Law of Mortgages
Definition of mortgage; A mortgage is the transfer of an interest in specific immovable property as security for repayment of a loan advanced or to be advanced or the performance of an engagement which may give rise to a pecuniary liability.
Effect of mortgage: In the case of a simple money debt (e.g., debt on a promissory note), the lender can obtain a decree which can be executed against any property of the debtor. If the debtor alienates his property or becomes an insolvent, the creditor's rights are prejudiced. In the first case there may be no assets against which he can proceed and-4n the latter he
may have to be satisfied with the dividend paid to him by the official receiver. To safeguard his position a lender insists upon security. A mortgage is a form of security. The property mortgaged is earmarked for the creditor. There is a remedy against the property as distinguished from the personal remedy. This protects the interests of the creditor.
Kinds of mortgage
1. Simple mortgage:
This is non-possessory. The mortgagor transfers to the mortgagee the right to bring the property to sale through court for realizing the debt. This is the remedy of judicial sale. There is also a personal covenant by the mortgagor. So if the property proves insufficient, the creditor can proceed against the mortgagor personally. The. personal decree
can be executed against other property of the mortgagor. Both remedies can no doubt be pursued concurrently. But the court will stay the suit on the personal covenant until the mortgagor has exhausted his remedy against the property. So usually a petition for passing a personal decree is filed in execution after the mortgage decree for sale of the mortgaged property has been executed and it is found that the decretal dues are not satisfied. A simple mortgage can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. The period of limitation for a suit on the personal covenant is six years and for a suit for sale of mortgaged property is twelve years from the date when the money falls due.
A charge arises when property without being transferred is made security for the payment of money to another. The remedy of a charge- holder is the remedy of judicial sale. There is no personal covenant. A charge, unlike a mortgage, can arise even by operation of law, e.g., vendor's charge for unpaid purchase money. A charge is not binding on transferees
for value without notice of the charge. An exception to this is the vendee's charge for earnest money and for prepaid sale consideration.
2. Mortgage by conditional sale:
In this the property is ostensibly sold to the mortgagee. To this ostensible sale one or other of the
following conditions is attached:
(1) If the money borrowed is not paid on a certain date the sale shall become absolute.
(2) If such payment is made the sale shall become void.
(3) If such payment is made the property should be re-transferred.
In mortgages effected on or after 1 April, 1930 the condition mentioned above should be incorporated in the deed of ostensible sale itself. If it is in a separate document, though contemporaneous with the ostensible sale, the transfer cannot be regarded as a mortgage.
This type of mortgage should be distinguished from a real sale with a condition for re-transfer. If it is only a mortgage the date fixed for payment is not of the essence of the transaction. Payment may be made and a re- transfer obtained even after the due date. If, on the other hand, it is a real
sale, the condition as to payment on a certain date would be strictly enforced. If the amount is not repaid as agreed, the seller cannot obtain a re transfer. Whether it is an ostensible sale or a real sale will depend upon the intention of the parties. The usual way of ascertaining this intention is to consider the market value of the property on the date of the transaction. If
the market value was approximately equal to the amount advanced, it is probably a real sale. If it is very much more than what is advanced, it is probably a mortgage and not a sale.
The remedy of the mortgagee by conditional sale is foreclosure. Foreclosure is an order by court to the effect that the mortgagor shall be debarred from redeeming the property. This remedy can be pursued within twelve years from the mortgage money becoming due. Without a foreclosure order the mortgagee cannot become the owner of the property. The
condition in the mortgage that the ostensible sale would operate as an absolute sale if there is default in payment enables the mortgagee to seek a foreclosure order from the court and cannot make him the owner of the property straightway without such an order. Before passing a foreclosure order the court gives time to the mortgagor to redeem. A preliminary decree is first made giving six months time. The time may be extended by the order of the court. When the money is not paid as directed by the court a final foreclosure decree is passed. This makes the mortgagee the owner of the property.
3. Usufructuary mortgage:
This is a possessory mortgage. Possession is delivered to the mortgagee. The mortgagee can retain such possession until payment of the mortgage-money. He can receive the income from the property. The agreement of the parties may provide that the income should be appropriated in lieu of interest or in payment of the mortgage-money or partly in lieu of interest and partly in payment of the mortgage-money. If the agreement is that the income should be taken by the mortgagee in lieu of interest and defined portions of the principal, the mortgagee need notrender any account of the receipts from the property. In all other cases he has to maintain an account of the income and expenditure. He cannot get rid of this liability even by a contract with the mortgagor. A mortgagee in possession has to manage the property like a prudent owner, collecting the rents, etc. He should restore possession to the mortgagor when he has recouped his mortgage-money from the net income according to the
agreement between the parties.
When the agreement is that only a part of the mortgage-money is to be recovered from the income, the mortgagee usually fixes a date for payment of the balance by the mortgagor. The mortgagor on or after that date should pay the balance or deposit it in court and then the mortgagee would be liable to restore possession to the mortgagor. If the mortgagee does not
do so, from that date he will be treated as a trespasser and will be liable to be evicted and has also to account for mense profits, i.e., income which he could have received, even if he had not actually received it. The usufructuary mortgagor need not go to court for he is in possession of the property and can set off the net income against his dues. Where the mortgagor fails to deliver possession of the property, then the mortgagee has the remedy of suing for possession. Further, the mortgagee in such a case can immediately sue for the mortgage money. Though there is no personal covenant, the mortgagor becomes personally liable if he fails to deliver possession to the mortgagee. This liability arises also when the
mortgagor or some one claiming by a superior title dispossesses the mortgagee.
4. English mortgage:
In this the mortgagor transfers the mortgaged property absolutely to the mortgagee. He binds himself to repay the mortgage-money on a certain date. Upon such payment, it is provided that the property is to be transferred to the mortgagor. In the English mortgage there is a personal covenant. The English mortgagee is entitled to the possession of the property. Since possession brings with it liability to strict accounting, usually the mortgagor is allowed to remain in possession. The remedy of the English mortgagee is to bring the property to sale. He has also the remedy on the personal covenant which enables him to proceed against other property of the mortgagor not mortgaged to him. Further, he can bring the property to sale without the intervention of the court provided neither the mortgager nor the mortgagee is a Hindu, Muslim or Buddhist.
5. Mortgage by deposit of title deeds:
When a person delivers to a creditor or his agent documents of title relating to immovable property with intent to create a security, a mortgage by deposit of title deeds takes place.
This avoids publicity. The transaction can be oral. In this mortgage the documents of title should be delivered in certain specified towns, viz., Calcutta, Madras, Bombay or any other town notified for that purpose by the state government concerned in the official gazette. Towns of commercial importance like Kanpur, Allahabad, Coimbatore, Madurai, Ahmedabad, Agra, Guntur, etc., have been notified. Mere delivery of title deeds with intent to create a security is sufficient. Usually, however, a memorandum is taken so that the mortgagor may not afterwards contend that he delivered the documents for some other purpose. Such a memorandum merely stating the fact of deposit as security does not require registration. If, however, it contains the terms of the mortgage transaction, if requires registration. The remedy of the mortgagee by deposit of title deeds is the remedy of judicial sale.
6. Anomalous mortgages:
These are usually combinations of the types of mortgages above mentioned. The rights and remedies of the parties depend upon the terms of the transaction.