Mortgage

A mortgage is the transfer of an interest in 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 transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.
 
CREATION OF MORTGAGE
 
Where the principle money secured is one hundred rupees or upwards, a mortgage otherwise than a mortgage by deposit by title deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. When the principle money secured is less than one hundred rupees, mortgage may be effected either by a registered instrument signed by the mortgagor and attested as aforesaid, or (except in the case of a simple mortgage) by delivery of the property.

Type of mortgages

SIMPLE MORTGAGE
 
Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly that in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.
 
MORTGAGE BY CONDITIONAL SALE
 
Where, the mortgagor ostensibly sells the mortgaged property-
  1. On condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or;
  2. On condition that on such payment being made the sale shall become void, or;
  3. On condition that on such payment being made the buyer shall transfer the property to the seller,
The transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale:
 
PROVIDED that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document, which effects or purports to effect the sale.
 
USUFRUCTUARY MORTGAGE
 
Where the mortgagor delivers possession, or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorises him to retain such possession until payment of the mortgage money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest or partly in payment of the mortgage money, partly in lieu of interest and partly in payment of the mortgage money, the transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee.
 
ENGLISH MORTGAGE
 
Where the mortgagor binds himself to repay the mortgage money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed, the transaction is called an English mortgage.
 
ANOMALOUS MORTGAGE
 
A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds within the meaning of section 58 is called an anomalous mortgage.

Equitable Mortgage

MORTGAGE BY DEPOSIT FO TITLE DEEDS/EQUITABLE MORTGAGE
 
Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds.
 
To create a valid mortgage by deposit of title deeds, there must be a delivery of the title deeds relating to an immovable property by the debtor to a creditor or his agent in a notified town with the intention to create a security thereon.

Rights and liabilities of a mortgagor

The rights and liabilities of a mortgagor under a mortgage are as under: 
  1. Right of mortgagor to redeem:
Section 60, Transfer of Property Act provides that at any time after the principal money has become due, the mortgagor has right on payment or tender, at a proper time and place, of the mortgage money, to require the mortgagee
  1. to deliver to the mortgagor the mortgage deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee;
  2. where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor; and
  3. at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and where the mortgage has been effected by a registered instrument to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgage has been extinguished: 
Provided that the right conferred by this section has not been extinguished by the act of the parties or by decree of court.
  1. Obligation to transfer to third party instead of re-transference to mortgagor
Section 60 A, Transfer of Property Act provides that where a mortgagor is entitled to redemption, then on the fulfillment of any conditions on the fulfillment of which he would be entitled to require a retransfer, he may require the mortgagee, instead of retransfering the property, to assign the mortgage debt and transfer the mortgaged property to such third person as the mortgagor may direct the mortgagee and the mortgagee shall be bound to assign and transfer accordingly.
 
The provisions of this section do not apply in the case of mortgagee, who is or has been in possession.
  1. Rights to inspection and production of documents

A mortgagor as long as his right of redemption subsists, shall be entitled at all reasonable times at his request and at his own cost, and on payment of the mortgagee’s cost and expenses in this behalf, to inspect and make copies or abstracts of or extracts from documents of title relating to the mortgaged property which are in the custody or power of the mortgagee.

  1. Rights to redeem separately or simultaneously

A mortgagor who has executed two or more mortgages in favour of the same mortgagee shall, in the absence of a contract to the contrary, when the principal money of any two or more of the mortgages has become due, be entitled to redeem any one such mortgage separately or any two or more of such mortgages together.

  1. Right of usufructuary mortgagor to recover possession

In the case of usufructuary mortgage, the mortgagor has a right to recover possession of the property together with the mortgage deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee.

  1. Accession to mortgaged property

Where mortgage property in possession of the mortgagee has during the continuance of the mortgage received any accession, the mortgagor upon redemption, shall, in the absence of a contract to the contrary, be entitled as against the mortgagee to such accession.

  1. Improvements to mortgaged property

Section 63A (1), Transfer of Property Act provides that where mortgaged property in possession of the mortgagee has during the continuance of the mortgage, been improved, the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be entitled to the improvement and the mortgagor shall save only in cases provided for in sub-section (2) be liable to pay the cost thereof.

  1. Renewal of mortgaged lease

Where the mortgaged property is a lease, and the mortgagee obtains a renewal of the lease, the mortgagor, upon redemption, shall in absence of a contract by him have the benefit of the new lease.

  1. Mortgagor’s power to lease

Section 65A(1), Transfer of Property Act provides that a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee.

  1. Waste by mortgagor in possession

A mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate; but he must not commit any act, which is destructive or permanently injurious thereto, if the security is insufficient or will be rendered insufficient by such act.

A security is insufficient, unless the value of the mortgaged property exceeds by one-third or, if consisting of buildings, exceeds by one-half the amount for the time being due on the mortgage.

Rights and Liabilities of A Mortgagee

The rights and liabilities of a mortgagee are as under:
  1. Right to foreclosure for sale

In the absence of a contract to the contrary, the mortgagee has, at any time after the mortgage money has become due to him, and before a decree has been made for the redemption of the mortgaged property, or the mortgage money has been paid or deposited as hereinafter provided, a right to obtain from the Court a decree that the mortgagor shall be absolutely debarred or his right to redeem the property, or a decree that the property be sold.

