PROPERTY MORTGAGE - TYPES, PENALTIES, PAYMENTS AND INTEREST

RATES

DESCRIPTION

In the field of law, a mortgage is a contract where one person, called the mortgagor, borrows
money from another person, known as the mortgagee, to buy real estate. The loan is secured
by using the bought property as collateral, creating a legally enforceable obligation.
Mortgages, as defined by the Transfer of Property Act, 1882, are categorised into many
classes. Each classification outlines certain rights and responsibilities that the parties involved
must adhere to. The categories include many types of mortgages, such as simple mortgage,
conditional sale mortgage, usufructuary mortgage, English mortgage, equitable mortgage,
and anomalous mortgage. Each kind has distinct characteristics that determine how
ownership is governed, how repayment is made, and what actions may be taken in case of
failure. The complex legal structure that governs mortgages plays a crucial role in property
purchase transactions, preserving the integrity of contracts and protecting the rights of both
the person borrowing the money (mortgagor) and the person lending the money (mortgagee).

WHAT IS A MORTGAGE?

A mortgage is a financial agreement in which a person borrows money from a lender to

purchase a property, with the property itself serving as collateral for the loan.

A mortgage is a kind of collateral provided by a borrower, who is the debtor (mortgagor), to

guarantee repayment of a loan to the lender, who is the creditor (mortgagee). The purpose of
a mortgage is to provide collateral for the loan or any other obligation. It refers to the
conveyance of a restricted ownership right in real estate.

Mortgage is defined under Section 58 of the Transfer of Property Act and Section 2(17) of the
Indian Stamp Act.

As per Section 58 of the Transfer of Property Act, 1882, a mortgage is a legal document that
allows one person to transfer or create a right over a specified property in order to secure
money that has been or will be advanced as a loan or to fulfil an existing or future debt or
obligation.

MORTGAGE CLASSIFICATIONS AND REMEDIES

1. SIMPLE MORTGAGE [SECTION 58(B), THE TRANSFER OF PROPERTY ACT, 1882]

A simple mortgage is a type of mortgage where the mortgagor agrees to personally pay
the mortgage money without giving possession of the mortgaged property. The mortgagor
also agrees, either explicitly or implicitly, that if they fail to make the payments as agreed,
the mortgagee has the right to sell the mortgaged property and use the proceeds to pay off
the mortgage debt. The mortgagee in this type of transaction is referred to as a simple
mortgagee.

Elements:

 Personal liability of the mortgagor : The mortgagor, or borrower, is obligated to

personally return the debt, which might be either mentioned or implied by the loan
agreement's provisions.
 Non-receipt of Possession: Under a basic mortgage arrangement, the borrower, also
known as the mortgagor, maintains ownership and management of the property. The
lender, referred to as the mortgagee, has a limited security interest that is restricted
only to the mortgaged property. This security interest does not include any rights to
collect rentals or profits from the property, as outlined in Section 68.
 Right to Sell the Property: If the borrower (mortgagor) fails to make the required
payment, the lender (mortgagee) has the authority to sell the property, pending
permission from the court. This legislative mandate guarantees a fair and equitable
procedure. The funds obtained from the sale are first used to repay the loan and any
accrued interest. Any remaining amount is then given back to the borrower.
 Enrolment: For a simple mortgage to be legally legitimate, it must be documented and
registered in accordance with Section 59. This criterion is applicable without
exception, even in cases where the secured sum is less than 100 rupees.

Remedies available to the mortgage lender:

If the borrower does not reach the payback date, the lender has two options available to
them. The lender has the option to commence legal proceedings against the borrower to
 recover the debt, leading to a clear-cut monetary judgement. Alternatively, the lender has
the option to request the court's approval to sell the property that was used as collateral in
order to reclaim the remaining balance. Both proceedings must be commenced within a
rigid 12-year period from the date the loan was first granted in order to maintain these
legal rights.

