Every
creditor wants the money lent by him to be secure so that in case of the
borrower's failure to repay the amount borrowed, he may rely on the security.
Immovable property is a good security. This is not perishable and not
subject to wild fluctuation in the market. Creditor particularly banks and
financial institutions insist on immovable property either as primary or
collateral security.
The method of taking the immovable property to secure the payment of the
money lent is Mortgage.
The Transfer of Property Act (Act IV of 1882) deals with Mortgage. The
relevant sections are 58 to 104 of Chapter IV.
The mortgage in simple terms means transfer of the interest in the
immovable property to the creditor to secure the payment of money lent. It is
essential that both the parties, the owner of the immovable property and
creditor, are living persons. The living persons include company or association
or body of individuals. They may be incorporated or not.
The immovable property, the interest of which is transferred to the
creditor, must be specific in description with boundaries. It should be easily
identifiable.
The debt or money lent is an important component of mortgage, It is the payment of the debt, which is
secured. The debt may be money advanced,
or to be advanced, or existing or future debt.
It also
covers the performance of an engagement, which may give rise to monetary
liability. The purpose of the mortgage is to secure the payment of money lender
to be lent.
The person
who transfers the interest in the immovable property is Mortgagor. Generally,
Mortgagor would be borrower who is the owner of the immovable property. But any
other person may also transfer the interest in this immovable property to the
lender to secure the payment of money by the borrower.
The person to whom the interest in immovable property is transferred is
mortgage, who is creditor or lender. The principal money and the interest, the
payment of which is secured, is mortgage money.
The document executed by the mortgager transferring the interest in
immovable property to the creditor is called Mortgage Deed.
Persons
competent to create a Mortgage
Any person competent to enter into a contract can create a mortgage. This
excludes minors and lunatics. Guardian of a minor on obtaining permission from
the Court can create a mortgage. Joint owners of property, partners of firm,
Kartha of Hindu Undivided Family, can create mortgage.
In case of
joint owners, all the co-owners, all the partners in case of a partnership
firm, and in case of Hindu Undivided Family all the male members, widows of the
deceased male members, and daughters who have been conferred property rights by
the state government have to sign the mortgage deed.
Types of Mortgage
1 . Simple Mortgage 2. Mortgage by Conditional Sale 3.
Usufructuary Mortgage. 4. English Mortgage 5.
Mortgage by Deposit of Title
Deeds 6. Anomalous Mortgage
Simple
Mortgage and Mortgage by deposit of title deeds are popular types, which are
discussed here.
Simple
Mortgage
Section 58 (b) of the Transfer of Property Act, defines the simple
mortgage/Registered Mortgage
1.
There is transfer
of interest in the immovable property to the mortgagee to secure the payment of
money lent.
2.
There is no
delivery of possession of the immovable property to the mortgagee.
3. Mortgagor
binds himself personally to pay the mortgage money.
4. Mortgagor
agrees expressly or impliedly, that in case of his failure to pay the mortgage
money as agreed, the mortgagee (creditor)has right to get the immovable
property mortgaged/sold and the sale proceeds is to be adjusted towards the
payments secured.
It is to be noticed that the borrower binds him personally to repay the
amount borrowed. Only in case of his failure to repay the money, right to get
mortgaged money arises.
It is very important to note that the act uses the words "cause to
be sold", which means the property can be sold only through intervention
of the Court.
The deed of simple mortgage requires to be attested by two witnesses. It
also needs to be properly stamped. Registration is necessary if the principal
amount is Rupees one hundred or more. Only the principal amount is the criteria
and not the interest.
The stamp duty payable on simple mortgage is Ad valorem that is based on
the value. It varies from state to state. Stamp duty payable in Karnataka is 3%
on the amount secured with a maximum of Rupees three lakhs. Registration
charges are 2% of the amount
secured with a maximum of rupees two lakhs.
Certain states including the State of Karnataka have exempted/given
concession in stamp duty and registration charges in case of agricultural
loans.
The remedies available under simple mortgage are personal decree against
mortgager and decree for the sale of the mortgaged property. The limitation is
twelve years from the date when the mortgage money becomes due (Art. A 62 of
Limitation Act).
Mortgage
by Deposit Of Title Deeds
This is also
known as equitable mortgage. Section 58 Clause (F) defines the mortgage by
deposit of title deeds. In this type of mortgage the mortgager delivers the
documents of the title to the immovable property to the creditor in notified
places with intent to create security thereon. The essential features of the
mortgage by deposit of title deeds:
1 . The debt:
The money, the payment of which is secured may be an existing debt or a future
one. It may also be a performance of engagement, which gives rise to monetary
liability.
3.
