25 November 2010
Respected Experts, I would like to know about equitable mortgage. I am working for a profit making private trust in chennai lending to lower income group. We planned to provide house renovation loans by accepting title deed as collateral. As our loan size is small & cost of registered mortgage is high, we would like to create equitable mortgage. what is the procedure to do this and how to execute in case of default? Thanks in advance..
26 November 2010
One can create equitable mortgage by delivering the documents of the title to the immovable property to the creditor with an intention to create an equitable interest of the mortgagee in the property. It means that legal title is not passed on to the mortgagee, but the mortgagor gives his assent orally for creation of equitable interest and also to execute a legal mortgage in case he fails to pay the mortgage money. The mortgagee is thus empowered to apply to the court to convert the equitable mortgage to legal mortgage in case of default by the borrower. The transaction does not attract advolerum stamp duty in some states. But nowadays many state governments came up with stamp duty payable on equitable mortgages for registering the same with them. Any violation may attractprovisions of violation of stamp duty act provisions. Hence you are advised to verify with Registrar of Assurances, and familiarise yourself about the stamp duty provisions, registration procedure if any. As far as execution of mortgage is concerned there is no difference for enforcement of equitable mortgage in a court of law. It is on par with legal mortgage. You may have to file a mortgage suit in case of default in advance for bringing to mortgaged property to sale. Before entertaining equitable mortgage, one has to obtain legal opinion/verification of title by a competent advocate as to whether the title is free from encumbrances and markatable. The advocate will apply for non-encumbrance certificate, he will verify the link documents, he will examine whether the passing of title to the mortgage is valid etc. Please exercise caution about the genuineness of title deeds (Registered documents) because of the advancement of technology one can produce any number of documents looking like originals. Depositing of original document with intention to create mortgage is utmost important in equitable mortgage.
27 November 2010
Just depositing of title deeds shall creat mortgage, equitable. In addition to this have an mortgage deed executed this may not require registration. Against the defaulter, u can file suits, get decree and execute it through courts