2. CONDITIONAL SALE MORTGAGE [SECTION 58(C), THE TRANSFER OF PROPERTY

ACT, 1882]

Section 58, clause (c) states: A mortgage by conditional sale refers to a situation where
the mortgagor appears to sell the mortgaged property, but with the condition that if the
mortgage money is not paid by a specific date, the sale will become final. Alternatively, if
the payment is made, the sale will be void, or the buyer will transfer the property back to
the seller. The party holding the mortgage in this case is known as a mortgagee by
conditional sale. It is important to note that for a transaction to be considered a mortgage
by conditional sale, the condition must be clearly stated in the document that affects or
claims to affect the sale.

Fundamental Components:
 The Muslims established the notion of a mortgage by conditional sale, also known as
'bye-bil-wafa' in Islam, in response to the restriction in their faith of charging interest
on borrowed money. This mortgage allowed them to both repay their principle
amount and interest, while also maintaining a clean conscience.
 The inclusion of the condition in clause (c) of Section 58, as established by Section 19
of the Transfer of Property (Amendment) Act, 1929, was a notable change. This
provision stipulates that a transaction cannot be considered a mortgage unless the
need for repurchasing is clearly stated in the instrument that affects or claims to affect
the sale.
 This amendment states that in order for a transaction to be classified as a mortgage by
conditional sale, rather than an outright sale, the need for repurchase must be clearly
stated in the same instrument that is used to carry out the sale. It is important to note
that this change does not apply retroactively. After this condition is stated, it is
important to include the buyback provision in the original sale deed, rather than
 dividing it between two papers (one being the sale deed and the other having
requirements for reconveyance), even if they are completed at the same time.
 The purpose of the parties plays a crucial role in establishing the character of the
transaction. Documents that describe the terms for transferring property back to the
original owner should not falsely claim to be mortgages. If someone argues otherwise,
they must provide proof to the court, as shown in the case of Pandit Chunchun Jha v.
Sheikh Ebadat.
 Under the conditions of a mortgage by conditional sale, the individual who borrows
the money (mortgagor) is not personally responsible for repaying the obligation. As a
result, the lender is prohibited from including any other properties owned by the
borrower in this transaction, going against the established premise of "No Debt, No
Mortgage."
 Furthermore, the Privy Council emphasised the unique characteristic of absolute
ownership in the Thumbuswamy v. Hossain Rowthen case. This highlights that if a
condition is violated, the sale deed will be carried out, converting the transaction into
a complete sale with no further responsibilities between the parties.

Remedies available to the mortgage lender:

This mortgage arrangement involves the mortgagee not having actual possession of the
property. Instead, they get a limited ownership, which may possibly become full
ownership if the mortgagor fails to meet their obligations. The mortgagee's recourse
resides in foreclosure, rather than sale, which may only be obtained by a court decision.
The lender has the authority to commence a foreclosure order in accordance with Section
67 of the Transfer of Property Act, Rules 2 and 3 of Order 34, Civil Procedure Code,
alone when the borrower neglects to make punctual payments, leading to the completion
of the sale.

3. USUFRUCTUARY MORTGAGE, [SECTION 58(D), THE TRANSFER OF PROPERTY ACT,

1882]

Usufructuary Mortgage, as defined in Section 58(d), refers to a kind of mortgage where

the borrower retains possession and use of the mortgaged property but the lender has the
right to receive the income or profits generated by the property.
Section 58, clause (d), provides a clear definition of a usufructuary mortgage, which
occurs when the person who borrows the money (mortgagor) gives or promises to give
the person who lends the money (mortgagee) control of the property. The mortgagee is
granted the authority to maintain possession until the mortgage debt is fully settled,
collect rental income and other earnings, and allocate them towards interest payments or
mortgage repayment.

