MORTGAGE OF THE IMMOVABLE PROPERTY

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Housing Finance is the growing at 30% annually. This type of lending is for longer duration, and needs extra precaution by bankers.

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.

Immovableproperty is a good security. This is not perishable and not subject to wild fluctuations in the market. Creditors, particularly banks and financial institutions insist on immovable property either as primary or collaterial 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 person 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 in secured. The debt may be money advanced, or to be advanced, 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 lent or 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 his 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 mortgagee, 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 can create mortgage on obtaining permission from the Court. Joint owners of property, partner of firm, Kartha of Hindu Undivided Family, can mortgage the property.

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:

There are various types of mortgages:

1. Simple Mortgage 2. Mortgage by Conditional Sale
3. Unsufructuary Mortgage 4. English Mortgage 5. Mortgage by Deposit of Title Deeds 6. Anomalous Mortgage

Simple Mortgage and Mortgage by deposit of the 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. In Simple 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 enforce the mortgaged property matures.

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 the 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.

Certain states including State of Karnataka have exempted / given concession in stamp duty and registration charges in case of agricultural loans. The Agricultural Lands can be mortgaged for availing Loans for agricultural purpose and not for any other purpose.

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 an intent to create security thereon. The essential features of the mortgage by deposit of title deeds are:

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.

2.       There must be deposit of the deeds. The Mortgager (the borrower/owner of the immovable property) delivers the documents to the title to the mortgagee (creditor). The delivery may be physical or constructive. The documents delivered should be title deeds to the immovable property, 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 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. There are chances of documents being deposited in other financial institutions as such through enquiry is necessary.

Property documents are of two types: Primary documents and Secondary or Supporting documents

Primary Documents:

These documents confer title. These documents to the title are 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 supplement the title conferred by the primary documents. Katha Certificate, Tax Paid receipts, Encumbrance Certificate, Revenue Records and Village Records, allotment letters, amount paid receipts, 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 centres. In addition, state government may notify any places as notified centres for deposit of title deeds. At present most of places up to the level of Taluk Centres are notified centres. 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 Charges.

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 as 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.

The remedies available to the creditor under this type of mortgage are:

•        Personal decree against the mortgager

•        Right to sale with the intervention of the court

•        Right to appoint a receiver with the intervention of the court

•        ight to take the possession with the intervention of the court

Limitation available in 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.

Registration

This type of mortgage and the letter evidencing the deposit of the 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.

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, and 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.

Rights of Mortgager (Sec 60 of TP Act)

Mortgager 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 related to the mortgaged property,

•        If the mortgagee is in a possession of the property, to deliver back the possession and execute required documents at the cost of mortgagee.

This right of mortgager is called Redemption of Mortgage.

However, such right of redemption can be invoked before the mortgagee files 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.)

Recent SRAFESI: Act has given wide powers to the financial institutions to take possession of the mortgaged property and to sell, without the intervention of courts. However, such rights of taking possession and selling the property are not available in case of agricultural lands.