(This post explains the essence of Mortgage of properties and several forms of mortgage of immovable properties in India viz. Equitable Mortgage, Simple Mortgage, English mortgage, Mortgage by conditional Sale, Usufructuary Mortgage, and Anomalous Mortgage which are major types of mortgage systems currently existent in India.)
The essence of Mortgage of properties:
The transfer of an interest in a specific immovable property to secure the money advanced or to be advanced or performing a promise which may give rise to the financial liability is called mortgage of immovable property.The mortgage of immovable property can be recognized only when following motives are established.
- Transfer of interest in the immovable property (like land, building, plant, and machinery).
- The immovable property should be specific (For example, if the mortgagor states that “all of my property” in the mortgage deed then it is not a mortgage)
- The consideration for the mortgage is to secure the payment of loan existing or future debt or performance of an obligation which results in financial liability.
Parties to the mortgage:
The following are the parties to the mortgage of immovable property.
- Mortgagor (borrower or guarantor who is the owner of the property to be mortgaged).
- Mortgagee (The lender/Banker)
- Registrar of Assurance ( Where registration of mortgage or registration of memorandum of mortgage takes place)
- Registrar of companies (In the case of Limited companies, for registration of charges).
The following are the different form of mortgages existent in India;Equitable Mortgage: A mortgage by deposit of ‘title deeds’ is called equitable mortgage. The Equitable mortgage is the most common form of mortgage in India. Section 58(f) of transfer of Property act 1882 defines a mortgage by deposit of title deeds as under;
“Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor, or his agent, documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds”.
Major ingredients of Equitable Mortgage:
The major ingredient to form a valid equitable mortgage is (i) There shall be a debt, may be existing or future or partly existing and partly future. (ii) Deposit of title deed should be made in notified centers only and not in all the places. (iii) All the Owners of the property or their agents (insist for Registered Power of Attorney, in case POA is authorized to create mortgage). The delivery of title deed should be only to the Creditor or his agent. (e.g.: delivery to the wife of the creditor or to an attorney does not create a valid mortgage) (iv) all those title deeds deposited with the creditor should be a material evidence of title (v) The deposit of title deed is made with an intent to create a security thereon.
The procedure of creating ‘Equitable mortgage’:
In ‘Equitable mortgage’, the owner of the property calls at the Bank in a notified town and deliver the title deeds of his property to the Branch Manager or to an Authorized Official of the bank, with an intent to create charge on the property for the purpose of securing a loan existing or future or performance of an obligation which results in financial liability. The bank official makes a noting in their title deed register (security register) which is also called Memorandum of Oral Assent. The noting contains the narration with full detail of owner of the property, property details, and title deed documents details, the amount of limit sanctioned. The oral expression of the mortgager about his intention to create the mortgage for the purpose stated therein is also will be recorded. Below the noting the Branch Manager and Bank Official would sign. Signature of the borrower shall not be taken on security register. The title deeds so deposited by the mortgager will remain in the custody of the bank till the financial liability of the borrower is fully settled. In earlier days, no stamp duty was levied on the equitable mortgage. Now stamp duty is payable in almost all the states for the equitable mortgage. The registration of equitable mortgage is not compulsory. Banks, therefore normally advise their customers for registration of the memorandum of the mortgage so that the encumbrance on the property offered as security will be appearing in the property records of ROA at the lesser cost of stamp duty.
Simple Mortgage: Simple mortgage is created through a registered deed and hence it is also called registered mortgage. Simple mortgage is preferred over equitable mortgages in exceptional cases such as :(i) where the original title deeds are not available OR (ii) the party has already created a mortgage and a second mortgage has to be created in favour of the Bank. In simple mortgage, no delivery of possession of assets is required. The mortgagor binds himself, personally responsible for the satisfaction of dues to the creditor. The mortgagor also agrees to lender’s right to dispose-off the mortgaged property for the purpose of settlement of financial liability of the borrower in case of defaults.
Mortgage by conditional Sale: In mortgage by conditional Sale, the mortgagor sells the property to the mortgagee (Creditor) with a condition that on default, the sale of property shall become absolute and on full settlement of dues the sale shall be void and the creditor (buyer) shall transfer back the property to the mortgagor.
Usufructuary Mortgage: In Usufructuary mortgage, possession of the property is delivered to the mortgagee, with a condition that mortgagor is entitled to repossession of the property on payment of dues, or, debt is satisfied by rents and or profit received by the mortgagee (Creditor). The mortgagee will be in full enjoyment of the property till he receives the full and final settlement of dues. However, the mortgagee cannot sue mortgagor for foreclosure or for the sale of the property.
English Mortgage: In English Mortgage, the mortgage will be registered. It is a transfer of property to the mortgagee for debt or a promise to be performed. The mortgagee shall re-transfer the property to mortgagor upon payment of dues or discharge of promise.
Anomalous Mortgage: The mortgage which cannot be classified under any of the above mortgages or it is a combination of two or more of the above mortgages, then such mortgage is called Anomalous mortgage.
Sub-Mortgage: When a mortgagee mortgages the property mortgaged to him to another person as a security, then it is called sub-mortgage.
Second-Mortgage: Where mortgager needs further loan against security of the immovable property already mortgaged, he creates another mortgage on the same property then it is called the second mortgage. The second mortgage can be made to same in favour of the existing mortgagee or any other person.
Records maintained by CERSAI to help searching frauds in respect of security offered to the banks:
The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the SARFAESI Act, 2002.The records maintained by the Central Registry (CERSAI) will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as the fraudulent sale of property without disclosing the security interest over such property.
The transactions relating to mortgage by deposit of title deeds to secure any loan or advance granted by banks and financial institutions are to be registered in the Central Registry. It may be noted that under the provisions of Section 23 of the SARFAESI Act, 2002 particulars of any charge creating the security interest over property is required to be filed with the registry within 30 days from the date of creation.