Comprehensive Understanding Of Legal Intricacies Governing Mortgages Under The Transfer Of Property Act 1882

KEY TAKEAWAYS:

• In India, the Transfer of Property Act (TPA) of 1882 plays a crucial role regulating transfer of movable and 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 to 104 of the TPA provides the important fragments of mortgage and mortgage laws in India.
• Rights of mortgagor and mortgagee.
• Distinction between Mortgage and Charge.

INTRODUCTION:

The Transfer of Property Act 1882, is a crucial law controlling transfer of movable and immovable property from one person to another. It plays a key role in protecting the integrity of property sales and purchases. The Act aims to establish a sound legal foundation for the transfer of ownership and to spell out the steps for the transfer to be recognised by the law. Section 58 to 104 that are mentioned under Chapter IV of the Transfer of Property Act deal with all the important fragments of mortgage  and mortgage law in India. It was only after the enactment of the Transfer of Property Act that a form of systematic and detailed rules was established to govern laws relating to mortgages and to determine liabilities as well as rights of both parties.

A mortgage deal is when a person in need of money, borrows it from another person. It is, in return secured by some valuable property. Section 58[2] has defined the term “mortgage” as transfer of an interest in specific immovable property with the intention of safeguarding the payment of money advanced or to be advanced by means of loans, actual debt or perceived debt, or the execution of an engagement that could result in a monetary obligation. 

 ELEMENTS OF A MORTGAGE:

The chief elements of a mortgage are:

• There are two parties:

The person who originally mortgages the property is called a mortgagor. A mortgagor includes a person with deriving title under the original mortgagor, e.g., heirs, executors who drive their title from the mortgagor.

• Transfer of an interest:

It must be the transfer of an interest in immovable property. It is not a transfer of ownership like in a sale but only interest, with a hope that in the future the property will be taken if the loan is repaid.

• Specific Immovable Property:

In order to create a mortgage, it is important to specify the immovable property. Otherwise, it would be regarded as void for vagueness. It is a form of security against the loan and that the property exists, and there is no question of doubt the property.

• Consideration of Mortgage:

A mortgage must be supported by consideration, which might be either money that is advanced by way of a loan, or an existing or future debt, or the performance of an engagement giving rise to pecuniary liability.

NATURE OF MORTGAGE LAW:

• It is always a matter of the transfer of interest in a specified immovable property. Ownership of the property is transferred. For example, a mortgagor retains her rights in order  to redeem the mortgaged property.
• It will only affect immovable property, which includes houses, land, machinery and benefits that arise from things attached to the earth.
• The aim of the transfer should necessarily be to secure the loan. Transfers for purposes other than this will not be considered mortgages. 
• The property should be properly specified. There should not be any ambiguity.
• Actual possession does not need to be transferred to mortgagee in literal terms.
• In the event of default in repayment, the mortgagee has the right to recover the debt through sale of mortgaged property.
• In the case of the redemption of a loan, the interest in the mortgaged property is conveyed back to the mortgagor.
• Verbal communication is considered valid and legal. Written documents are not always necessary.

SCOPE OF MORTGAGE LAW:

• This law has created grounds for mortgages to take place. The transfer of property is to secure the debt. In the case of Basanti Lal vs Phaphi, it was held and observed that if there is no consideration, the mortgage is considered to be void.
• If anyone borrows money and agrees with creditor that until the debt is repaid completely, he or she will not alienate the property, the transaction does not amount to a mortgage. Here the person merely says that he or she would not transfer his or her property until the repayment of the debt. 
• Whether the transaction amounts to mortgage or not depends on the substance and value of mortgage deed. Mortgage law will only apply when value of borrowed money is always greater than the value of the mortgaged property.
• This law ensures that monetary needs are fulfilled in exchange for immovable property. 
• Interest rates on mortgages tend to be lower than any other form of borrowing because the loan is secured against a specific property.
• Interest created by the mortgagor as well as the mortgagee is transferable. The concerned  property that got mortgaged once can be mortgaged again in favour of a  third party.

KINDS OF MORTGAGE:

Simple Mortgage [Section 58(b)]

Section 58(b) talks about simple mortgage. Here, the mortgagor promises to personally repay the loan without giving the possession of the property to the mortgagee. 

The mortgagor also agrees that if he  fails to repay, the mortgagee has the right to sell the property and use the proceeds to pay off the loan.

