By Dr Sanjay Chaturvedi, LLB PhD.
Mortgage of Immovable Property
Mortgage is the term usually confused between Pledge, Charge or Lien. Mortgage is a charge created by borrower in favor of lender as security for loan taken.
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. Creditors 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. Mortgage in simple terms means transfer of the interest in the immovable property to a creditor to secure the payment of money lent. It is essential that both the parties, the owner of the immovable property and the 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 the money lent or to be lent.
The person who transfers the interest in the immovable property is Mortgagor. Generally, Mortgagor would be borrower who owns 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 mortgagor 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
- Simple Mortgage Mortgage by Conditional Sale 3. Usufructuary Mortgage 4. English Mortgage 5. Mortgage by Deposit of Title Deeds
- 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. In this mortgage (1) there is transfer of interest in the immovable property to the mortgagee to secure the payment of the money lent (2) There is no delivery of possession of the immovable property to the mortgage (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 the right to get the immovable property sold and the sale proceeds adjusted towards the payments secured.
It is to be noticed that the borrower binds him personally, fully agreeing to repay the amount borrowed. Only in case of his failure to repay the money, the right to recover the 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 required 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. 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 the simple mortgage are personal decree against the mortgagor and decree for the sale of the mortgaged property. The limitation is twelve years from the date when the mortgage money becomes due (Sec. 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 mortgagor delivers the documents of title to the immovable property to the creditor in notified places with intent to create security thereon. The essential features of mortgage by deposit of title deeds.
- 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.
- There must be deposit of title deeds : The Mortgagor (the borrower/owner of the immovable property) delivers the documents of title to the mortgagee (creditor). The delivery may be physical or constructive. The documents delivered should be of title to the immovable 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 of title. However 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. 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, fall in this category.
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, Tax 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 cities of Kolkata, Chennai and Mumbai as notified centres. In addition state government may notify other places as notified centres for deposit of title deeds. At present most of the places up to the level of Taluka 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 of the property situated in non-notified places may be delivered in notified places.
Deposit must be with the intention that the title deeds shall be security for the debt. The intention is very important here. 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 the intention to create a security for the debt is to be obtained from the mortgagor. Care should be taken not to mention the amount of debt, and the 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 the implications of Stamp Duty. Deposit of title must be by a Mortgagor or his agent with the Mortgagee or his agent.
This type of mortgage is treated at part 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 of Documents
This type of mortgage and the letter evidencing the deposit of title deeds in the nature of a forwarding letter or acknowledgment 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 acknowledgment letter needs stamping and registration. If the terms of the contract or the deposit of title deeds are reduced to writing such mortgage in Karnataka attract stamp duty at 1% on every Rs. 5,000/- that is Rs.50/- with a maximum of Rs. 50,000/- Registration charges are 0.5% with a maximum of Rs. 10,000/- Urban cooperative 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 cooperative banks if extended to all banks may help many borrowers. The remedies available to the creditor under this type of mortgage are l Personal Decree Against the Mortgagor
- Right to sale with the intervention of the Court Right to appoint a Receiver with the intervention of the
- Right to take possession with the intervention of the Court. Limitation available is 13 years under 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
Right of Mortgagor (Sec 60 of TP Act)
Mortgagor after fulfilling his part of the Contract, that is by paying the money secured, may required the mortgagee to deliver the mortgage deed and all documents relating to the mortgaged property, If the mortgagee is in a position to deliver back the possession and executed required document and 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 mortgagor performs his part of contract, paying the money secured. (Article 61 (1) of the Limitation Act, 1963).