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Mortgage or Loan against Property in India

The expression “Mortgage” is a combination of two French words “Mort” and “Gage” which has got a meaning of pledge. It is a transfer of interest in an immovable property for securing the payment of money advanced as a loan; and the same is defined under the section 58(a) of the Transfer of Property Act, 1882, in India.

Mortgagor is the transferor of interest in the immovable property; and Mortgagee is the transferee.

Every Owner of a property, with possession and statutory rights, can mortgage his property, and a co-owner can mortgage his share of property. In case of joint-share holders, they have to do jointly, and the liability will be jointly and severally.

In case of Joint Hindu Families, a Kartha can bind other coparceners for the Hindu Undivided Family properties for family business.

Different types of Mortgages are:-

1. Simple / Registered Mortgage-- As per Section 58 (b) of the T.P Act, the mortgagor undertakes (binds himself personally) expressly or impliedly to pay the advance (Mortgage money), and the Mortgagor does not deliver the possession of mortgaged property (non-possessory mortgage). The property can be sold only with the court intervention / permission. The registration should be done within 4 months from the date of execution of the document (Sec 23 of Indian Registration Act), if  the value of the property involved is more than Rs. 100 ;and the registration is mandatory (Section 59 of Transfer of Property Act).

2. Mortgage by conditional sale-- As per Section 58 (c) of the T.P Act, where the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute. The possession of the mortgaged property is not transferred to mortgagee. It is an ostensible sale (and not a real sale). In the case of non-payment of mortgage money, the ostensible sale becomes a real/absolute sale (i.e. the property is deemed as sold).

3. Usufructuary Mortgage—Usufructuary Mortgage is defined u/s 58(d) of the T.P Act.  The mortgagee has the right to receive profits and rents accruing from the property. The mortgagor does not bind himself personally for repayment of the mortgage money. The mortgagee (lender) therefore cannot sue the mortgagor for repayment of the mortgage debt. He cannot file suit for sale or foreclosure of the mortgaged property. The mortgagee is left with only one remedy i.e. he can appropriate the rents/profits towards liquidation of mortgage money and interest thereon.

4. English Mortgage—English Mortgage is defined under Sec 58(e) of the T.P Act. The mortgaged property is transferred absolutely to the mortgagee. That is, all interests and rights in the property are conveyed. It is different from simple mortgage. Thus the English mortgage is entitled to immediate possession of mortgaged property. The mortgagor binds himself personally to repay the mortgage money.

5. Mortgage by Deposit of Title Deeds (MDTD)—MDTD is defined u/s 58(f) of the T.P. Act, and it is also called as Equitable Mortgage. Equitable mortgage (as per English law), the mortgagor [owner or his authorised (only constituted) attorney] in any of the notified towns delivers to the creditor (or his agent), documents of title to immovable property (title deeds) with intent to create a security thereon. The immovable property proposed to be equitably mortgaged (and/or the financing branch) may be located/situated anywhere in India but the title deeds should be delivered at the notified centre only. It is a sine qua non (an indispensable requisite) for equitable mortgage. A deposit made outside the notified centres creates neither a mortgage nor a charge. The debt may be existing or future. It is common for Banks to advance loans or allow over-draft account against deposit of title deeds and it might involve both existing and future advances, and such transactions fall within the scope of the MDTD (United Bank v/s Ms. Lekharam , AIR 1965 SC 1591).

6. Anomalous Mortgage—Anomalous Mortgage is defined u/s 58(f) of the T.P. Act. A mortgage which does not belong to any of the five types is called anomalous mortgage. It possesses a mixed character of any two or more types of mortgages.

Further Mortgage can be created within the same parties and is supplemental to the original deed of Mortgage.

Second Mortgage can be created with a new mortgagee by entering into a separate Deed of Second Mortgage, narrating the existence of First Mortgage.

Sub-Mortgage or Derivative Mortgage can be created by the mortgagee by assigning / depositing the title deed to a new purchaser (mortgagee). The sub-mortgagee can be good only to the extent of the amount due on the mortgage and on payment of the mortgage debt, the sub-mortgagee.

Assignment of Mortgage is a written document which serves as a proof of transfer of a loan obligation from the original borrower to a third party. Similarly, a lender can assign the mortgage to the other lenders –which are also called as Sub-Mortgage.

Modified draft Indian Financial Code likely by mid-2015

Modified draft Indian Financial Code likely by mid-2015

The recommendations of the FSLRC are divided into legislative and non-legislative aspects.

It has recommended a seven-agency structure for the financial sector -- the Reserve Bank of India (RBI),Unified Financial Agency (UFA), Financial Sector Appellate Tribunal (FSAT), Resolution Corporation (RC), Financial Redressal Agency (FRA), Financial Stability and Development Council (FSDC) and Public Debt Management Agency (PDMA).