What is Mortgage under Property Law?

Mortgage is the transfer of an interest in some immovable property. Section 58 outlines mortgage as the transfer of an interest in some definite immovable property for the purpose of securing the

1. Payment of money awarded or to be advanced by way of loan
2. An existing future debt or
3. The performance of an engagement which may give rise to a Pecuniary liability.

The person transferring the loan is known as mortgagor and the person advancing the money is known as mortgagee therefore, the interest is given by the mortgagor to the mortgagee. Definition is established in the ruling of Ratan Pal Singh vs Kunwar Pal Singh^[1] – where in it was held that a mere undertaking to create a mortgage is not sufficient to create an interest in any immovable property without transfer of interest there is no mortgage.

It is given by way of security for a loan, in the form of a assignment of some interest in any immovable property. A transfer which is made by way of liquidating debt is not a mortgage where the mortgagor has already advanced money, the mortgage may execute a deed of mortgage as security for its payment. The mortgagors may also execute the mortgage deed before he gets the full amount from the mortgage.

A loan might be either secured or unsecured. Unsecured loans are those that are made solely on the debtor’s promise to pay (for example, on a promissory note). Secured loans, on the other hand, are those in which the creditor takes security from the debtor in exchange for payback of his money. Mortgages are one such strategy to acquire loans.

Essential elements of Mortgage

In Order to establish a mortgage, the following elements must be present in the transaction

1. Transfer of an interest – mortgage debt is not an actionable claim under the transfer of property, but it is only a transfer of an interest in an immovable property. It differs from sale where there is complete transfer of all the interest in the property whereas in mortgage it is transfer of interest minus than ownership.
2. Specific Immovable property – the interest credited by mortgage must be in some specific immovable property and not defined in a general term. The immovable property includes, land, benefits that arise out of things attached to the earth, like trees, buildings, and machinery. Life insurance can’t be the subject matter of the mortgage because it is not a property.
3. Consideration – The consideration may be either money advanced or to be advanced by way of loan, and existing or future debt or the performance of the engagement giving rise to pecuniary liability.

   State of Kerala vs Cochin Chemical Refineries[2]: It has been held by the Supreme Court that a transaction of mortgage does not become in effective merely because the mortgagee couldn’t advance the money on the date of the execution of the deed.

Kinds of Mortgage

Section 58 envisages 6 kinds

1. Simple mortgage
2. By conditional sale
3. Usufructuary mortgage
4. English mortgage
5. Title deeds
6. Analogous mortgage

• Simple Mortgage: In a simple mortgage, the borrower owes the mortgagee a personal obligation to pay back the loan and offers his property as a security that may be liquidated in the event of non-payment.
• By conditional sale: It is a mortgage that has the appearance of a sale with the requirement that, upon loan repayment, ownership of the sold property be returned to its original owner.
• Equitable Mortgage – mortgage by deposit of title deeds is known as equitable mortgage (section 58F). According to this, where deposit of title deeds of an immovable property is sufficient. It is prevalent in towns of Calcutta, Madras, Bombay. It intends by local usage the essential elements or that there must be a depth, there must be a deposit of title deeds and their death must be secured by deposit of title deeds. This type of mortgage does not require registration.
• Usufructuary mortgage: The property is delivered to the mortgagee as security, who is given possession and allowed to pay back the loan from the property’s rent and earnings.
• Title deeds: a document that includes all pertinent information about the loan, such as the parties involved, information on the property used as security, the amount of the loan, the interest rate, and more. Regarding the interest and title in the property, the deed provides a detailed overview.
• Analogous Mortgage – Mortgage which is not a simple, English, equitable, usufructuary and mortgage by conditional sale is called analogue Mortgage (section 58 (g). In this type the mortgagee has the right of foreclosure as well as sale if the agreement permits the same.

Payments

The mortgagor may pay the money to the mortgagee or to his authorised agent, where the mortgagee is a minor the payment or tender must be made to his lawful guardian. In cases of two or more joint mortgagee payment must be made to all of them jointly, where the mortgagee dies the payment must be made to his legal heir. The payment must be made in coins or the currency notes of the country. The parties can also agree to any other means of payment of debt. In accordance with the section 60 the mortgagor has the right to redeem mortgage at any time after the principal money has become due.

The Amendment Act of 1929 amended the Act to include that the mortgagor has the power to use the right to request that the mortgagee transfer the property and mortgage debt to a third party at his direction. This right’s objective is to assist the mortgagor in paying off the mortgagee by obtaining a loan from a third party secured by the same property.

Redemption of Mortgage

Section 60 of the transfer of property act 1882 gives the right of mortgagor to redeem and it states that at any time after the principal money has become due, the mortgagor has a right on payment or tender at a proper time or place of the mortgage money to require the mortgagor to:-

1. Deliver to the mortgagor the mortgage deeds and all documents relating to the mortgage property which are in the possession or power of mortgage.
2. where the mortgage is in possession of the mortgaged property, to deliver possession thereof to the mortgagor and
3. At the cost of the mortgage are either to re-transfer the mortgage property to him or to such third person as he may direct ,or to execute and (in cases where the mortgage has been affected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished provided that the right conferred by this section was not been extinguished by act of parties or by decree of a court.
4. The right conferred by section 60 is called Right to redeem and the mortgagor has this right. Mortgagor’s right to redeem the mortgage property after repayment of loan is right which rest in him by virtue of his residuary ownership in the property.

