer of Property Act,1882
[5] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
[6] AIR 2019 Mad 346
[7] AIR 2003 Kant. 210