The key elements of a simple mortgage are:

1. The mortgagor agrees to personally repay the loan.
2. The property is not given to the mortgagee.
3. The mortgagor transfers the right to sell the property if they fail to repay it as security for the loan taken.

In the case of Mathai Mathai v Joseph Mary, a specific property was used as  security for stridhan, with the mortgagor being responsible for paying interest towards the loan repayment. However, the mortgage deed did not include any provision regarding the delivery of possession. As a result, the court t made the decision that this particular deed should be classified as a simple mortgage.

Mortgage by Conditional Sale [Section 58(c)]

Section 58(c) explains about the concept of a mortgage by conditional sale. Here, the mortgagor appears to sell the property to the mortgagee, but there is a condition attached to the sale. If the mortgage money is not repaid by a specified date, the sale becomes absolute, or if the payment is made, then the sale becomes void, or the buyer transfers the property back to the seller. 

The basic elements for a mortgage by conditional sale are:

1. The mortgagor ostensibly sells the property to the mortgagee.
2. There is a condition attached to the sale, specifying the consequences based on repayment or default.
3. The condition must be included in the same document.

Usufructuary Mortgage [Section 58(d)]

Section 58(d) explains the concept of a usufructuary mortgage. The mortgagee is authorized to retain the mortgage money  paid and to receive the rent and profits from the property. The mortgagee can use these acquired rents and profits in place of interest or payment of the mortgage money, either as a whole or partially.

The basic elements of a usufructuary mortgage are:

1. The mortgagor delivers possession of the property to the mortgagee or binds themselves to do so.
2. The mortgagee is authorized to retain the possession  and receive the rent as well as the profits from the property.
3. The mortgagee can use the rent and profits as a substitute for interest or payment of the mortgage money, either as a whole or partially.

In the case of Prabhakaran v M Azhagiri Pillai, the mortgagor transferred the interest in his property to the mortgagee, granting the mortgagee the authorisation to retain possession and also enjoy the rents and profits until the debt is completely realized. The court ruled and instructed that in a usufructuary mortgage, the mortgagor bears no personal liability beyond this arrangement.

English Mortgage [Section 58(e)]

Section 58(e) describes an English mortgage. Here, the mortgagor agrees to repay the mortgage money on a specific date and transfers the property to the mortgagee. There is a provision that the mortgagee will transfer the property again to the mortgagor after the full payment of the mortgage money as was agreed.

The basic elements in an English mortgage are:

1. The mortgagor agrees on repaying the money of mortgage on a specified date.
2. There is an absolute transfer of the property to the mortgagee.
3. The transfer is subject to the condition that the mortgagee will again re-transfer the property to the mortgagor upon full payment of the money on the agreed date.

Mortgage by deposit of title deeds (Equitable Mortgage) [Section 58(f)]

Section 58(f) describes a mortgage as the deposit of title deeds. Here, a person in specific towns, such as Calcutta or Bombay etc specified by the State Government, delivers documents of title to immovable property to a creditor or their agent with an intention of creating a security on the property.

The basic elements for a mortgage by the deposit of title deeds are:

1. The existence of debt.
2. Deposition or delivery of title deeds.
3. The intention that the deeds would be served in the form of security for the debt.

In the case of United Bank Of India v Messra Lekharam Sonam and Co, the court ruled  that the submission of the title deed relating to the property concerned is an important requirement for it to be considered security. There are no further requirements necessary to create a valid mortgage. 

Anomalous Mortgage [Section 58(g)]

Clause (g) of Section 58 defines an anomalous mortgage as a mortgage that does not fall into the categories of the other types of mortgages.

The rights and liabilities of the parties involved in an anomalous mortgage are determined by their contractual agreement as stated in the  deed. 

In the case of Hathika Vs Puthiya Purayil Padmanathan, the mortgagor borrowed a specific amount from the mortgagee and also handed over the property as security. According to the terms of the agreement, the mortgage amount was supposed to be repaid within 6 months. In the event of no payment, the mortgagee had the right to sell the property and recover the amount of money. The court had noted it as anomalous. The court mentioned that the mortgage revealed characteristics of  both  of a simple mortgage and a usufructuary mortgage.

ESSENTIALS OF A VALID MORTGAGE:

List of essentials required for a valid mortgage:

• Offer and Acceptance

The borrower has to make an offer clear to accept the loan, and the lender must accept it.

• •    Competent Parties

To enter into a contract both the parties to the agreement of mortgage must have attained the legal age and should be of sound  minds.