A mortgagor may exercise his right of redemption in any of the following manners: –

1. Payment or tender of mortgage money – The mortgage money (debt) may be paid directly to the mortgagee/ money tender. The payment can also be made to his authorised agent. The mortgagee can be redeemed after the mortgagor makes payment or tender to make place for payment is usually creditors place, but the parties may agree to any other place also.
2. Deposit of mortgage money in court: the second mode of redemption is deposit of mortgage money in court. Unless the whole mortgage money is deposited in court, the court shall cause or notice to mortgagee that such a deposit has been made.
3. Suit for redemption: if the mortgagor does not want to redeem the mortgage by the above-mentioned methods, the third mode available is to file a suit for redemption in a court of law. The suit must be filed by the mortgagor only after the right of redemption accrues on him, that is, after the payment of principal money has become due. Further the suit must be filed during the subsistence of mortgagor’s right of redemption. The mortgagor’s right of redemption is lost by foreclosure or sale by mortgagee or when it is barred by limitation under The Limitation Act, 1963.

In L. K. Trust V. EDC Ltd^[3], a financial Corp exercised the right to sell the property of defaulting debtor. It also accepted offer of prospective purchaser, but no sale deed had yet been executed. At this stage mortgagor intervened to redeem. The Supreme Court held that his right to redemption was not lost. The limitation for filing a suit for redemption is 30 years from the date on which payment becomes due.

Sunder Kaur vs Shyam Krishan^[4]: The court said that mortgaged property cannot be redeemed by payment of a part of the mortgaged money.

Rights and obligations

A mortgagor’s rights and duties emerge during the mortgage process.

Every mortgage document confers rights on the mortgagor and, conversely, imposes liabilities on the mortgagee. The powers granted to a mortgagor by the Transfer of Property Act, 1882, are as follows:

• Right to redemption
• the ability to give a mortgaged piece of property to a third party rather than retransferring
• Right to request documents for inspection and production
• Right of entry
• Right to Improvement
• Right to lease renewal
  1. Possibility to grant a lease

Right to request documents for inspection and production (section-60B)

The mortgagee has the right to request copies of the documentation for the mortgaged property in his possession for inspection with sufficient advance notice. The mortgagor is responsible for covering any costs incurred by a mortgagee for document preparation, copies, or travel. Only whilst the mortgagor’s right to redeem is active can he exercise this privilege.

The Right to Join (Section-63)

In accordance with this right, the mortgagee has the right to grant the mortgagee access to the property that the mortgagor has mortgaged. Two different types of accession exist:

• Artificial accession occurs when the mortgagor made an effort to raise the land’s worth.
• Natural accession—as the term suggests, without the aid of human endeavour.

It is the obligation of the mortgagor to pay the proper cost of the acquisition as an addition to the principal money, with interest at the same rate as is payable on the principal amount, or, where no such rate is fixed, at the rate of nine p.c., in the case of an acquisition that is necessary to preserve the property from destruction, forfeiture, or sale, or made with his consent.

Right to Improvements (section-63A)

These right states that, upon redemption and in the absence of a contract to the contrary, the mortgagor is entitled to any improvements made to the mortgaged property while it was still in mortgagee’s possession. Mortgagee is not entitled to payment from the mortgagor unless, the mortgagee only made improvements with the mortgagor’s consent or to protect the property or the mortgagee performed improvements with the governmental authority’s approval.

Right to Lease Renewal (section-64)

If the mortgaged property is a leasehold property and the lease is renewed during the term of the mortgage, the mortgagor is entitled to the benefit of the renewed lease upon redemption. The mortgagee has access to this right unless he enters any contract to the contrary with mortgagee.

Possibility to grant a lease (section-65A)

In accordance with the Amendment Act of 1929, while in lawful possession of the mortgaged property, a mortgagor has the following permissions to lease the property out:

• In accordance with local laws and customs.
  • The mortgagee shall not pledge to pay rent or premium in advance.
  • Each of the leases must go into effect within six months of the date of execution.
  • The total length of the lease, if the mortgaged property is a building, should not exceed three years.

Responsibilities and obligations of a mortgagor

A mortgagor has obligations in addition to the rights granted to him by the Transfer of Property Act. The obligations of a mortgagor are as follows:

• duty to reduce waste (section-66)
• duty to compensate for a bad title
• obligation to pay the mortgagee
• obligation to pay rent from a lease to a mortgagee

Doctrine of Marshalling and Contribution under Transfer of Property Act

The doctrines of marshalling and contribution are covered in sections 56, 81, and 82 of the Transfer of Property Act.

Doctrine of Marshalling

The new mortgagee is entitled to have the mortgaged debt satisfied out of the properties not mortgaged to him, to the extent that such will extend, but not to prejudice the rights of the prior mortgagee or persons claiming under him or of any other person who has foreclosed on other properties while the owner of two or more mortgages them to one person and other properties to other people. The privilege granted by this section to the succeeding mortgagee takes into account the case where a mortgagor mortgages more than two or more than two properties firstly to a mortgagee and after that mortgage some of these properties to the other person.

In the case of Devatha Pullaya v. Jaldu Manikyala Rao[5], the puisne mortgagee was prohibited from exercising his power of marshalling since he had acquired the mortgage expressly with the understanding that he would pay off any outstanding debt on the preceding mortgage.

Contribution to Mortgage-Debt (Section 82)

Instructions governing the payment of money toward mortgaged debt are contained in Section 82 of the Transfer of Property Act. A person who has satisfied a shared obligation is entitled to reclaim a proportionate amount from others. According to the contribution doctrine, all parties with shared liabilities must treat such obligations fairly.

[1] S.L.P.(CRIMINAL) NO. 10707 OF 2019

[2] 1968 AIR 1361

[3] CIVIL APPEAL NOS. 4214-4215   OF 2011

[4] Appeal (civil)  4680 of 1993

[5] AIR 1926 AP 425.

Author: Nayeisha Puri (Intern)