This article is written by Amandeep Kaur, a student of Symbiosis Law School, Pune. The author in this article has discussed the basic concepts of mortgagor and mortgagee and also the rights and liabilities of a mortgagor.

Introduction

Nowadays mortgage is a very commonly used word. Every single person has the knowledge that if he wants a loan to be sanctioned, he has to pay some collateral and for that, he has to mortgage his property with a bank. Mortgagor and mortgagee are the parties who have an important role to play during mortgage of a property. Various statutes available in India deals with a mortgage. Following legislation deal with mortgage:

1. The Transfer of Property Act, 1882– Sections 58-104, which are mentioned in Chapter IV deals with the significant part of mortgage.
2. The Civil Procedure Code, 1908– The procedural part of mortgage of immovable property is dealt in Chapter XXXIV of CPC.
3. Indian Contract Act, 1872– Any contract related to mortgage and its general principles are mentioned in the Indian Contract Act of 1872.

When do rights & liabilities of a mortgagor arise?

The rights and liabilities of a mortgagor arise during a mortgage. A loan may be secured or unsecured. Where a loan is given simply on the basis of debtor’s promise to pay (e.g. on promissory-note), such loans are called as unsecured loans. But, where the creditor takes security from the debtor for the repayment of his money, the loan is known as secured loans. One such way to secure loans is mortgage. Section-58(a) of the Transfer of Property Act, 1882 has defined mortgage as the transfer of an interest in a specific immovable property for securing:

• The payment of money given to him or to be given through loan, or
• An existing or future debt, or
• The performance of an engagement which may give rise to a pecuniary liability. 

Who is a mortgagor?

The person who has transferred the interest in a specific immovable property is known as mortgagor. For instance, A wants a loan from B. Now B wants his amount to be secured which he is going to loan A. A will transfer the interest in a specific immovable property to B and will give him the authority of selling it in case A is not able to repay B’s amount. Here A is the mortgagor.

Who is a mortgagee?

The transferee or person in whose favour the interest is being transferred is known as mortgagee. In the above-given example, the person who is lending money i.e. B is the mortgagee. 

What is mortgage-money?

The principal amount which is given as loan and the interest amount which mortgagor will pay to mortgagee along with the principal amount. Sum of both the principal amount and interest is known as mortgage-money. 

What is a mortgage deed?

It is an instrument by which the transfer of interest in a specific immovable property is affected. It is a kind of agreement which legally binds both the mortgagor and mortgagee. 

Different kinds of mortgage

There are six kinds of mortgage which are recognized under the Transfer of Property Act, 1882. They are discussed in the act from section 58(b)-58(g). Following are the different kinds of mortgage:

1. Simple Mortgage [section-58(b)]
2. Mortgage by conditional sale [section-58(c)]
3. Usufructuary Mortgage [section-58(d)]
4. English Mortgage [section-58(e)]
5. Mortgage by deposit of title deeds [section-58(f)]
6. Anomalous Mortgage [section-58(g)]

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Rights of Mortgagor

Every mortgage-deed leaves a right to the mortgagor and a corresponding liability for mortgagee and vice versa. Following are the rights given to a mortgagor given by the Transfer of Property Act, 1882:

1. Right to redemption
2. Right to transfer mortgaged property to a third party instead of retransferring
3. Right of inspection and production of documents
4. Right to accession
5. Right to improvements
6. Right to a renewed lease
7. Right to grant a lease

Right to Redemption (section-60)

It is one of the most important rights of a mortgagor given under section of the Act. This right puts an end to mortgage by returning the property of mortgagor. The right to redeem further grants three rights to the mortgagor:

1. Right to end mortgage deal
2. Right to transfer mortgaged property to his name
3. To take back possession of property in case of delivery of possession

In the case of Noakes & Co. vs. Rice (1902) AC 24, Rice was a dealer who mortgaged his property, premise and goodwill to N subject to the provision that if R paid back the whole amount, the property would be transferred back to his name or any other person’s. A covenant was attached that stated whether or not the amount is due, R would only sell Malt liquor by N in his premises. Because of this covenant, R had difficulty in redemption and it didn’t give him absolute right over his property. House of Lords held that anything which clogs this right is bad and they came up with the concept that ‘once a mortgage always a mortgage’ and said that mortgage could never be irreducible. 

This principle was added to protect the interest of a mortgagor. Any condition or provision which prevents a mortgagor from redeeming his mortgaged property is a clog on the right of redemption. The right to redemption continues even though the mortgagor fails to repay the loan amount to mortgagee. In the case of Stanley v. Wilde, (1899) 2 Ch 474, it was held that any provision mentioned in the mortgage-deed which has an effect of preventing or impeding the right to redemption is void as a clog on redemption.  

• Exceptions to the right- The right to redeem has three exceptions. It can be extinguished under the following cases:

• By the act of parties

• By operation of law

• By decree passed by the court

Obligation to transfer to the third party instead of transferring it to mortgagor (section-60A)

This right was added in the Act by Amendment Act of 1929. This right provides the mortgagor with authority to ask the mortgagee to assign the mortgage debt and transfer the property to a third person directed by him. The purpose of this right is to help the mortgagor to pay off the mortgagee by taking a loan from a third person on the same security.  

