Section 58(a) of the Transfer of Property act 1882 said,
“A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.”
As per the provision of the Act, the Essential ingredients of a mortgage are:
- There should be a transfer of interest on the immovable property, merely to secure the due payment of debt for a specific time. And the rights and obligations can differ based on different forms of mortgage.
- The “mortgage deed” is another essential instrument through which the mortgage has been done and also certain rights and obligations are incorporated in such deeds.
It is important to note that any mortgage upwards of Rupees 100 requires its deed to be signed by the mortgagor and attested by two witnesses (Section 59)
An instrument that contains various terms and conditions about the mortgaged property and the loan amount with interest rate.
The REGISTRATION process is also one of the essential formalities for the validation of the document. For that the signs of the mortgagor, mortgagee and witness with the attestation and stamp duties- without this, the document will not be valid.
However, there is the type of mortgage known as equitable mortgage the registration that is not mandatorily required to be registered. As per section 54 of the transfer of property act 1882, the sale of immovable property, the value of which is Rs. 100 or more must be registered.
In 2021 Andhra high court in the case of Ravipudi Lakshminarayana v. Parvathareddy Sreedhar Anand (2021), held that any immovable property of value more than Rs 100 is to be compulsorily registered. Also, it was highlighted that in order to fulfil the mandate of Section 54, the document is to be registered under Section 17(1) of the Registration Act, 1908.
In Subramaniyan (Died) v. Venkatachalam Pillai (2011), case Madras High Court held that the sale price of the transferred property exceeded Rs. 100, and the document was not registered it was just an oral sale, and no mandate under Section 54 was followed, thus, the Court held it to be an invalid sale.
The Rajasthan High court affirmed in Shesh Mal And Ors. v. Harak Chand And Ors. (1982), that while taking into consideration Section 54 of the Transfer of Property Act, 1882, must be read with Section 49 of the Registration Act, where the unregistered document cannot be used as evidence.
Required documents for the valid mortgaged deed
Clauses under the deeds:
- Parties i.e., the mortgagor and the mortgagee of the deed must be agreed to transfer the interest of immovable property against the loan amount with interest rate.
- Description of the property like location, market value, material description and other required information is necessary and must also be mentioned in the deed
- The Covenant for Repayment clause specifies the modes, conditions, consideration and tenure of the mortgaged money.
- Recital that contains the preamble of the deed which explains the main purpose and characteristics of the deed.
- Habendum contains the rights and restrictions of the mortgagor and the mortgagee on the mortgaged property.
This clause is considered most important as all the duties, rights, terms and conditions completely depend upon the type of the deed made.
- Simple mortgage is where the mortgagor agrees to be personally liable to pay the mortgage money and agrees to sale the mortgaged property in case of failure of repayment of mortgage money with specified interest.
- Mortgage by deposit of title-deeds is also known as an equitable mortgage. This provision is applicable to the notified town by the government in its official gazette, where the person delivers the document of his property to the creditor or his agent with the intention to create security.
- Mortgage by conditional sale is Where the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage money on a certain date the sale shall become absolute.
- Usufructuary mortgage is where the mortgagor gives ownership and authorizes the mortgagee to keep it until the loan is paid and the mortgagor will receive revenues and rents based on the loan’s principal and interest components. In this case, the mortgagor is not personally liable.
- English mortgage Where the mortgagee has the absolute right to sell the property in case of default of the mortgage amount, here the specific date becomes important for a valid English mortgage.
- Anomalous mortgage is the combination of two or more primary types of mortgage mentioned above. In this type of mortgage, the rights of the parties are governed by some conditions. Such as a mortgage usufructuary with a conditional sale called an Anomalous mortgage.
Possession of the mortgaged property
this clause sometimes seems very controversial as it completely depends upon the type of the deed is made and in case of defaults it becomes a matter of question.
In the case of Hathika v Puthiya Purayil Padmanathan a mortgagor handed over the property to the mortgagee against a certain amount and agreed to repay within 6 months, in case of default the mortgagee had the right to sell the property and realize the amount. Though the document described it as a usufructuary mortgage the court held it to be an anomalous mortgage as it had characteristics of a simple mortgage as well as a Usufructuary mortgage.
In the case of Narayan v Venkatarama the court held that the English mortgage has three essential ingredients, the mortgagor is personally bound to repay the money, two the mortgaged property is to be transferred absolutely to the mortgagee and the three is to retransfer the property to the mortgagor once the amount is settled.
In both cases, the possession was with the mortgagee and in case of any default from the mortgagor’s end the mortgagee has the right to sell it, hence in some cases mentioning possession of the mortgaged property indeed becomes a very crucial part of both parties.