  1. Right to sue for mortgage money

The mortgagee has a right to sue for the mortgage money in the following cases and no others, namely:

  1. Where the mortgagor binds himself to repay the same;
  2. Where, by any cause other than the wrongful act or default of the mortgagor, or mortgagee, the mortgaged property is wholly or partially destroyed or the security is rendered insufficient within the meaning of section 66, and the mortgagee has given the mortgagor a reasonable opportunity of providing further security enough to render the whole security sufficient, and the mortgagor has failed to do so;
  3. Where the mortgagee is deprived of the whole or part of his security

by or in consequence of the wrongful act or default of the mortgagor;

  1. Where the mortgagee being entitled to possession of the mortgaged
property, the mortgagor fails to deliver the same to him, or to secure the
possession thereof to him without disturbance by the mortgagor or any person claiming under a title superior to that of the mortgagor;
Provided that, in the case referred to in clause (a), a transferee from the mortgagor from his legal representative shall not be liable to be sued for the mortgage money.
  1. Right of power of sale of mortgaged property, if any
Section 69(1), Transfer of Property Act provides that the mortgagee, or any person acting on his behalf, subject to the provision of this section, have power to sell or concur in selling the mortgaged property, or any part thereof in default of payment of the mortgage money, without the intervention of the Court, in the following cases and in no others, namely:
    1. Where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Mohammedan or Buddhist, or a member of any other race, sect, tribe or class from time to time specified in this behalf, by the State Government in the Official Gazette;
    2. Where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage deed, and the mortgagee is the Government;
    3. Where a power of sale without the intervention of the Court is expressly conferrred on the mortgagee by the mortgage deed, and the mortgaged property or any part thereof, was on the date of the execution of the mortgage deed, situate within the towns of Calcutta, Madras, Bombay, or in any other town or area which the State Government may by notification in the Official Gazette, specify in this behalf.

No such power shall be exercised unless and until

  1. notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money or of part therof, for three months after such service or;
  2. some interest under the mortgage amounting at least to five hundred rupees, is in arrear and unpaid for three months after becoming due.
  1. Right to appoint a receiver

Section 69A, Transfer of Property Act provides that a mortgagee having the right to exercise a power of sale under section 69 shall, subject to the provisions of sub-section (2), be entitled to appoint by writing signed by him or on his behalf, a receiver of the income of the mortgaged property or any part thereof.

  1. Right to accession to mortgaged property

If after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee, in the absence of a contract to the contrary, shall for the purposes of the security, be entitled to such accession.

  1. Right to the benefit of the renewed lease

Where the mortgaged property is a lease, and the mortgagor obtains a renewal of the lease, the mortgagee, in the absence of a contract to the contrary, shall for the purposes of the security be entitled to the new lease.

  1. Right of mortgagee in possession

A mortgagee may spend such money as is necessary.

  1. for the preservation of the mortgaged property from destruction, forfeiture or sale;
  2. for supporting the mortgagor’s title to the property;
  3. for making his own title thereto good against the mortgagor; and
  4. when the mortgaged property is a renewable leasehold, for the renewal of the lease,

And may, in the absence of a contract to the contrary, add such money to the principal money at the rate of interest payable on the principal, and, where no such rate is fixed, at the rate of nine percent per annum:

  1. Liabilities of mortgagee in possession
Section 76, Transfer of property Act provides that when, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property:
  1. he must manage the property as a person of ordinary prudence would manage it if it were his own;
  2. he must use his best endeavours to collect the rents and profits thereof;
  3. he must, in the absence of a contract to the contrary, out of the income to the property, pay the Government revenue, all other charges of a public nature and all rent accruing due in respect thereof during such possession, and any arrears of rent in default of payment of which the property may be summarily sold;
  4. he must, in the absence of a contract to the contrary, make such necessary repairs of the property as he can pay for out of the rent and profits thereof after deduction from such rents and profits the payments mentioned in clause (c) and the interest on the principal money;
  5. he must not commit any act which is destructive or permanently injurious to the property;
  6. where he has insured the whole or any part of the property against loss or damage by fire, he must, in case of such loss or damage, apply any money which he actually receives under the policy, or so much thereof as may be necessary in re-instating the property, or, if the mortgagor so directs, in reduction of discharge of the mortgage money;
  7. he must keep clear, full and accurate accounts of all sums received and spent by him as mortgagee, and, at any time during the continuance of the mortgage, give the mortgagor, at his request and cost, true copies of such accounts and of the vouchers by which they are supported;
  8. his receipts from the mortgaged property, or, where such property is personally occupied by him, a fair occupation rent in respect thereof, shall after deducting the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in clauses (c) and (d) and interest thereon, be debited against him in reduction of the amount (if any), from time to time due to him on account of interest and , so far as such receipts exceed any interest due, in reduction or discharge of the mortgage money; the surplus, if any, shall be paid to the mortgagor;
  9. when the mortgagor tenders or deposits in a manner hereinafter provided, the amount for the time being due to on the mortgage, the mortgagee must, notwithstanding the provisions in the other clauses of this section, account for his receipts from the mortgaged property from the date of the tender, or from the earliest time when he could take such amount out of the Court, as the case may be, and shall not be entitled to deduct any amount therefrom on account of any expenses incurred after such date or time in connection with the mortgaged property.
  1. Loss occasioned by his default

If the mortgagee fails to perform any of the duties imposed upon him by this section, he may, when accounts are taken in pursuance of a decree made under this Chapter, be debited with the loss, if any, occasioned by such failure.

  1. Liability to bring one suit on several mortgages

Section 67A, Transfer of Property Act provides that a mortgagee who holds two or more mortgages executed by the same mortgagor in respect of each of which he has a right to obtain the same kind of decree under section 67 and who sues to obtain such decree on any one of the mortgages, shall, in the absence of a contract to the contrary, be bound to sue on all the mortgages in respect of which the mortgage money has become due.

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