There must be
deposit of title deeds. The Mortgager (the borrower/owner of the immovable
property) delivers the Documents to the title immovable property to the
mortgagee (creditor). The delivery may be physical or constructive. The
documents delivered should be of title to the immovable property. This refers
to the documents, which establish and confer the title of the immovable
property to the mortgagor. It is to be noted that copy of a document is not a
document to the title. But certified copy of a original document shown to be
form is a document to the title. But as far as possible only original documents
should be accepted for deposit. If any original document is reported to be
lost, proper enquiries should be made. Property documents are of two types :
Primary documents and Secondary or Supporting documents.
Primary
Documents:
These documents confer title. These documents to the title Sale Deed,
Gift Deed, Partition Deed, Exchange Deed, Deed of Grant, Lease Deed, Sale
Certificate, Share Certificate or Membership Certificate with allotment letter,
in case of Society with no objection letter, Patta of land.
Secondary/Supporting Documents: These documents do not confer any title,
but only support the title conferred by the primary documents. Katha Certificate,
Tax Paid receipts, Encumbrance Certificate, Revenue Records and Village
Records, allotment letters, amount paid receipts, possession certificates, tax
assessment order etc., fall in the category of Secondary/Supporting Documents.
Deposit of
Documents
Documents must be deposited/delivered in notified centres: The Transfer
of Property Act mentions the towns of Kolkata, Chennai and Mumbai as notified
centers. In addition, state government may notify any places as notified
centers for deposit of title deeds. At present most of places up to the level
of Taluk centers are notified centers. This restriction applies only to the
places where the documents are to be deposited, but not to the place where the
immovable property is situated. Documents of the property located in Mangalore
may be deposited in Bangalore. Documents or the property situated in
non-notified places may be delivered in notified places.
Deposit must be with an intention that the title deeds shall be security
for the debt. The intention is very important. It must be with intention that
the title deeds shall be security for the debt.
Documents delivered for safe custody to obtain legal opinion will not
establish such intention. As such a
forwarding letter stating that the documents are delivered with an intention to
create a security for the debt is to be obtained from the mortgager. Care
should be taken not to mention the amount of debt, rate of interest in the
letter. Such letter should be obtained
subsequent to the date of depositing the title deeds and dated accordingly.
These measures obviate implications of Stamp Duty/ Registration Act.
Deposit must
be by a Mortgagor or his agent with the Mortgagee or his agent.
This type of mortgage is treated at par with other legal mortgages and
shall have priority over the mortgages subsequently created, and even
registered.
This mortgage will be in force so long as title deeds deposited are in
possession of the mortgagee. If the mortgagee parts with the possession of the
title deeds, the mortgage is extinguished.
Registration
This type of
mortgage and the letter evidencing the deposit of title deeds in the nature of
forwarding letter, acknowledgement does not attract stamp duty and registration
(Sec. 59 of TP Act). However, certain states like Maharashtra, Gujarat
stipulate that even the mere deposit of title deeds with forwarding
acknowledgement letter needs stamping and registration.
If the terms
of the contract or the deposit of title deeds are reduced to writing such
memorandum in Karnataka attract stamp duty and 1% of every Rs. 5000/- that is
Rs. 50/- with a maximum of Rs. 50,000/- Registration charges are 0.5 % with a
maximum of Rs. 10,000/-
Urban
co-operative banks have concession of 50% on stamp duty and registration fee.
This type of mortgage is popular, as it is easier, quicker, less expensive not
subject to stamp duty and registration formalities except in few states and
there will not be undue publicity. The concession available to urban
co-operative banks if extended to all banks may help many borrowers. The
remedies available to the creditor under this type of mortgage are
Personal decree against
the mortgagor
•
Right to sale with the intervention of the Court
•
Right to appoint a Receiver with the intervention of the
Court.
•
Right to take possession with the intervention of the Court.
Limitation
available is 13 years under the Article
62 of the Limitation Act 1963. When the mortgage
is created by a limited company over its property such mortgage must be
registered with the registrar of companies within 30 days of its creation
irrespective of the type of mortgage.
Right of
Mortgagor (Sec 60 of TP Act)
Mortgagor after fulfilling his part of the Contract, that is by paying
the money secured, may require the mortgagee to deliver the mortgage deed, all
documents relating to the mortgaged property,
•
If the mortgagee is in a position to deliver back the
possession and execute required document.
•
At the cost of the mortgagee. This right of the mortgagor is
called Redemption of Mortgage.
However, such right of redemption can be invoked before the mortgagee
files a suit for enforcement of mortgage.
Limitation period available is 30 years from the date on which the
mortgager performs his part of the contract, paying the money secured. (Article
61 (a) of the Limitation Act, 1963.
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