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Wednesday, March 16, 2016

How to Mortgage?

 
 

How to mortgage?

 

What is mortgage?

Mortgage is a method of securing the debt or money lent. Every creditor wants the money lent by him to be secure so that in case of the borrower's failure to repay the amount borrowed, he may rely on the security. In case of mortgage, a borrower transfers his interest  in an immovable property to the lender against which the loan is credited to him. The provisions relating to mortgage of property are contained under Sections 58 to 104 of the Transfer of Property Act 1882. Section 58 of the Act defines the meaning of mortgage and other related terms.

How to mortgage?

As per the provisions of the Act, mortgage means transfer of interest in an immovable property to the creditor to secure the payment of money lent. It is essential that both parties - the owner of the immovable property and creditor - should be living persons. In the creation of the mortgage, while transferring the interest, the owner delivers the original documents of title of his property which is mortgaged to the creditor or his agent with the intention of creating a security on the same in favour of the creditor. The immovable property, the interest of which is transferred to the creditor, must be specific in description with boundaries and should be easily identifiable.

Any person competent to enter into a contract can create mortgage. This excludes minors and people of unsound mind. Guardians of minors can create mortgage after obtaining permission from a Court. Joint owners of property, partners of firms, and a Kartha of a Hindu Undivided Family can also mortgage property. 

Overview of Mortgage Process:

1. After choosing a particular home loan provider, the perspective customer submits the application form to the housing finance institution (HFI) along with other relevant documents as required by it. These comprise documents to establish income, age, residence, employment, investments, etc. The customer also needs to hand over a cheque for payment of an up front (non-refundable) processing fee of about 0.5-1% of the loan amount to the HFI.

2. In the next stage, HFI validates the information provided by the customer on the application form. HFIs usually conduct checks on the residential address of the customer, the place of employment of the customer, and credentials of the employer. Some HFIs may insist on a personal interaction with the customer and perform a reference check on the references provided by the customer on the application form.

3. After due appraisal of customer profile, a sanction letter is issued which contains details such as loan amount, rate of interest, annual / monthly reducing balance, tenure of the loan, mode of repayment and general terms and conditions of the loan.

4. The customer is required to leave the entire set of original documents pertaining to the property being purchased with the HFI as security for the loan amount sanctioned. These documents remain in the custody of the HFI till the loan is fully repaid. Once the documents are handed over to the HFI, they send all the documents for a thorough legal scrutiny.

5. Prior to disbursement, the HFI also conducts a site visit to the customer's property to ensure that all construction norms have been properly adhered to. Once the HFI is satisfied that the property is legally and technically clear, it disburses the loan amount. The disbursement from the HFI is on the basis of the stage of construction of the property.

Until such time that the entire sanctioned amount is not drawn, the customer will pay a simple interest on the actual amount drawn (without any principal repayments). The EMI payments will commence only after the entire sanctioned loan amount is drawn.

Key Mortgage Process Terms:

Mortgagor - A person who transfers interest in an immovable property is called a mortgagor. Generally, a mortgagor would be a borrower who is the owner of the immovable property.

Mortgagee - The person to whom interest in immovable property is transferred is a mortgagee, the creditor or lender. The principle money and interest, the payment of which is secured, is called the mortgage money.

Mortgage Deed – It is the document executed by a mortgagor transferring interest in an immovable property to a creditor/ mortgagee. 
The mortgagee, after the payment of the money secured, is required to return to the mortgagor the mortgage deed and all the documents related to the mortgaged property. If the mortgagee is in possession of the property, he has to deliver back the possession  and execute all required documents at his cost. This right of a mortgagor is called redemption of mortgage.

Right of Foreclosure

Section 67 of the Transfer of Property Act 1882 gives the mortgagee the right to foreclosure or sale. This right of foreclosure is the mortgagee's right to obtain a decree from the Court to debar the mortgagor of his right to redeem the property, or to sell the property. The mortgagee can exercise his right of foreclosure in any of the following conditions:

  • When the mortgage-money has become due on the mortgagor,
  • Before the making of any decree for the redemption of the mortgaged property, or
  • Before the payment of the mortgage-money to the mortgagee.

Such a suit to obtain a decree in order to debar the mortgagor's right to redeem the mortgaged property is called a suit for foreclosure.

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