Mortgage

1. Transfer of Property Act

Section 58 defines mortgage and associated terms.

Mortgage is defined as the transfer of an interest in a specific
immovable property for the purpose of securing the payment
of money advance or to be advanced by way of loan, for an
existing or future debt, or the performance of an engagement
which may give rise to pecuniary liability.

The “Transferor” is called the mortgagor (ex. individual).

The “Transferee” is called the mortgagee (ex. Bank).

The principal money and interest is the mortgage money.

The instrument by which the mortgage is created is called
mortgage-deed.
In the mortgage deed the mortgagor agree to repay the loan and
when the loan is fully repaid, he has got power to recover his
property from the mortgagee. This is termed as the equity of
redemption.
1. Amount of loan: The amount of the loan which the
mortgagee will advance to the mortgagor will depend on the
capitalized value of the property. Usually 70% to 80% of
such value is advanced while 50%-60% will be a safe limit
for such purpose. It should be seen that net income of the
property is just sufficient to cover up the interest of the loan.
2. Insurance: It is desirable to have an insurance of the property
in the name of both- the mortgagor and mortgage. The
insurance policy is kept with the mortgagee and the
mortgagor is required to pay the premium regularly and to
show the receipts of such payments to the mortgagee.
3. Lease hold property: it is possible to have a mortgage
deed for a leasehold property. But in such cases, care should
be taken to revalue the property periodcialy so as to see that
the amount of the remaining loan does ot exceed the value of
the property.

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4. Period of loan: the period of repayment of loan is generally
more and hence, the property must stand as security for the
loan over a longer period of time. The valuation of the
property is so framed that it serves as a sound lendable basis
accommodating the future benefits and services as well as the
determents and disservices that flow from the ownership of
the property over that period of time for which the loan is
made. Thus, the value for mortgage purpose must reflect in
so far as possible, the risks involved in the secured property
over a long period of time into the future.
5. Remedies to recover the loan: if the mortgagor regularly pays
the installments of the loan and interest on the loan, this
question does not arise. However when the mortgagor fails to
do so, the mortgagee can take the possession of the property
and sell it so as to get the amount of the loan and the interest.
The surplus, is any, is given to the mortgagor. In other cases
the mortgagee may take the possession of the property
himself and after paying the usual outgoings, he may apply
the net income as interest on the remaining loan and then, if
there is any surplus, he may return it to the mortgagor or
credit this amount against the outstanding debt.
6. Subsequent mortgages: A property can be mortgaged more
than once. In such cases, the first registered mortgage deed
will have first claim than the subsequent mortgage deeds.
Hence, the mortgagee of the subsequent mortgages should be
careful in deciding the amount of the loan against the
property.
7. Third party guarantee: normally, the mortgage is more
interested in the recovery of his loan rather than the
possession of the mortgagor’s property. Hence sometimes, a
personal guarantee from a reputable party is included in the
mortgage deed so that in case of emergency the mortgagor
may request such party to repay the loan advanced to the
mortgagor.

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 8. types of mortgage lenders: the institutional lenders include
banks, financial organizations, .I.C, government agencies.,
etc., the non-institutional lenders, semi public institutions
etc.,
9. Valuation: the principles to be applied for the valuation of the
mortgage properties are the same. The net income should be
carefully worked out so as to see that it at least covers the
interest of the loan is granted. Also, the value of the materials
which can be removed by the mortgagor without in the
valuation.
Equitable and legal mortgage: when the money is advanced by
depositing the title deeds of property with the mortgagee as a
security for the repayment of loan and interest, it is known as the
equitable mortgage. In case of failure of repayment of loan by the
mortgagor, the mortgagee will have to move the court of law for
the recovery of debt, if the mortgage though agreed previously. In
addition to the depositing of the title deeds of property a regular
legal deed is sometimes prepared on the requisite amount of stamp
paper for the advancement of loan. This is known as legal
mortgage and it will naturally be quite expensive. When legal
mortgage is executed, the mortgagee can proceed to sell the
property in question as soon as the period of repayment of loan is
over. If the mortgagor, however, wants to extend the period of
repayment of loan he has to move the court of law and obtain the
necessary orders.

Following are the six types of mortgage recognized by the Transfer

of Property Act:
1. Simple mortgage: it consists of a personal obligation to pay
and right of the mortgage to cause the property to be sold in
default of payment. The right of sale of the mortgaged
property however cannot be exercised without the
intervention of the court.

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2. mortgage by conditional sale: in this type of mortgage, there
is no personal convenant to pay. But the following three
alternative conditions are embodied in the deed:
a) that on default of payment , the sale would become
absolute;
b) that on payment, the sale would be void; and
c) that on such payment, the buyer shall transfer the
property to the seller.
3. usructuary mortgage: in this type of mortgage, the mortgagor
delivers possession of the property to the mortgagee and
authorizes him:
a) to retain such possession until payment of the mortgage
money;
b) to release rents and profits from the property and their
appropriation towards interest and/or mortgage money.
There is no personal liability on the mortgagor and there is
also no time limit fixed for that. There can be no sale of
such property to recover the mortgage money.
4. English mortgage: in this type of mortgage, the mortgagor
binds himself to pay the mortgage money on a certain date
and transfers the mortgaged property absolutely to the
mortgagee. If payment is made in the time, there is obligation
on the part of the mortgagee to transfer the property.
5. Mortgage by deposit of title deeds: this type of mortgage is
also known as the equitable mortgage. The mortgagor
deposits the documents of the title of the property with the
mortgagee with an intent to create a security of the mortgage
money. It is not necessary to deposit all the documents of
title to the property or to show that the documents deposited
indicate a good title.
6. Anomalous mortgage: Any mortgage which does not fall
under any of the above five categories is known as an
anomalous mortgage.