• Legal Purpose

The mortgage must possess a legitimate purpose. For instance, the money borrowed gets used to purchase a house.

• Property Description

The property that is being used as a  collateral needs to be describe in details in the document of the mortgage it must include specifics like the address of the property, boundaries and any other pertinent details that can help in identifying it.

• Consideration

Both the parties to the agreement must give and receive valued consideration. This includes the amount of loan that is to be provided in exchange for the borrower's pledge to payback the loan.

• •    Free  Consent

The consent of both the parties should be made voluntarily by them and not acquired under fraud, coercion or any other unfair means.

• Certainty of Terms

The information and conditions including the interest rate, repayment schedule, and other important terms and conditions should not be ambiguous and uncertain.

• Registration

In order of mortgage to be legally binding in jurisdictions it is necessary to be registered with relevant agency of government. Registration aids in determining the priority of the said mortgage.

IS MORTGAGE DEED REGISTRATION MANDATORY?

Conflicting to English mortgages, in order to establish the lender’s legal rights to security in the event of default by borrower, registration is essential.

Any mortgage other than mortgage by deposit of title deeds wherein principle amount is greater than one hundred, it must be registered under Section 59 of TPA.

Section 17 of the Registration Act mentions that the documents that mandate registration creating rights and liabilities involving immovable properties. 

In the State of Haryana v Navir Singh, the Supreme Court ruled that the act of the mortgagor depositing the title deeds with the lender is sufficient to establish an equitable mortgage as mentioned in Section 58(f) of the Act, which says that in a mortgage by deposit of title deeds, the mortgagee receives documents of title pertaining to the immovable property as a form of security.

In the case of a mortgage of deposit by title deeds if the transaction is only recorded in a memorandum without creating, extinguishing, or altering rights or liabilities, registration may not be required. However, if the memorandum contains terms impacting legal rights and obligations, registration would be mandatory under section 17(1)(c) of the Registration Act.

RIGHTS OF MORTGAGOR AND MORTGAGEE:

Section 60 to 73 of the Transfer of the Property Act deals with the rights of the Mortgagor and Mortgagee.

Rights of Mortgagor:

1. Right to Redemption (Section 60)
2. Transfer to a third party (Section 60A)
3. Right to inspection and production of documents (Section 60B)
4. Accession of Mortgaged Property (Section 63)
5. Improvement to Mortgaged Property (Section 63A)
6. Mortgagor’s power to lease (Section 64)

Rights of Mortgagee:

1. Right to foreclosure or sale (Section 67)
2. Right to sue for Mortgage-money (Section 68)
3. Power to sale when valid (Section 69)
4. Right of accession (Section 70)
5. Right to renewal of lease (Section 71)
6. Right to reimbursement of expenses (Section 72)
7. Right to mesne Mortgage (Section 73)

MORTGAGE AND CHARGE DIFFERENCE:

The key difference in between mortgage and charge are as follows:

• Purpose

A Mortgage is the transfer of ownership interest in a specific or particular  asset that is immovable in nature. On the other hand Charge can be regarded as the security that is required to secure the debt by way of a pledge, hypothecation and mortgage.

• Creation

Mortgage can be referred to as the result of an act of both the parties concerned with the contract. A Charge is either created by the operation of law or is created by the act of the parties concerned.

• Registration

The Mortgage must be get registered under the Transfer of Property Act 1882. If the Charge is a result of the act of the parties concerned then the registration is compulsory apart from this situation it is not necessary.

• Personal Liability

Mortgage carries personal liability in general except for the time when it is excluded by an express contract In the case of Charge no personal liability is created except when it comes into an effect due to a contract when personal liability might be created.

• Right in Rem

A right created by Mortgage can be enforced against the world. On the other hand Charge can only be applied against a specific group of people, but if a decree is secured it might then acquire a right in rem.

CONCLUSION:

The notion of the term ‘mortgage' in property law is considered to be one of the fundamental concepts under the Transfer of Property Act, 1882 as it assists in handling to safeguard the mortgagor’s obligation and also in redeeming the property as soon as the mortgagor pays back the sum of money that he was owing to the mortgagee. Understanding the various aspects of mortgages is necessary for both concerned parties of the contract.

Originally the rights of mortgagor and mortgagee were entirely governed by the terms and conditions of the contract between the parties concerned. After the enactment of this Act, it has paved the way for the mortgages by providing the types, rights and liabilities of the mortgagor and mortgagee.