Fundamental Components:

 Possession Delivery: The mortgagor provides or promises to provide possession to the

mortgagee as collateral. Physical delivery is not required when the deed is executed;
an inferred commitment is sufficient.
 Income from Rent and Profits: The mortgage holder has the right to obtain rental
income and financial gains until the loan is fully repaid. Appropriation may occur in
place of interest, principal, or both, depending upon the specific conditions of the
mortgage.
 Zero personal accountability: The mortgagor is not personally liable for the
repayment of the mortgage. The mortgagee uses rental income and profits from the
property for repayment, without any specified time restriction for the length of the
mortgage.
 Remedies available to the mortgagee: If the mortgage holder does not get possession,
they have the right to initiate legal action to regain ownership or reclaim the funds
that were provided. If possession is granted, the mortgagee maintains ownership of
the property until all obligations are fully paid off.
 The usufructuary mortgagee does not have the option to foreclose or sell the property,
but they may reimburse themselves using the revenues from the property.

Usufructuary mortgagor's entitlements

Section 62 confers to the usufructuary mortgagor the right to regain ownership in the
following circumstances:The mortgagee has the authority to receive payment from the
income generated by the property, and the mortgage debt has been settled.

The mortgagee has the authority to use the rents and profits to fulfil the agreed-upon
payment conditions. Once the specified payment period ends, the mortgagor must either
make the payment or deposit the mortgage money in court.
4. ENGLISH MORTGAGE, [SECTION 58(E), THE TRANSFER OF PROPERTY ACT, 1882]

An English mortgage refers to a situation where the borrower agrees to repay the loan by
a specific date and transfers ownership of the property to the lender. However, there is a
condition that the lender will transfer the property back to the borrower upon full
repayment of the loan, as agreed.

In an English mortgage, the mortgagor has personal responsibility to repay the mortgage
obligation by the agreed-upon date, which is a crucial aspect of the mortgage
arrangement.

Fundamental Components:

 Solution for Default: In the event of the mortgagor's failure to meet their obligations,
the mortgagee has the option to sell the property that is serving as collateral in order
to recoup the remaining debt.
 Type of Property Transfer: Although the property is transferred without any
conditions, there are mechanisms in place for the property to be handed back if the
person who borrowed money to buy the property repays the loan. This establishes a
legal right for the borrower to reclaim ownership of the property.
 There are two possible scenarios when it comes to repayment:
Upon the mortgagor's prompt repayment, the property, which was previously
transferred without any conditions, is returned to the mortgagor.
In the event that the person who borrowed the money to buy the property (the
mortgagor) fails to return the loan according to the agreed-upon terms, the lender (the
mortgagee) has the right to sell the property. However, the mortgagor will still be
responsible for the remaining debt.
 Mortgagee's entitlements: The mortgagee has the right to take possession, regardless
of whether the right of entrance is explicitly mentioned, until the outstanding sum is
fully returned.
 If the person who borrowed the money to buy the property is already living in it, they
have the right to make money from it without having to explain or justify anything to
the person or institution that lent them the money. In contrast, if the mortgagee is in
possession and earns income, these earnings decrease the mortgagee's obligations.
5. EQUITABLE MORTGAGE UNDER ENGLISH LAW:

An equitable mortgage in English Law is distinguished from a legal mortgage by the act of
depositing title deeds without the need for further formalities or written paperwork. This
particular mortgage, specifically intended for expedited funding, is not subject to the Law of
Registration, so qualifying it as an oral transaction.

Statutory regulations and essential components:

 Debt prerequisite: A prerequisite for a mortgage is the presence of a debt, which may
be either current or anticipated, that forms the foundation for the loan.
 Transfer/Conveyance of Title Deeds: As part of the transaction, the borrower is
required to provide the lender with title deeds, which is a vital component.
 Purpose of Deeds as Collateral: The deposited deeds must have a distinct and explicit
intention to serve as collateral for the loan, highlighting the primary objective of the
transaction.
 Geographical limitations: Equitable mortgages are geographically restricted to the
precise locations where deeds are transferred, rather than being determined by the
condition or location of the property.
 Presence of Debt: Clause (f) outlines the construction of an equitable mortgage as a
means of guaranteeing the payment of money that has been or will be loaned, or a
current or future obligation.
 Title-Deeds Deposit: Physical delivery is not necessary; constructive delivery is
sufficient. The submitted documents must be genuine, directly connected to the
property, and function as tangible proof of ownership.

