The mortgage is a very old practice in which a person takes a loan by mortgaging his property as security to the creditor.
In this practice when the mortgagor fails in repayment, he loses his right to property and such property belongs to the mortgagee. To safeguard the right to property of mortgagor equity provided a rule ‘once a mortgage, always a mortgage’. Thus, any condition that takes the right to property of the mortgagor becomes void. It was decided that the mortgage is not the transfer of title property.
What is a mortgage?
Section 58 (a) of the Transfer of Property Act, 1882 says A mortgage is the transfer of an interest in specific immovable 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 engagement which may give rise to a pecuniary liability.
In simple words, we can say that a mortgage is a loan secured against an immovable property of the debtor. The mortgage does not take away the right to property of the mortgagor. An interest is created by the mortgagor in his property so that if he could not repay the debt the mortgagee or the debtor can recover his money from such property.
Elements of mortgage:
There are three essential elements of a mortgage-
There has to be a transfer of interest.
Interest must be related to a particular immovable property.
The purpose of the transfer should be to secure the payment.
Important terms under mortgage:
Mortgagor → A person who made the transfer or who has a debt is known as a mortgagor.
Mortgagee→ The person to whom the property is transferred or the creditor is called as mortgagee.
Mortgage money → Mortgage money is the combination of the principal money (money given by the mortgagee) and the interest money of which the payment is secured.
Mortgage deed→ An instrument by which the transfer is affected or the document of mortgage is called a mortgage deed.
Types of mortgage:
Mortgage can be made in any of the following six ways-
1) Simple mortgage:
In a simple mortgage, the mortgagor binds himself to pay the money and does not deliver the possession of the property to the mortgagee; instead, he promises to pay the money and agrees in default of payment the mortgagee may sell the property. In this type of mortgage, the mortgagor is called a simple mortgagor.
To sell the property the mortgagee has to file a suit in court, and if he gets the in his favor then he can sell the property to recover his money.
It was known with different names in various areas such as in Bengal it was known by the words Bhandhakikhat or Kayakobala, in Bombay it was known as Taran Gahan or Nazar Gahan and in Uttar Pradesh it was called Rehan or Arh.
2) Mortgage by conditional sale:
This mortgage is apparently a sale with conditions that on default of payments by mortgagor, the sale becomes absolute and on payment the sale shall be void and the buyer shall transfer the property to the seller. However, this is not a sale; the intention of the parties is to secure the money.
The simple mortgage is against the principles of Islam, so to practice mortgage Muslims introduced bye-bil-wafa which is the mortgage by conditional sale. Mortgage by conditional sale was not common among Muslims but also among Hindus.
In Tulsi v. Chandrika Prasad, the Supreme Court held that it was not a sale but a mortgage by conditional sale. The case was that there was only one transaction which includes the right to redemption of mortgage, and stamp duty in the sale deed was paid by the transferor however it is generally paid by the transferee.
3) Usufructuary mortgage:
Where the mortgagor transfers the possession of the property to the mortgagee and the mortgagee is entitled to have benefits, rents, or profits of that property. On payment of money, he has no right of possession.
Usufruct means a temporary right to enjoy the benefits or profit arising out of someone else’s property.
In Hikmatull v. Imam Ali It was held that there is no fixed time for the repayment of money if the time is fixed it will not be a usufructuary mortgage.
4) English mortgage:
The Mortgagor transfers the property to the mortgagee on a condition if he repays money on a certain date the mortgagee will re-transfer the property. In this mortgage, the mortgagor binds himself to repay on a certain date.
In Raj Kishore v. Prem Singh, it was held that the transfer is subject to a proviso that on the repayment of money, the mortgagee will re-transfer the property to the mortgagor.
5) Mortgage by deposit of transfer deed:
Where a person delivers the title deed as security, in this mortgage execution of the mortgage deed by the mortgagor is not necessary. This type of mortgage is applicable only in Calcutta, Madras, and Bombay and in other towns if the State Govt. specify by notification in Official Gazette.
In Behram v. Sorabji, It was held that territorial restriction is for the transfer of the title deed and is not applicable to the place where the property is situated.
6) Anomalous mortgage:
In India, some other kinds of mortgages are also in practices that are not included in Section 58 of the Transfer of Property Act, 1882 which defines various types of mortgages. Hence, a mortgage that does not fall in any of the above-mentioned categories is known as an anomalous mortgage.
In Kanna Karup v. Sankara, it was held that it is required in an anomalous mortgage that it is in writing and should also be attested.
In need of money, a person can take money from a creditor, and for the safety of the creditor’s money, he mortgages his property to the creditor (mortgagee). But in the earlier times the mortgagor would lose his right to property if he failed to repay the mortgage money to the mortgagee, to safeguard the rights of the mortgagor these practices were introduced.