Equitable Mortgage
The Tamil Nadu government made an amendment to Registration Act whereby it included memorandum of deposit of title deeds in the list of documents under section 17 of the Act.
Let us see some points, what is Title deed, what is deposit, what is sec.17, what is its effect?
Title deeds of a property is known as document or a set of documents which confers right of ownership over a property on a person.
When a person borrows money from another, who asks some sort of security for the loan, so the borrower deposits the title deeds of some property to the financier and thus creates the equitable mortgage over the property.
Various types of mortgages are available; Simple mortgage, mortgage with possession, conditional mortgage, etc are the main types; among these equitable mortgage is one which is created by just depositing/ handing over the title deeds and which did not require any separate document and registration of the same.
Whereas the simple mortgage and other types of mortgage require separate mortgage deed and its registration.
If any letter, document, memorandum or document is executed evidencing the deposit of title deeds, it did not require registration but optionally can be registered.
Registration Act lists out the documents in sec.17, which are compulsorily registered and in sec.18, which are optionally regisetrable.
As the equity mortgage did not require any separate document or its registration, its existence could not be available in any public records viz., encumbrance certificate, patta or chitta and could not be found also without any special prudence.
If any person lacking proper scrutiny or without any legal advice buys any property which is under equitable mortgage, later he may have to face the liability and redeem the property from the mortgage for the loan borrowed by ht previous owner.
In order to avoid such situation, the buyer has to insist the seller to produce all the title deeds and documents in original, before finalising the terms and entering into agreement.
One may think and ask, how a person can sell a property without the original deeds, when it is equitably mortgaged? Here is a circumstance narrated, one firm mortgaged the larger extent of lands in order to develop the same into a residential layout and has deposited the title deed to the financing firm.
It is the normal practice in vogue that a real estate firm shall not give the original deeds or even show them in original to the purchasers. The legal advisor of the buyer shall scrutiny the Xerox of all title deeds and found it in order and may certify that the real estate firm or the seller has the marketable title over the property and entitled to sell the same. Actually, the property is encumbered by the said equitable mortgage, which is not registered and cant be found in EC or by the lawyer in his scrutiny.
If a seller with wrong intention, after sale of all the plots in the residential layout, do not wish to repay the said loan amount, the bank [financing firm] shall initiate the process to seize the mortgaged property. Now, all the buyers or owners of the plots have to face this dispute and hence to lose the plots.
The same situation may exist in the case of apartments developments. The property developer shall produce the Xeroxes of title deeds only to the purchaser.
Moreover, the banks are empowered to sell the property by invoking the provisions of SARFAESI Act without assistance of Court of Law.
The only remedy to the innocent buyers is to give the property to the financing bank and get the money back from the seller, but which is a tough task if the seller has already acted with pre-planned wrong intention. All these headaches are due to the unregistered equitable mortgage.
Now the scene is changed, the TN government has passed an amendment whereby the memorandum of deposit of title deeds or any other document/s evidencing the creation of equitable mortgage is made as to be a compulsorily registered one, which will result that no bank or financiers can claim any right or lien or charge over any property through an unregistered mortgage deed or equitable mortgage deed.
Hence, the purchasers of plot or flat are relieved from the invisible demon of equitable mortgage. As such, this is a welcome move by the government, however, it is not out of place to mention that the stamp duty and registration fee have to be revised for the registration of such memorandum, because these expenditures are borne by the borrower which adds the liability of the borrower.
Vishal Associates,
Kolathur, Chennai - 600 099
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Tags :Property Law
The point is whether or not the equitable mortgage is required to be registered in the State of Tamilnadu. Certain transactions/ transfers of properties require to be registered under the TP Act such as sale (above Rs 100), simple mortgages (above Rs 100, other than equitable mortgage), gift of immovable property, lease reserving the yearly rent or for more than 11 months etc. Here the very transaction is required to be registered and not just the instrument. The very transactions as to transfer to property shall take effect only, if the requirement of registration is complete. The Registration Act, the purpose is to avoid duplicity in the society and create trust and public order in the system. It prescribes beyond the requirements of the Transfer of Property Act, some more transactions or instruments to achieve the purpose. Mortgages are governed by the Transfer of Property Act. Mortgage by deposit of title deeds, which is normally referred to as equitable mortgage (Section 56 (f) of TP Act) requires deposit of title deeds in any of the presidency towns or notified area with the intent to create security on the property, title whereof evidences in such a title deed. These are statutory requirements. Regardless of the location of the property (if not prohibited), equitable mortgages can be created in any of the presidency towns or notified areas. The instrument/ memorandum, evidencing/ acknowledging equitable mortgage is not a compulsory one. However, Banks / FIs usually draw memorandum, whereby the creation of equitable mortgage shall be acknowledged as a past transaction - concluded one, to have confirmation (of the past transaction) from the mortgagor as a precautionary and safety measure. Strictly, such instruments/ memorandums neither give effect to the equitable mortgage nor perfect the mortgage. Coming to the instant matter, there was an amendment to the Registration Act in the state of Tamilnadu and provided Section 17 (1) (i), which states "instruments evidencing an agreement relating to the deposit of title deeds" - It does not say the instrument is compulsory/must be. Section 17 of the Registration Act shall be read with Section 29 of the said Act. Section 29 deals with the place of registration. Section 17 is applicable only if 29 is attracted. Section 29 deals with only properties in Tamilnadu. For example, a property in Delhi or Bombay can be mortgaged in Chennai/ Tamilnadu by way of an equitable mortgage. Similarly, property in Tamilnadu can be mortgaged by way of equitable mortgage in any other presidency town or notified area. In the first case, the instrument evidencing such an equitable mortgage cannot be registered in Chennai / Tamilnadu as the property is not in the state of Tamilnadu. In the second case, since the instrument is drawn elsewhere, it is valid and enforceable in the state of Tamilnadu and no need for bringing such instrument for registration in Chennai / Tamilnadu. Even Section 17 (1) (I) deals with an instrument and not with a transaction – equitable mortgage. To sum up, Equitable mortgage / Mortgage by deposit of title deeds is not required to be registered and only the only instrument, if drawn evidencing equitable mortgage, is required to be stamped and registered. Instruments evidencing mortgage are always good that it will reflect in EC whereby it will operate as public notice about a mortgage. - these are my personal views and if i am not correct, please inform me sir