Collateral Property, owned by Partner, can be Leased out to his Firm?!

1. IF a Property is already Mortgaged to a Financial Institution in anyway, THEN it would be a prosecutable offence to again Mortgage the same property (in whatever guise/color) to anybody, irrespective of any other available factor.

Keep Smiling .... Hemant Agarwal
VISIT: www.chshelpforum.com

Hi Hemant sir,
Here my question is that the possibility of LEASING A MORTGAGED PROPERTY (NOT MORTGAGING A MORTGAGED ONE).

1. IF you lease /rent /whatever.... ,any Mortgaged property, THEN the right of the financing Co. get compromised, resulting in various legal disputes, which is not the object of the financer Co. Hence such NOC request would not be considered.

2. A right of the Mortgagee emerges and THEN another right of the Leasee emerges, both in contradiction of each other, during times of claim /dispute. Bad Accounting principles, Bad Lending principles and Bad lease principles.

Keep Smiling .... Hemant Agarwal
VISIT: www.chshelpforum.com

So, you mean that if we buy a house/flat in way of bank loan, aren't we able to lease/rent out the property? Is that crime/offence?

Either Is that practically applicable Or everyone follow the suit?!

Any suggestion depends upon the terms of the mortgage.

Originally posted by : Siva
	So, you mean that if we buy a house/flat in way of bank loan, aren't we able to lease/rent out the property? Is that crime/offence? Either Is that practically applicable Or everyone follow the suit?!

1. You have deviated from the Original Query, wherein you have mentioned that property is Mortgaged for "Project /Working Capital Loan" by Partners, (which is apprehensively a Commercial Property).  Now you relate /deviate the question to Residential Flat and Renting out the Mortgaged House /Flat.

2. Once you Mortgage the Property (Commercial, Flat, House, Office ....) the custody rights gets transferred to the Lending Agency and does not remain with you. By virtue of this, a Mortgaged property, legally CANNOT be allowed to be created for a new right (Lease /Rent right), by the Lending Agency, more so since the legitimate purpose for which it has Mortgaged, gets defeated.

3. You can Experiment by taking a NOC from the Lending Agency .... Give out the property on Rent /Lease .... Let the Leasee create a possession dispute in future .... Legally it will involve you and the leasee .... and ANOTHER one will be between Lending Agency & you for default .... and ANOTHER one will be involving Sarfaesi auction against your mortgaged (leased) Property by Lending Agency .... now what happens to the leasee possession ..... 

4. Above point no, 3, is a probable scenario (all such "set-up" is more prevelant in Gujarat & other states as well).  BUT you may experiment it and see how it works out for you !

Keep Smiling .... Hemant Agarwal
VISIT: www.chshelpforum.com

You should understand the difference between home loan and commercial loan.

The property was originally  given as collateral security whereas subsequently it was mortgaged for raising working capital, therefore until the mortgage loan is redeemed the owner cannot claim the property, therefore the question of augmenting income from the said mortgaged property  by its original owner is doubtful, you may refer to the conditions of the mortgage and then apply for NOC from the financier to let out the property on lease to the company.

 

At the outset, Thanks all for your reply/suggestions.

Mr.Hemant (and other Experts),
1) Am not deviated from my original post as I asked whether a property to be mortgaged is to be leased/rented out. Here, I didn't mention the type of that property (Residential/Commercial/Industrial). However, we may offer any kind of asset to avail any kind of Loan (Home/Commercial) and banker/lender won't have any restrictions on this, I believe, and they only see the value equivalent to project fund to be availed.

And for your info., we are offering bunch of assets which encompasses Residential & Commercial types to avail a Project/Business Loan.

2) Secondly, there are many kind of Mortgage types in Banks/NBFCs, say, SIMPLE MORTGAGE, MORTGAGE WITH CONDN.SALE, DEPOSIT OF TITLE DEEDS MORTGAGE, USUFRUCTUARY MORTGAGE AND SO ON. And mostly, bankers will go for 'Simple Mortgage' only, which means the Possession will be with the Borrower/Land-owner/Mortgagor. But, If the mortgagor fails to repay the loan, the lender has the right to sell the property and recover the amount from its sale, by giving proper notices. Whereas, in other types, the Possession may be with the Lender/Mortgagee. This is the basic difference between the Simple mortgage and other types.

3) If the borrower does not pay dues for 90 days after end of a quarter; the loan becomes an NPA and it is termed as “Special Mention Account”. If this loan remains SMA for a period less than or equal to 12 months; it is termed as Sub-standard Asset. Then only the SARFASEI Act empowers the Bank: To issue demand notice u/s 13(2) to the defaulting borrower/guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice. To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.

(4) In case the borrower fails to discharge his liability in full within the period speci­fied, the secured creditor/Banker may take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset, to recover his secured debt, u/s 13(4).

This is my understanding.

So, here my question is, Whether the PROPERTY, irrespective of its type (Residential or Commercial) which was MORTGAGED, irrespective of its type (Simple or Conditional or etc.) and availed LOAN, irrespective of its type (Business/Project/Commercial) can be LEASED/Rented out (with or without registration)?!

Here, we need to see this scenario in both the eyes, one as LAW and the other as BANKING TERMS. So we need expertise of these two balancingly to get into this matter deeply. And, hope you people pour some light into it.

Thanks in advance!

You should understand the law to lease out the property.

Only the owner can lease out the property for monthly rental.

To be more precise read the following carefully:

A lease creates a right to an interest in the property in favour of a lessee.

Unless there is a transfer of such an interest, there can be no lease.

The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money is called the rent for the lease.

A lease of immovable property is a transfer of a right to use the property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised.
 

Thus when the property is mortgaged to bank for loan or as a collateral security, the owner of the property cannot claim rights over the property till the entire loan amount is discharged.

As the mortgagee, the lender has the right to sell the property to pay off the loan if the borrower fails to pay. The mortgage runs with the land, so even if the borrower transfers the property to someone else, the mortgagee still has the right to sell it if the borrower fails to pay off the loan.

You may go thorugh the provisions of transfer of property act in this regard:

The section 57 of the act states that :

57. Provision by Court for encumbrances and sale freed therefrom.—

 

 

Now you can decide the impact of your proposed act in this regard.