6. Anomalous Mortgage [Section 58(g)]

Section 58, clause (g), states: An anomalous mortgage refers to a kind of mortgage that
does not fall into the categories of a simple mortgage, a mortgage by conditional sale, a
usufructuary mortgage, an English mortgage, or a mortgage by deposit of title documents
as defined in this section.

Clause (g) was implemented to safeguard customary mortgages by specifying that an

anomalous mortgage is a fusion of two or more mortgage varieties. Section 98 of the
Transfer of Property Act (TPA) states that the rights and responsibilities of the parties
involved in an anomalous mortgage are established by their agreement as stated in the
mortgage deed, and in certain cases, by local customs.

Available Remedies:

Under an anomalous mortgage, the mortgagee has the authority to engage in 'foreclosure'
and 'selling' activities, as long as the mortgage agreement permits it. Failure to repay a
loan gives the mortgagee the authority to assume ownership of the property.

Redemption Right of the Mortgagor:

The mortgagor may exercise their right of redemption by using the mortgage deed,
obtaining a court order, or following the relevant legislative rules, unless clearly limited
by a prior agreement. The exercise of this right is only restricted when parties take action
to prohibit it.

FAQS

1. What is a mortgage?
A mortgage is a legal agreement in which a person borrows money from a financial
institution to purchase a property, with the property serving as collateral for the loan.
The governance of this is subject to rules and regulations, which often include the
Transfer of Property Act, 1882.

2. What are the types of mortgages?

Mortgages may be categorised into many types, such as simple mortgages,
conditional sale mortgages, usufructuary mortgages, English mortgages, equitable
mortgages, and anomalous mortgages. Each category establishes distinct entitlements
and responsibilities for the individuals or groups participating.

3. What is the difference between a simple mortgage and other types of mortgages?
A simple mortgage is differentiated from other kinds by its basic and uncomplicated
nature. In a conventional mortgage, the borrower agrees to repay the loan without
transferring ownership of the property to the lender. In the event of the borrower's
failure to meet their obligations, the lender has the authority to sell the property in
order to recoup the outstanding debt.
 4. What is the difference between a conditional sale mortgage and other types of
mortgages?
A conditional sale mortgage distinguishes itself from other kinds of mortgages by
certain conditions that must be met in order for the transaction to be finalised. A
conditional sale mortgage is a kind of mortgage where the property is seemingly sold
to the mortgagee, but with the proviso that the sale will only be finalised if the debt is
not returned by a certain date. Payment renders the transaction null and invalid,
resulting in the property reverting back to the mortgagor.

5. What are the potential recourses for lenders in the event of default?
Lenders possess a range of options to address defaults, such as initiating foreclosure
procedures, selling the property, and safeguarding the mortgagor's right to redeem the
property. These measures guarantee the security of creditors and the integrity of
contracts.

6. What are the potential recourses for lenders in the event of a borrower's failure to
meet obligations?
The legislation safeguards the rights of both parties involved in a mortgage
transaction. Mortgage laws are formulated to protect the rights and welfare of both the
borrower and lender under a mortgage agreement. Legal frameworks provide the
rights, responsibilities, and methods of seeking redress to guarantee fairness and
enforceability in property purchase agreements.

SUMMARY

Mortgages are contractual agreements that allow individuals to obtain financial resources
from a lender by using real property as security. These agreements, as specified in the
Transfer of Property Act, 1882, exist in many formats, each outlining distinct rights and
responsibilities for the parties concerned. These categories include several types of
mortgages, such as the simple mortgage, conditional sale mortgage, usufructuary mortgage,
English mortgage, equitable mortgage, and anomalous mortgage. Each kind is subject to its
own specific legal regulations. The remedies for default include foreclosure, property sales,
and redemption rights, which protect the interests of all parties involved. Mortgages
essentially include a legal structure that guarantees the integrity of contracts and protects
creditors in property purchase transactions.