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.
Immovable property is a good security.
This is not perishable and not subject to wild fluctuation in the market.
Creditor particularly banks and financial institutions insist on immovable property either as primary or collateral security.
The method of taking the immovable
property to secure the payment of the money lent is Mortgage.
The Transfer of Property Act (Act IV
of 1882) deals with Mortgage. The relevant sections are 58 to 104 of Chapter
IV.
The mortgage in simple terms means
transfer of the interest in the immovable property to the creditor to secure the payment of money lent. It is essential that both the parties, the owner of
the immovable property and creditor, are living persons. The living persons
include company or association or body of individuals. They may be incorporated
or not.
The immovable property, the interest
of which is transferred to the creditor, must be specific in description with
boundaries. It should be easily identifiable.
The debt or money lent is an important
component of mortgage, It is the payment
of the debt, which is secured. The debt
may be money advanced, or to be advanced, or existing or future debt.
It also covers the performance of an engagement, which
may give rise to monetary liability. The purpose of the mortgage is to secure
the payment of money lender to be lent.
The person who transfers the interest in the immovable
property is Mortgagor. Generally, Mortgagor would be borrower who is the owner
of the immovable property. But any other person may also transfer the interest
in this immovable property to the lender to secure the payment of money by the
borrower.
The person to whom the interest in
immovable property is transferred is mortgage, who is creditor or lender. The
principal money and the interest, the payment of which is secured, is mortgage
money. The document executed by the
mortgager transferring the interest in immovable property to the creditor is
called Mortgage Deed.
Any person competent to enter into a
contract can create a mortgage. This excludes minors and lunatics. Guardian of
a minor on obtaining permission from the Court can create a mortgage. Joint
owners of property, partners of firm, Kartha of Hindu Undivided Family, can
create mortgage.
In case of joint owners, all the co-owners, all the
partners in case of a partnership firm, and in case of Hindu Undivided Family
all the male members, widows of the deceased male members, and daughters who
have been conferred property rights by the state government have to sign the
mortgage deed.
1 . Simple Mortgage
2. Mortgage by Conditional Sale
3. Usufructuary Mortgage
4. English Mortgage
5. Mortgage by Deposit of Title
Deeds
6. Anomalous Mortgage
Simple Mortgage and Mortgage by deposit of title deeds
are popular types, which are discussed here.
Section 58 (b) of the Transfer of
Property Act, defines the simple mortgage/Registered Mortgage
1. There
is transfer of interest in the immovable property to the mortgagee to secure the payment of money lent.
2. There
is no delivery of possession of the immovable property to the mortgagee.
3. Mortgagor binds himself personally to pay
the mortgage money.
4. Mortgagor agrees expressly or impliedly,
that in case of his failure to pay the mortgage money as agreed, the mortgagee
(creditor)has right to get the immovable property mortgaged/sold and the sale
proceeds is to be adjusted towards the payments secured.
It is to be noticed that the borrower
binds him personally to repay the amount borrowed. Only in case of his failure
to repay the money, right to get mortgaged money arises. It is very important to note that the
act uses the words "cause to be sold", which means the property can
be sold only through intervention of the Court.
The deed of simple mortgage requires
to be attested by two witnesses. It also needs to be properly stamped.
Registration is necessary if the principal amount is Rupees one hundred or
more. Only the principal amount is the criteria and not the interest.
The stamp duty payable on simple
mortgage is Ad valorem that is based on the value. It varies from state to
state. Stamp duty payable in Karnataka is 3% on the amount secured with a
maximum of Rupees three lakhs. Registration charges are 2% of the amount secured with a maximum of rupees two lakhs.
Certain states including the State of
Karnataka have exempted/given concession in stamp duty and registration charges
in case of agricultural loans.
The remedies available under simple
mortgage are personal decree against mortgager and decree for the sale of the
mortgaged property. The limitation is twelve years from the date when the
mortgage money becomes due (Art. A 62 of Limitation Act).
This is also known as equitable mortgage. Section 58
Clause (F) defines the mortgage by deposit of title deeds. In this type of
mortgage the mortgager delivers the documents of the title to the immovable
property to the creditor in notified places with intent to create security
thereon. The essential features of the mortgage by deposit of title deeds:
1 . The debt: The money, the payment of which is
secured may be an existing debt or a future one. It may also be a performance
of engagement, which gives rise to monetary liability.