Right to inspection and production of documents (section-60B)

This section is also inserted by the Amendment Act of 1929. It is the right of mortgagor to ask mortgagee for the production of copies of documents of the mortgaged property in his possession for inspection on notice of reasonable time. The expenses incurred on production or copies of documents or travel expenses of a mortgagee are to be paid by the mortgagor. This right is available to the mortgagor only as long as his right to redeem exists. 

Right to Accession (section-63)

Basically, accession means any addition to property. According to this right mortgagor is entitled to such accession to his property which is in the custody of mortgagee. There are two types of accession:

• Artificial accession- It is when mortgagor made some efforts and it increased the value of land. 
• Natural accession- The name itself defines i.e. without any man-made efforts.

In case an accession is made to the property due to the efforts of mortgagee or at his expense and such accession is inseparable, mortgagor, in order to be entitled to such succession, needs to pay the mortgagee the expense of acquiring such accession. 

If such separate possession or enjoyment is not possible, the accession must be delivered with the property; it is the liability of mortgagor, in the case of an acquisition which is necessary to preserve the property from destruction, forfeiture or sale, or made with his assent, to pay the proper cost thereof, as an addition to the principal money, with interest at the same rate as is payable on the principal amount, or, where no such rate is fixed, at the rate of nine percent per annum. 

Right to Improvements (section-63A)

According to this right if the mortgaged property has been improved while it was in possession of mortgagee, then on redemption and in the absence of any contract to the contrary mortgagor is entitled to such improvement. The mortgagor is not liable to pay mortgagee unless:

• Improvements made by the mortgagee were to protect the property or with the prior permission of mortgagor.
• Improvements were made by the mortgagee with the permission of the public authority.   

Right to Renewed Lease (section-64)

If the mortgagor is entitled the mortgaged property is a leasehold property and during the duration of mortgage the lease gets renewed then, on redemption the mortgagor is entitled to have the benefit of the new lease. This right is available to the mortgagor unless he enters into any contract to the contrary with mortgagee.

Right to grant a Lease (section-65A)

This right was introduced by the Amendment Act of 1929. Prior to this right, the Transfer of Property Act did not allow a mortgagor to lease out the mortgaged property on his own but only with the permission of mortgagee. Now, a mortgagor has the right to lease out the mortgaged property while he is in lawful possession of that property, subject to the following conditions:

• All conditions in the lease should be according to the local laws and customs to prevent any fraudulent transaction.
• No rent or premium shall be paid in advance or promised by mortgagee.
• The contract shall not contain any provision for the renewal of the lease.
• Every such lease shall come into effect within a period of six months from the date of its execution. 
• Where the mortgaged property is a building, the term of the lease should not exceed three years in total.

Duties/liabilities of a mortgagor

Along with the rights given to a mortgagor, the Transfer of Property Act has also conferred some duties on him. Following are the duties of a mortgagor:

1. Duty to avoid waste
2. Duty to indemnify for defective title
3. Duty to compensate mortgagee
4. Duty to direct rent of a lease to mortgagee

Duty to avoid waste (section-66)

This section imposes a duty on the mortgagor to not to commit any act which leads to the waste of property or any act which reduces the value of the mortgaged property. Waste is divided into two categories:

• Permissive waste– A mortgagor who is in possession of the mortgaged property is not liable to the mortgagee for any minor waste.
• Active waste– When an act is done which causes major waste of the property or leads to the reduction in the value of mortgaged property, then the mortgagor will be liable to the mortgagee.

Duty to indemnify for defective title

It is the duty of a mortgagor to compensate the mortgagee for a defective title in the mortgaged property. A defective title refers to a situation when a third party starts claiming or interferes with mortgaged property. It is a liability for the mortgagor to compensate for the expenses incurred by mortgagee for protecting the title of that property.

Duty to compensate mortgagee

If the mortgaged property is in possession of mortgagee who is paying all the taxes and other public charges, then it is the duty of mortgagor to compensate mortgagee for incurring such expenses. Similarly, when there is no delivery of possession i.e. the mortgaged property is still in possession of mortgagor, then it is his duty to pay all public charges and taxes levied on it. 

Duty to direct rent of a lease to mortgagee

Where the mortgaged property is leased by mortgagor then it is his duty to direct lessee to pay the rent, etc. to the mortgagee.  

Conclusion

A mortgage-deed comes up with many rights and liabilities for both the parties involved i..e. mortgagor and mortgagee. These rights and liabilities were created and included in the Transfer of Property Act in 1882 which is quite old and therefore is outdated. Though amendments were made in the Amendment Act of 1929, but no recent amendments have been made in the chapter of rights and liabilities of mortgagor. This has lead to various fraudulent transactions as both the mortgagor and mortgagee has found various new methods of deceiving each other. Therefore, the need of the hour is to amend the laws and make it more stringent so that no party attempts to enter in fraudulent transactions.    

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