Simple mortgage

By Sagnik Saha

Editor’s note:

A mortgage as per § 58 of the Transfer of Property Act, 1882 is the transfer of an interest in a specific immoveable property for the purpose of securing the payment of money. This paper examines all essentials of a simple mortgage in detail, as well as its important features, such as the rights of the mortgagor, mortgagee, with emphasis on the right to redemption. It also highlights features of sub mortgage and tacking.

Introduction

According to Section 58 of the Transfer of Property Act, 1882, a mortgage is the transfer of an interest in specific immoveable 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 agreement which may give rise to pecuniary liability.[1]

The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest the payment of which is secured for the time being are called the mortgage money and the instrument by which the transfer is affected is called the mortgage deed.[2]

Essentials of mortgage[3]

  • Transfer of Interest- The transfer of interest in a specific immovable property is called mortgage. The mortgagor who has the possession of the overall interest of the property only cedes a part of the interest in favor of the mortgagee while mortgaging his property in order to secure a loan. After the completion of the mortgage, the interest of the mortgagor reduces to that proportion that has been mortgaged to the mortgagee. His ownership also reduces temporarily until he makes good of the loan that he has taken from the mortgagee. When the mortgagor transfers his property, then under the rights provided to the mortgagee, the transferee can recover what he has loaned to the mortgagor.

  • Specific Immovable Property- There must be specific mention of the property to be mortgaged in the mortgage deed. The reason behind stating specific property is in case, the mortgagor cannot repay his loan, then the court can decree a sale of the specific property mortgaged by him when the mortgagee files a suit for non payment of loan.

  • Securing the Payment of a Loan- The transaction involved in a mortgage is for performance of obligations or payment of a loan. The mortgagor and the mortgagee share the relation of a debtor and a creditor.

If however the debtor borrows money from the creditor and puts this clause that the creditor cannot sell the mortgaged property before the repayment of loan then it is not a mortgage as there is no transfer of interest from the property mortgaged. The basic difference between sale and mortgage is that in mortgage there is a part of interest that is transferred while in a sale there is complete transfer of rights.

The three most important features of a mortgage are:

  • The mortgagor can claim his right to the property he mortgaged after he repays his loan.

  • The mortgagee has a right to sell the mortgaged property on non payment of debt.

  • On complete payment of the debt, the mortgagee gives up whatever interest he had on the mortgaged property.

Rights of the mortgagor[4]

  1. Rights of Redemption: The mortgagor has the right to get back the mortgaged property if-
  • He repays the loan on the correct date and time
  • His right to get back his mortgaged property has not been quashed by the court or by one of the contracting parties.

The mortgager who has redeemed the mortgage is entitled to the following rights:

  • He can get back all the valid legal documents accrued in the process of executing the mortgage deed.
  • He also gets the right to receive possession of the mortgaged land from the mortgagee as done in English mortgage.
  • He also has the right to get back the property he mortgaged as his own expense or ti a third person as directed by him.
  1. Accession to Mortgaged Property: During the period of mortgage when the mortgaged property was under the control of the mortgagee, if he made any alterations to the property, then on total repayment of mortgage money, the mortgagor when he gets back his property, gets it back with all the alteration if there is nothing explicitly mentioned in the contract.

  2. Right to Transfer to Third Party: The mortgagor on repayment of the mortgage money may want the mortgaged property to be transferred to a third person and the mortgagee is bound to oblige.

  3. Right to Inspection and Production of Documents: The mortgagor possesses the right to check and keep record of all the title documents which are in possession of the mortgagee.

Rights of the mortgagee[5]

  1. Right to Sue for Mortgage Money: The mortgagee can claim his mortgage money by filing a suit in the following situations:
  • Where the mortgagor through personal covenant takes up the liability to pay the mortgagee as in English and simple mortgage.
  • Where the mortgaged property is insufficient or damaged or partly destroyed and the mortgagor has not furnished any further security.
  • Where the mortgagee is denied of the total or proportion of the mortgaged property by the mistake of the mortgagor.
  • Where the mortgagor is unable to provide security to the mortgagee where he has the right to have security.
  1. Right of Sale: The mortgagee is well within his right to sell off the mortgaged property on non payment of loan by filing a suit and getting a decree from the court. However Sec. 69 of the Transfer of Property Act gives the right to the mortgagee to sell off the mortgaged property without filing a suit in the court of law and getting a decree to sell the mortgaged property.

  2. Right of Foreclosure: The mortgagee has a right to move court and file a suit against the mortgagor barring him from claiming the mortgaged property back. The right of foreclosure can be claimed in mortgage by conditional sale and anomalous mortgage.

  3. Right of Accession to Property: If any alteration is made to the mortgaged property, then the mortgagee is entitled to both the property that has been mortgaged and the alteration as security for the money loaned.

  4. Right to Possession: the mortgagee is legally empowered to take control of the mortgaged property as per the terms of the contract of mortgage. This right is available in usufructuary mortgage.