Mortgage rate is the rate of interest charged on mortgaged money. The rate is determined by the lender and it can either be fixed or fluctuating.
There are some indicators which can help to determine the mortgage rate and also affect the mortgage rate fluctuations.
- Though Inflation does not directly affect the mortgage rate, its effect is very much important. As inflation affects the consumer’s purchasing power, parity demand and supply policy applies here.
- A longer mortgage term would lessen the burden of paying the principal amount but as the term increases the rate of interest being charged on the basis of the term decided by the parties would definitely increase.
- The location of the property is important for the lender who can estimate the returns against his investment. Basically, the mortgagee here needs to be sure that the mortgagor will be able to pay the dues and in case of defaults the mortgaged property will be able to compensate his amount. so, the location of the property becomes an important part. for example: If the mortgaged property is land rather than a building its value is definitely higher.
- The price of the property and mortgage rate are inversely affecting each other. A high price of property discourages people from purchasing any other property or less involvement in borrowing money will impact the interest rate.
- There are two types of loans: (a) Conventional loans which are offered by private lenders like banks or credit unions and have no backing from the government. This can be for a short-term or a long-term loan, which can be 8 to 30 years of the repayment term. (b) Regular loans are offered by the government so they have government backing and are also considered the most secured loan type. This can be for a fixed or adjustable rate of mortgage and 15 to 30 years for repayment term can be decided.
- The Reserve bank is an institution which implements the monetary policy that ultimately impacts mortgage rates. When the money flow fluctuates in the market the demands also get fluctuated, that automatically impacts the price fluctuations in such cases reserve banks control the money flow through their monetary policies.
- A down payment is an initial payment to the lender before going into any agreement. It is important as it assures the lender and minimises the level of risk if the mortgagor is having some stake of money in hands. Simultaneously, when a down payment is not made or is less than 20% the total cost to borrow will likely be greater since you’ll need to make the additional monthly mortgage rate. That’s why it’s important to look at your total cost to borrow, rather than just the interest rate. the larger the down payment lowers the interest rate.
- The bond market and mortgage rates have an inverse relationship with one another. That means that when bonds are more expensive, mortgage rates are lower and it happens vis-a-vis.
- Credit Score predicts the credit behaviour of the person how the loan is going to be paid on time, and how previously paid the due amounts. Credit scores generally range from 300 (the lowest) to 850 (the highest). This can be calculated on the basis of the amount owed and the credit available, the number and type of account, and dues paid on time.
- Housing market condition: the real estate market completely depends on the demand for property where people buy and sell property and middlemen make money by taking brokerage and financial institution makes money by lending money and taking interest in it.
Rights of Redemption
This clause expresses how and when the mortgagor can get its mortgaged property back. It can be said as the fundamental right of the mortgagor to get its property back after paying the due amount and it’s the duty of the mortgagee to return it back.
Many a time the tenure is not decided by the parties in the deed in such cases it becomes controversial, such as:
In Ram kishan & ors Vs. Sheo Ram & Ors, 2014, 9 SCC 185 supreme court held that there is no limitation period in the case of a usufructuary mortgage. “Once a mortgage always a mortgage” principle was applied.
The maxim ‘once a mortgage always a mortgage’ explains that the true nature of the mortgage can never be changed. The mortgage and the right of redemption are inseparable and will always remain in the mortgage deed. Any clause of condition in the mortgage deed by the mortgagee that put absolute restraint on the mortgagor’s right to redemption is void. (section 60)
section 91 of the transfer of property act 1882, empowers
(i) any person other than the mortgagee who has the interest;
(ii) any surety of payment of the due amount;
(iii) any creditor of the mortgagor who has obtained a decree for the sale of the mortgaged property
In the most recent case M/s Mahalaxmi Textile vs. Syndicate Bank Surat-2022 Taxscan (HC) 561, the Gujarat High Court has held that once the bank agrees to sell a mortgaged property in default of the due amount and a third party pays full consideration through a sale agreement, then the Bank can’t refuse to release NOC and title deed.
Mortgaging is an act of pledging by giving the immovable property to the mortgagee to pay all the dues by the mortgagor. A mortgage deed is the most important element in the whole process of a mortgage as it not only decided the amount of interest or the terms but also the legalities and all the rights, the remedies to the parties and so on, incase if any forge happens with either of the party this deed protect their rights, so all the clauses and the forms of mortgage upon which the parties are going to act upon is very much crucial and that should be decided wisely. With all the formalities of the creation of mortgage deeds, it is important not to forget the registration process without which it is not legally valid and no remedies can be provided by the court of justice.