Mortgage of Immovable Property
Every creditor wants the money lent by him to be secure so that in case of the borrower’s failure to repay the amount borrowed, he may rely on the security.
Immovable property is a good security. This is not perishable and not subject to wild fluctuation in the market. Creditors particularly banks and financial institutions insist on immovable property either as primary or collateral security.
The method of taking the immovable property to secure the payment of the money lent is Mortgage.
The Transfer of Property Act (Act IV of 1 882) deals with Mortgage. The relevant sections are 58 to 104 of Chapter IV.
Mortgage in simple terms means transfer of the interest in the immovable property to a creditor to secure the payment of money lent.
It is essential that both the parties, the owner of the immovable property and the creditor, are living persons. The living persons include company or association or body of individuals. They may be incorporated or not.
The immovable property, the interest of which is transferred to the creditor, must be specific in description with boundaries. It should be easily identifiable.
The debtor money lent is an important component of mortgage. it is the payment of the debt, which is secured. The debt may be money advanced, or to be advanced, or existing or future debt.
It also covers the performance of an engagement, which may give rise to monetary liability. The purpose of the mortgage is to secure the payment of the money lent or to be lent.
The person who transfers the interest in the immovable property is Mortgagor. Generally, Mortgagor would be borrower who owns the immovable property. But any other person may also transfer the interest in this immovable property to the lender to secure the payment of money by the borrower.
The person to whom the interest in immovable property is transferred is mortgagee who is creditor or lender. The principal money and the interest, the payment of which is secured, is mortgage money. The document executed by the mortgagor transferring the interest in immovable property to the creditor is called Mortgage Deed.
Persons competent to create a Mortgage Any person competent to enter into a contract can create a mortgage. This excludes minors and lunatics. Guardian of a minor on obtaining permission from the Court can create a mortgage. joint owners of property, partners of firm, Karta of Hindu Undivided Family, can create mortgage.
In case of joint owners, all the co-owners, all the partners in case of a partnership firm, and in case of Hindu Undivided Family all the male members, widows of the deceased male members, and daughters who have been conferred property rights by the state, government have to sign the mortgage deed.
Types of Mortgage
1. Simple Mortgage 2. Mortgage by Conditional Sale 3. Usufructuary Mortgage. 4. English Mortgage 5. Mortgage by Deposit of Title Deeds 6. Anomalous Mortgage
Simple Mortgage and Mortgage by deposit of title deeds are popular types, which are discussed here.
Section 58 (b) of the Transfer of Property Act, defines the Simple Mortgage/Registered Mortgage. In this mortgage:
1) There is transfer of interest in the immovable property to the mortgagee to secure the payment of the money lent.
2) There is no delivery of possession of the immovable property to the mortgagee.
3) Mortgagor binds himself personally to pay the mortgage money
4) Mortgagor agrees expressly or impliedly, that in case of his failure to pay the mortgage money as agreed, the mortgagee (creditor )has the right to get the immovable property sold and the sale proceeds adjusted towards the payments secured.
It is to be noticed that the borrower binds him personally fully to repay the amount borrowed. Only in case of his failure to repay the money, the right to recover the mortgaged money arises.
It is very important to note that the act uses the words “cause to be sold”, which means the property can be sold only through intervention of the Court
The deed of simple mortgage requires to be attested by two witnesses. It also needs to be properly stamped. Registration is necessary if the principal amount is Rupees one hundred or more. Only the principal amount is the criteria and not the interest.
The stamp duty payable on simple mortgage is Ad vaiorem that is based on the value. It varies from state to state. Stamp duty payable in Karnataka is 3% on the amount secured with a maximum of Rupees three lakhs. Registration charges are 2% of the amount secured with a maximum of rupees two lakhs.
Certain states including the State of Karnataka have exempted/given concession in stamp duty and registration charges in case of agricultural loans.
The remedies available under simple mortgage are personal decree against the mortgagor and decree for the sale of the mortgaged prop”. The limitation is twelve years from the date when the mortgage money becomes due (Art. A 62 of limitation Act)
Mortgage by Deposit of Title Deeds
This is also known as equitable mortgage. Section 58 Clause (F) defines the mortgage by deposit of title deeds. In this type of mortgage the mortgagor delivers the documents of title to the immovable property to the creditor in notified places with intent to create security thereon.
The essential features of the mortgage by deposit of title deeds:
1. The debt : The money, the payment of which is secured may be an existing debt or a future one. It may also be a performance of engagement, which gives rise to monetary liability.
2. There must be deposit of title deeds: The Mortgagor (the borrower/owner of the immovable property) delivers the documents of title to the mortgagee (creditor). The delivery may be physical or constructive. The documents delivered should be of title to the immovable property. This refers to the documents, which establish and confer the title of the immovable property to the mortgagor.
It is to be noted that copy of a document is not a document of title. But certified copy of an original document is treated as document of title. However as far as possible only original documents should be accepted for deposit. If any original document is reported to be lost, proper enquiries should be made.
Property documents are of two types: Secondary or Supporting documents.
These documents confer title. Sale Deed, Gift Deed, Partition Deed, Exchange Deed, Deed of Grant, lease Deed, Sale Certificate, Share Certificate or Membership Certificate with allotment letter in case of Society with no objection letter, Patta of land, fall in this category.
Secondary / Supporting Documents : These documents do not confer any title, but only support the title conferred by the primary documents. Khatha Certificate, Tax Paid receipts, Encumbrance Certificate, Revenue Records and Village Records, Allotment letters, Tax Paid Receipts, Possession Certificates, Tax Assessment Order etc., fall in the category of Secondary/Supporting Documents.
Deposit of Documents
Documents must, be deposited/delivered in notified centres.. The Transfer of Property Act mentions the cities of Kolkotta, Chennai and Mumbai as notified centres. In addition, state government may notify other places as notified centres for deposit of title deeds. At present most of the places up to the level of Taluka centres are notified centres. This restriction applies only to the places where the documents are to be deposited, but not to the place where the immovable property is situated. Documents of the property located in Mangalore may be deposited in Bangalore. Documents of the property situated in non- notified places may be delivered in notified places.
Deposit must be with the intention that the title deeds shall be security for the debt. The intention is very important here.
Documents delivered for safe custody to obtain legal opinion will not establish such intention. As such a forwarding letter stating that the documents are delivered with the intention to create a security for the debt is to be obtained from the mortgagor. Care should be taken not to mention the amount of debt, and the rate of interest in the letter. Such letter should be obtained subsequent to the date of depositing the title deeds and dated accordingly. These measures obviate the implications of Stamp Duty.
Deposit of title must be by a Mortgagor or his agent with the Mortgagee or his agent.
This type of mortgage, is treated at par with other legal mortgages and shall have priority over the mortgages subsequently created, and even registered. This mortgage will be in force so long as title deeds deposited are in possession of the mortgagee. if the mortgagee parts with the possession of the title deeds, the mortgage is extinguished.