2. There
must be deposit of title deeds. The Mortgager (the borrower/owner of the
immovable property) delivers the Documents to the title immovable property to
the mortgagee (creditor). The delivery may be physical or constructive. The
documents delivered should be of title to the immovable property. This refers
to the documents, which establish and confer the title of the immovable
property to the mortgagor. It is to be noted that copy of a document is not a
document to the title. But certified copy of a original document shown to be
form is a document to the title. But as far as possible only original documents
should be accepted for deposit. If any original document is reported to be
lost, proper enquiries should be made.
Property documents are of two types :
Primary documents and Secondary or Supporting documents.
These documents confer title. These
documents to the title Sale Deed, Gift Deed, Partition Deed, Exchange Deed,Deed of Grant, Lease Deed, Sale Certificate, Share Certificate or MembershipCertificate with allotment letter, in case of Society with no objection letter,
Patta of land.
Secondary/Supporting Documents: These
documents do not confer any title, but only support the title conferred by the
primary documents. Katha Certificate, Tax Paid receipts, Encumbrance
Certificate, Revenue Records and Village Records, allotment letters, amount
paid receipts, possession certificates, tax assessment order etc., fall in the
category of Secondary/Supporting Documents.
Documents must be deposited/delivered
in notified centres: The Transfer of Property Act mentions the towns of
Kolkata, Chennai and Mumbai as notified centers. In addition, state government
may notify any places as notified centers for deposit of title deeds. At
present most of places up to the level of Taluk centers are notified centers.
This restriction applies only to the places where the documents are to be
deposited, but not to the place where the immovable property is situated.
Documents of the property located in Mangalore may be deposited in Bangalore.
Documents or the property situated in non-notified places may be delivered in
notified places.
Deposit must be with an intention that
the title deeds shall be security for the debt. The intention is very important. It must be with intention that the title deeds shall be security for
the debt.
Documents delivered for safe custody
to obtain legal opinion will not establish such intention. As such a forwarding letter stating that the
documents are delivered with an intention to create a security for the debt is
to be obtained from the mortgager. Care should be taken not to mention the
amount of debt, rate of interest in the letter. Such letter should be obtained subsequent to
the date of depositing the title deeds and dated accordingly. These measures
obviate implications of Stamp Duty/ Registration Act.
Deposit must be by a Mortgagor or his agent with the
Mortgagee or his agent.
This type of mortgage is treated at
par with other legal mortgages and shall have priority over the mortgages
subsequently created, and even registered.
This mortgage will be in force so long
as title deeds deposited are in possession of the mortgagee. If the mortgagee
parts with the possession of the title deeds, the mortgage is extinguished.
This type of mortgage and the letter evidencing the
deposit of title deeds in the nature of forwarding letter, acknowledgement does
not attract stamp duty and registration (Sec. 59 of TP Act). However, certain
states like Maharashtra, Gujarat stipulate that even the mere deposit of title
deeds with forwarding acknowledgement letter needs stamping and registration.
If the terms of the contract or the deposit of title
deeds are reduced to writing such memorandum in Karnataka attract stamp duty
and 1% of every Rs. 5000/- that is Rs. 50/- with a maximum of Rs. 50,000/-
Registration charges are 0.5 % with a maximum of Rs. 10,000/-
Urban co-operative banks have concession of 50% on
stamp duty and registration fee. This type of mortgage is popular, as it is
easier, quicker, less expensive not subject to stamp duty and registration
formalities except in few states and there will not be undue publicity. The
concession available to urban co-operative banks if extended to all banks may help
many borrowers. The remedies available to the creditor under this type of
mortgage are
Personal decree against the mortgagor
•
Right to sale with the intervention
of the Court
•
Right to appoint a Receiver with the
intervention of the Court.
•
Right to take possession with the
intervention of the Court.
Limitation available is 13 years under the Article 62 of the Limitation Act 1963. When the mortgage is created by a limited
company over its property such mortgage must be registered with the registrar
of companies within 30 days of its creation irrespective of the type of
mortgage.
Mortgagor after fulfilling his part of
the Contract, that is by paying the money secured, may require the mortgagee to
deliver the mortgage deed, all documents relating to the mortgaged property,
• If the mortgagee is in a position to deliver back the possession and execute required document.
• At the cost of the mortgagee. This
right of the mortgagor is called Redemption of Mortgage.
However, such right of redemption can
be invoked before the mortgagee files a suit for enforcement of mortgage.
Limitation period available is 30
years from the date on which the mortgager performs his part of the contract,paying the money secured. (Article 61 (a) of the Limitation Act, 1963.
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