In this blogpost, Pramit Bhattacharya, Student, Damodaram Sanjivayya national Law University writes about the concept of simple mortgage. The post highlights the essential ingredients of a mortgage. The post also looks into the rights which the mortgagor and mortgagee have been given under the law.
Section 58 of the Transfer of Property Act[1] defines mortgage. According to this section, mortgage means a transfer of interest in a specific immovable property. This transfer of property can be done to secure payment of any existing or future debt, any advance or money which has been advance which has been forwarded by the way of a loan, or for the performance of any agreement which may give rise to any pecuniary or monetary liability. The person who transfers the property is known of the mortgagor. The person to whom the property is transferred is known as the transferee. A mortgage also includes mortgage money, which can be defined as the principal sum along with the interest, the payment of which has been secured for the time being. The instrument which is used by the parties to effect the transfer is known as the mortgage deed.[2]
The following are the essentials of a mortgage-[3]
- Transfer of Interest
In simple words, a mortgage can be defined as a transfer of interest in some specific immovable property. It is the mortgagor who has the overall interest in the property. But he does away with a part of interest in the property while transferring the property to secure the mortgage amount. When the parties agree to enter into a mortgage, the interest of the mortgagor in the property reduces to the extent which has been passed on to the mortgagee. The ownership of the mortgagor is also temporarily reduced until he repays the loan he has secured. When the property is transferred to the mortgagee, he gains the right to recover the amount of loan which he has forwarded to the opposite party.
- Existence of a Specific Immovable Property
There should be an existence of a specific immovable property. The specific immovable property should be mentioned in the mortgage deed. The reason behind mentioning a specific property is that in case the loan cannot be repaid by the mortgagor, the Court can attach that property and the mortgagee is able to receive his money from the sale proceeds. For instance, X has four different plots of land in Delhi. It should be specifically mentioned in the deed that which plot is he mortgaging. Otherwise, the deed would be invalid.
- Securing the payment of Loan
In the case of a mortgage, the transaction done is for repaying any loan or performing any obligation. When an agreement for a mortgage is complete, the mortgagor and the mortgagee assumes the roles of a debtor and a creditor respectively.
In the case where the debtor secures a loan from the creditor by mortgaging a specific immovable property but specifies a condition in the mortgage deed that the creditor cannot sell the specific property before the loan is repaid, then it will not be considered as a mortgage at all. This is because there is no transfer of interest in this case. There is a basic difference between sale and mortgage. In the case of a sale, the entire interest in the property is transferred i.e. “transfer of rights.” But in the case of a mortgage, only the interest in the property is transferred for a specific period. There are three very crucial features of a mortgage-
- After the loan has been repaid by the mortgagor, he can claim his right to the property.
- In case the mortgagor defaults in payment of the loan, the mortgagee acquires the right to sell the property and recovers the amount of the loan.
- When the debt has been repaid completely, the mortgagee gives up the interest he had in the property. The interest in the property reverts to the mortgagor.
Rights of the Mortgagor[4]
- Right of Redemption
The mortgagor has the right to get back the property he has transferred if-
- He has repaid the loan on the due date.
- His right to get back the property has not been quashed by any party to the contract or the Court.
When the property has been redeemed by the mortgager, he also gets the right to get back all the legal documents which are related to the property. He also gets the right to get back the possession of the immovable property.
- Accession to Mortgaged Property
If in the case when the property was with the mortgagee, and the mortgagee has made any changes or alteration in the property, then when the mortgage money is paid back, the mortgager gets the property back along with all the alterations that have been made by the mortgagee in respect to the property.
- Right to Transfer the Property to Third Party
If at the repayment of the loan, the mortgager instead of taking back the possession of the property, instructs the mortgagee to transfer the property to some third person, the mortgagee is bound to transfer the property to such third person.
- Right to Inspection and production of documents
Even though the documents relating to the mortgaged property is in the possession of the mortgagee, the mortgagor is entitled to inspect and keep the records of all the documents which are with the mortgagee.
