- • In India, the Transfer of Property Act (TPA) of 1882 governs the mortgage of immovable property.
- • The most essential element of a mortgage is a transfer of formal interest in the property with a mechanism for redemption.
- • Section 58(a) of the TPA provides the essential ingredients of a mortgage loan.
A mortgage is a form of loan that is used to buy or preserve a property, land, or other forms of real estate. The borrower promises to repay the lender over time, usually in the form of a series of monthly payments divided into principal and interest. The property is then used as security for the loan. A mortgage corresponds to the 'Hypotheca' of Roman Law, which states that if the debtor fails to pay the loan, the creditor may sell the debtor's assets and recoup himself. The notion of mortgage has also been established under Hindu and Muslim Laws, where the property was committed to the creditor and the debtor was excluded from possession until the loan was repaid.
The most essential element of a mortgage is a transfer of formal interest in the property with a mechanism for redemption, which implies that upon repaying the loan, the transfer becomes void or the interest is re-conveyed.
Prior to 1882, there was no explicit legislation governing mortgage property transfers in India. Following the enactment of the Transfer of Property Act, mortgage laws underwent a thorough and much-needed overhaul, with precise rules enacted. Prior to the 1882 Act, however, a mortgagor's right to redemption existed to reclaim the mortgage money. Section 58 of the Act contains provisions relating to mortgages.
In many nations, mortgage lending is the major instrument for financing private ownership of residential and commercial property.
Ingredients of a Mortgage
Section 58(a) provides the essential ingredients of a mortgage loan as follows:
1. There must be a transfer of interest
This does not imply a transfer of ownership. The right of the mortgagee is only an ancillary right meant to assure debt repayment.
2. The transfer must be in terms of immovable property:
It must be an immovable property that is specifically mentioned in the deed. It must be described fairly so that it may be determined which property it is.
3. With the intention of acquiring monetary payment:
Extended or to be advanced by a loan:
A mortgage is not a transfer undertaken purely to secure debt or other obligations but not to discharge obligations.
Existing or potential debt:
Existing debt means obligations that are not time-barred. Future debt is debt that arises after the mortgage. It is not essential to secure debt before the transaction; it might be conducted to secure money payment advanced in the future.
Performance of an activity that may result in monetary liability:
Consideration can be an agreement that results in monetary responsibility for the mortgagor. The act of mortgagor ensuing from such involvement is referred to as performance.
Types of Mortgages in Indian Law
Mortgages are classified into six types as per Section 58 of the Transfer of Property Act.
1. Simple Mortgage [58(b)]
The mortgagor does not surrender the immovable property to the mortgagee in a simple mortgage but instead agrees to pay the mortgage amount. The mortgagee accepts on the premise that if the mortgage money is not paid, the mortgagee has the authority to sell and utilize the proceeds, and such an arrangement is known as a simple mortgage.
2. Mortgage by Conditional Sale [58(c)]
It is defined as a circumstance in which mortgaged property is purportedly sold by the mortgagor under the condition that if mortgagemoney is not paid on a specified date, the sale will become absolute. If payment is not made in line with the conditions of the sale, the sale shall be null and invalid.
3. Usufructuary Mortgage [58(d)]
The mortgagee receives possession of the mortgaged property. The mortgagee receives revenue from the property until the loan is paid off. The title deeds, on the other hand, stay with the owner. This conveyance, whether directly or implicitly, grants the mortgagee the right to hold the mortgaged property until the mortgage is paid off. It also enables the mortgagee to collect earnings and rent from the mortgaged property in place of interest, in part or whole, or as payment of the mortgaged money, in part or whole. The mortgagee is not personally obligated to repay the loan. As a result, the mortgagee is unable to sue the mortgager for repayment.
4. English Mortgage [58(e)]
The mortgagor transfers the property completely to the mortgagee and commits to repaying the mortgage money on the designated date, with the proviso that the mortgagee re-transfer the property upon repayment of the money. In the event of non-payment, the mortgagee can sell the mortgaged property without asking authorization from the Court in the situations specified in Section 69 of the TPA.
5. Mortgage by Deposit of Title Deed [58(f)]
Under English law, this is known as an equitable mortgage. When a debtor delivers a title of the property to immovable property to a creditor or his agent to create a security interest in it, the transaction is referred to as a mortgage by deposit of title deeds. This type of mortgage is only available in Mumbai, Chennai and Kolkata.
6. Anomalous Mortgage [58(g)]
An Anomalous mortgage does not fit into any of the five categories listed above. The terms and circumstances of the mortgager and mortgagee might have an impact on such a mortgage. In general, it rises from the combination of two or more of the aforementioned mortgages. It can take many different forms based on custom, use, or contract.
Nature of Mortgages
Mortgages are governed by two essential doctrines under the TPA. These are the Doctrine of Priority (section 78 & 79) and Doctrine of Marshalling (section 81).
The Doctrine of Priority is founded on the tenet "quite prior est tempore potiorest jure." It signifies that the first in time triumphs over the second. When the mortgagor transfers immovable property to several mortgagees, the succeeding mortgagee is paid only if the preceding mortgagee is satisfied. According to Section 78 of the Transfer of Property Act of 1882, if a preceding mortgage is the result of fraud, deception, or gross negligence, the subsequent mortgage takes precedence over the prior mortgage.
The Doctrine of Marshalling applies when the mortgagor owns two or more properties, mortgages those properties to one mortgagee, and then mortgages those properties to another mortgagee. When multiple properties are subject to a mortgage and one of them is purchased free of encumbrances, the mortgagee is obligated to repay the debt from the other party subject to the mortgage.
A mortgage is always a transfer of an interest in a specific piece of real estate. The property's ownership is transferred. The intent of the parties is an important component in determining the nature of the transaction, and proof must be shown to the court if one's claim contradicts the written terms of the deed in the issue. This was emphasized in the case of Pandit Chunchun Jha v. Sheikh Ebadat [1954 AIR 345]
Scope of Mortgage Law in India
This legislation of TPA establishes the conditions for a mortgage to take place. The transfer of property is done to secure the loan. In Basanti Lal vs Phaphi [AIR 2008 Raj 72], it was determined that the mortgage is null and invalid if there is no consideration. The content of the mortgage deed determines whether the transaction constitutes a mortgage or not. Mortgage legislation only applies when the value of borrowed money is always more than the value of the mortgaged property.
This law also assures that monetary requirements are met in exchange for immovable property. This is the link between man and property. However, if someone borrows money and agrees with the creditor that he or she will not alienate the property until the obligation is returned, the transaction does not constitute a mortgage. In this case, the individual simply states that he will not transfer his property until he has settled the loan.
The notion of mortgage is one of the fundamental concepts under the Transfer of Property Act, 1882 since it aids in safeguarding the mortgagor's obligation and also aids in reclaiming the property as soon as the mortgagor pays back the amount owed to the mortgagee. As a result, a mortgage is described as an express conveyance of an interest in real properties as collateral for a loan. The most significant aspect of mortgages is that they transfer a legal interest in the property with a redemption provision, which indicates that the transfer would become void or the interest will be re-conveyed upon debt repayment.
A mortgagedeed generates a flood of rights and duties for the parties involved (mortgagor and mortgagee). These rights and obligations are recognized and contained by the TPA. It helps guarantee a debt due to the mortgagor while still allowing the mortgagor to reclaim property when the money due is paid back to the mortgagee.