Mortgage is a hypothecation of property to a bank. This is done as a security for a loan. A usual form of security that banks insist on is mortgage of the house for which the loan is being availed of by the borrower. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured are called the mortgage money, and the instrument by which the transfer is effected is called a mortgage deed.
Under the Transfer of Property Act, Section 58 defines mortgage as the transfer of an interest in specific immoveable property for the purpose of securing either of these:
Payment of money advanced or to be advanced by way of loan An existing or future debt The performance of an act which may give rise to a financial liability Mortgage of property gives the lender a right to acquire and sell the property in case of default by the borrower in repayment of either the loan amount or other dues in accordance with the agreed terms and conditions. It creates a legally binding contract between the parties. The execution of the mortgage documentation is done simultaneously with the loan documentation.
The bank has the first right on the property for which it provides a loan. In case there is more than one lender, then a pari passu charge is created in favour of all the lenders.
Some types of mortgages:
A) Simple mortgage
In case of a simple mortgage, the possession of the mortgaged property is not delivered to the mortgagee. The mortgagor binds himself personally to pay the mortgage money and agrees that in the event of his failing to pay according to his contract, the mortgagee will have a right to sell the mortgaged property and recover the amount due to him.
B) English mortgage
In case of an English mortgage, the mortgagor binds himself to repay the mortgage money on a certain date and transfers the mortgaged property absolutely to the mortgagee. This is subject to the condition that he will retransfer it to the mortgagor upon payment of the mortgage money as agreed.
C) Usufructuary mortgage
In case of usufructuary mortgage, the mortgagor delivers possession, or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee. He further authorises him to retain possession until payment of the mortgage money. The mortgagee is also authorised to receive the rent and profits accruing from the property and to appropriate them in lieu of interest or in payment of the mortgage money. No such transaction will be deemed to be a mortgage, unless the condition is embodied in the document which effects the sale.
D) Mortgage by deposit of title deeds
In this kind of mortgage, the borrower delivers to a creditor or his agent, documents of title of the property, with intent to create a security thereon. No stamp duty is payable in such cases.
E) Mortgage by conditional sale
In case of mortgage by conditional sale, the mortgagor ostensibly sells the mortgaged property on the condition that on default of payment of the mortgage money on a certain date the sale will become absolute, or that on payment being made the sale will become void, or on payment being made the buyer will transfer the property back to the seller.
F) Anomalous mortgage
A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds, is called an anomalous mortgage.