Rights of Mortgagee[5]
- Right to Sue for Mortgage Money
The mortgagee can sue the mortgagor for mortgage money in the following cases-
- In a situation where the property mortgaged is insufficient, or partly destroyed or damaged, and the mortgagor has not provided any further security to the mortgagee.
- Where the mortgagor, through personal covenant takes up the liability to pay the loan amount to the mortgagee.
- In a case where the mortgagee has the right to security but the mortgagor is not able to pay any security.
- When, due to the mistake of the mortgagor, the mortgagee is denied his total or partial right in the mortgaged property.
- Right of Sale
Upon the non-payment of the mortgage amount, the mortgagee is entitled to sell the land by filing a suit and obtaining a decree from the court. Section 69 of the Act[6] also states that the mortgagee can sell the mortgaged property without filing a suit and without taking the permission of the Court subject to conditions provided in the provision.
- Right of Foreclosure
The mortgagee also has the right to bar the mortgagor from claiming the property back by moving to the Court and filing a suit. In a case of a mortgage, the right of foreclosure can be claimed by anomalous mortgage and conditional sale.
- Right to Possession
The mortgagee is legally entitled to take the possession of the property in case the loan amount is not repaid.
- Right to Accession
If any alteration is made to the property by the mortgagor, the mortgagor is entitled to both the property along with the alteration made as security.
Sub-mortgage
A mortgage takes the form of a sub-mortgage when the mortgagee uses the property which is in his possession to take a loan himself. The mortgaged property is considered as the property of the mortgagee till the amount of loan is not paid back. He can, therefore, get an advance by further mortgaging the already mortgaged property. The mortgagee gets all the legal rights which a mortgagee gets in the case of a mortgage. He also has the right to get his loan repaid and can sue for payment. He can also take the mortgaged property as security.
Simple Mortgage
In the case where the property is not delivered to the mortgagee, but still the mortgagor makes himself liable to pay the loan amount, it is known as a simple mortgage.[7]The mortgagor states in an express or implied manner that in case the loan is not repaid, the property can be used to recover the amount of the loan. In the case of a simple mortgage, the mortgagee cannot liquidate the property without seeking permission from the Court. In case of default the mortgagee can-
- Apply to the Court for the sale of the property.
- File a suit for recovery of the money without attaching the property of the mortgagor.
Features of Simple Mortgage-
- No Transfer of Property
In the case of a simple mortgage, the property is not delivered to the mortgagee. The mortgagee can recover his money by obtaining a money decree from the Court.
- Personal Liability
In the case of a simple mortgage, two types of liabilities can arise- liability with regards to mortgaged property. The mortgagee has the option to either attach the mortgaged property to recover the money, or he can also sue the mortgagor personally for repayment. The presence of a personal covenant is essential in case of a simple mortgage.
- Adverse Possession
If a trespasser disposes the mortgagor and takes possession of the property, that property can also be mortgaged. Transferring such a property does not take away the legal rights of the mortgagee. Adverse possession comes into play only when the mortgagee who is entitled to take possession of the property doesn’t take the possession of the property in reasonable time.
Concluding Remarks
In the case of a simple mortgage, the presence of a personal covenant is necessary. The mortgagor takes personal liability for the repayment of the loan, and the mortgaged property acts as security for the mortgage. If the mortgagor is unable to pay the loan, then the mortgaged property may be attached. In such situation, consent of the court is required to liquidate the property.
[1] http://ecourts.gov.in/sites/default/files/TRANSFER%20OF%20PROPERTY%20ACT.pdf
[2] Section 58(b), Transfer of Property Act, 1882
[3] http://www.lawyersclubindia.com/forum/Types-of-Mortgage-8944.asp#.Uyc18c6adFx
[4] sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc
[5] Ibid.
[6] Power of sale when valid
[7] Simple Mortgage is used to notify all mortgage deeds where the debtors binds himself through a personal covenant and gives his property as security to the creditor. Jangi Singh v chander (1908) ILR 30 All 390
