The term mortgage is defined in the Transfer of Property Act, 1882 as follows:
A mortgage is the transfer of interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, on existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. The person transferring the property is the mortgager; the transferee is the mortgagee. The mortgage is generally created through a mortgage deed. However, there are exceptions as will clear from the following discussion on different kinds of mortgages. These kinds of mortgages are again defined in the Transfer of Property Act, 1882.
1. Simple Mortgage
The mortgage is simple because possession of the mortgaged property is not handed over tothe mortgagee. However, the mortgager accepts personal liability to pay the mortgage money(principal plus interest).
If the mortgager does not pay the dues, the mortgagee has the right to approach court fora decree to sell the mortgage property. This right of the mortgagee may be expressed in the mortgage deed or implied.
As is logical, the mortgagee does not have the right to receive rent or any other proceeds fromthe property. These would belong to the mortgager.
Registration is mandatory if the principal amount secured is Rs100 or above.
2. Mortgage through Conditional Sale
Here, the mortgager “sells” the mortgage property, but subject to conditions:
• The sale becomes absolute only if the mortgager defaults on paying the dues by a
specified date; or
• The sale becomes void if the mortgager pays the dues by the specified dates. In that
case, the mortgagee will transfer the property back to the mortgager.
A legal technicality is that the mortgagee cannot sue to sell the property, but he can sue to forclose the mortgage deed. Once court grants the foreclosure, the mortgager loses the right to claim the property. Thereafter, the mortgagee can sell the property to recover his dues.
In a standard form of such a mortgage, there is no personal liability on the mortgager to paythe dues [he only (presumably) has an interest in paying it, so that he will get the property back]. If he does not pay, and the asset sale does not fully cover the mortgagee’s dues, he cannot claim the balance from the mortgager. Therefore, bankers typically are not comfortable with such a mortgage
3.Usufructuary Mortgage
This is a mortgage where the mortgagee has the right to recover rent and other incomes from the mortgaged property, until the dues are cleared. Thus, repayments come from the property rather than from the mortgager.
The transfer of possession from the mortgager to the mortgagee may be express or implied.Thus, legal possession is more important than physical possession. For example, physical possession may be with a tenant who pays the rent.
As with Conditional Sale, there is no personal obligation on the mortgager to pay. The banker has to keep holding the property for an indeterminate period of time, until the dues are cleared. Therefore, bankers are not comfortable with such mortgages.
4.English Mortgage
In this form of mortgage, the mortgager transfers the property to the mortgagee absolutely.However, the mortgagee will have to re-transfer the mortgaged property to the mortgager, if the dues are paid off.
Since the mortgager assumes personal liability to repay, the mortgagee can sue the mortgagerfor recovery of dues or seek a court decree to sell the property. This gives comfort to the banker.
5.Equitable Mortgage / Mortgage by Deposit of Title Deeds
As is clear from the name, the mortgager merely deposits the title deeds to immoveable property with the mortgagee, with the intention of creating a security.
Such mortgages can only be created in Mumbai, Chennai or Kolkatta. The mortgaged property may be located anywhere, but the mortgage creation has to be in any of these three cities. Benefit of this kind of mortgage is that stamp duty is saved. Further, it is less time consuming to create.
The risk is that a fraudulent mortgager may obtain multiple title deeds, and create multiple mortgages, thus adding to the complexity of the banker when it comes to recovering money.
6.Anomalous Mortgage
A mortgage which does not fall strictly into any of the above mortgages is an anomalous mortgage. For instance, in a usufructuary mortgage, the mortgager may take personal obligation to pay the dues.
The mortgage creation format is one of the key conditions in the sanction letter of the lender/ term sheet that the lender and borrower sign to freeze the terms of their arrangement