Sub mortgage[6]

A mortgage becomes a sub mortgage when the mortgagee, who is the current possessor of the mortgaged property, uses the mortgaged property as an advance. The mortgaged property as is property of the mortgagee as long as the mortgagor has not repaid his loans, he can use the mortgaged property to get loans by re-mortgaging the already mortgaged property.

The sub mortgagee has all the rights of the mortgagee and has all the legal rights of the mortgagee. He has the right to get repaid the money loaned, file a suit against the mortgagee turned mortgagor and take mortgaged property as security. The sub mortgage is also called “mortgage of mortgagee.”

Tacking[7]

A debtor can lawfully execute more than one mortgage at the same time on his own property. But the priority of the mortgages will be according to the dates on which they were executed.

Simple mortgage[8]

Definition

Simple mortgage is executed where without any property being delivered to the mortgagee; the mortgagor makes himself liable to repay the debt[9]. It is implied by him in an express or implied manner that in the event of non-repayment of loan, the mortgaged property can be used to make good of the loan by the mortgagee[10].

The fundamental characteristic of simple mortgage is that the mortgagee has no right to liquidate the property without the permission of the court. The mortgagee can[11]:

  • Apply to the court for consent to offer the sold property, or
  • File a suit for recuperation of the entire sum without offering the property.

Personal Liability

A simple mortgage entails two types of liabilities, personal liability and the mortgaged property[12].  In a standard mortgage deal, the mortgagor does not have any personal liability and on non-repayment of loans, the mortgagee can move on to liquidate the mortgaged property in order to make good of the loan. But in a simple mortgage, there is a personal liability on part of the mortgagor to repay the loan along with the mortgaged property, hence the mortgagee has to option to move against either the mortgagor personally thus obtaining a decree against him or he can move against the mortgaged property to liquidate it for the payment of loan. The presence of a personal covenant is very important in a simple mortgage and that is what distinguishes it from other forms of mortgage.

No Delivery of Possession

There is no delivery of mortgaged property in simple mortgage. The money can be recovered by a money decree. A clause to transfer the complete interest of a mortgaged property to the mortgagee on non-payment of loans changes the simple mortgage into mortgage with possession.

Sale of Property

In mortgage, the mortgagor may give the power to sale the property either expressly or impliedly. This basically means that on the event of non-payment of debt, the mortgagee can sell the mortgaged property. But even if the contract of mortgage specifically talks about selling the property on non-payment the mortgagee cannot go ahead with the sale of the mortgaged property and has to wait for the intervention of the court to sell the mortgaged property.

Adverse Possession

A trespasser who removes the mortgagor and takes possession of the land that land can still be legally mortgaged. The trespasser can become the owner of the limited right the mortgagor has over the land mortgaged by him but it does not in any way take away the legal rights of the mortgagee over the mortgaged land in a simple mortgage .Adverse possession is valid only when the mortgagee who has a right over the mortgaged land does not take possession over the land in time and he runs against time which is from the day he gets his right to interest over the mortgaged land. If there is no accrual of rights to possess the land by the mortgagee, his right cannot be taken away by the mere possession of that particular mortgaged land by the adverse claimant.

If the mortgage has been declared illegal for being unregistered and the mortgagee has been in possession of that land for more than 12 years then after 12 years, the mortgage becomes valid.

Conclusion

Simple mortgage is distinguished from other forms of mortgage by the presence of a personal covenant. In simple mortgage, the mortgagor binds himself personally to the mortgagee to repay the loan and also pledges his property as a security, which can be liquidated on default of payment. But a decree has to be passed by the court to liquidate the security and without the intervention of the court, the security cannot be liquidated. One more characteristic that must be kept in mind that there is only a partial transfer of interest from the mortgagor to the mortgagee on transfer of property.

Edited by Neerja Gurnani

[1] Section 58(b), Transfer of Property Act, 1882

[2] Section 58(b), Transfer of Property Act, 1882

[3] Essentials of mortgage available at http://www.lawyersclubindia.com/forum/Types-of-Mortgage-8944.asp#.Uyc18c6adFx  (last visited on 15/3/2014)

[4]Rights of Mortgagor available at  sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc(Last Visited on 16/3/2014)

[5] Rights of Mortgagor available at  sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc(Last Visited on 16/3/2014)

[6] Sub Mortgage available at  sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc(Last Visited on 16/3/2014)

[7] Tacking available at sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc(Last Visited on 16/3/2014)

[8] Dr. Poonam Saxena, Property Law, Pg.410 – 412,

[9] Simple Mortgage is used to notify all mortgage deeds where the debtors binds himself through a personal covenant and gives his property as security to the creditor. See Jangi Singh v chander (1908) ILR 30 All 390

[10] In a deed of simple mortgage, the transfer of right signifies the right to liquidate the property. There is no rule stating that such right be expressly mentioned in the mortgage deed. See dalip Singh v Bahadur ram (1912) 34 All 446.

[11] Fundamental Characteristics of Simple Mortgage available at sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc(Last Visited on 16/3/2014)

[12] Wahidunnia v Gobardhan (1900) ILR 22 All 453

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