MORTGAGE DEED IN INDIA

This article is written by Bhaskar Joshi of 9^th Semester of Amity Law School, Amity University, Noida

Introduction

The concept of mortgage is an integral part of the Indian legal system and plays a crucial role in facilitating lending and borrowing activities. A mortgage deed is a legal instrument that formalizes the relationship between a borrower and a lender in a mortgage transaction. In this article, we will delve into the intricacies of mortgage deeds in India, exploring the relevant sections and precedents under Indian law.

In India, mortgage deeds are governed by various laws and regulations, including the Transfer of Property Act, 1882, the Indian Registration Act, 1908, and the various State-specific laws. This article aims to provide a comprehensive understanding of mortgage deeds in Indian law, including relevant sections, precedents, and their implications.

Keywords: Indian Law, mortgage deed, transfer of property act, rights, liabilities.

Understanding Mortgage Deed

A mortgage is essentially a submission of collateral or security to any lender or financial organization that enables them to recover the debt in the event of loan repayment default. Because of the high value of land, mortgage-based loans are frequently given out for significant sums of money with protracted payback terms that can last for decades. Similarly, a mortgage deed is a written contract that establishes the terms and conditions of a mortgage, wherein a borrower pledges a property as collateral to secure a loan. It outlines the rights and obligations of both the borrower (mortgagor) and the lender (mortgagee). The mortgage deed is registered with the appropriate authority to ensure its legality and enforceability. The legal provisions of which are discussed further in this article. A mortgage refers to a type of loan that is secured by immovable property, typically a residential or commercial property. It is a financial arrangement between a borrower (mortgagor) and a lender (mortgagee), where the borrower uses the property as collateral to obtain funds from the lender. The property acts as security for the loan, which means that if the borrower fails to repay the loan as agreed, the lender has the right to take possession of the property through a legal process known as foreclosure.

Here’s an example to illustrate the concept of a mortgage:

Suppose you want to purchase a house worth ₹50 lakhs, but you do not have the entire amount to make the purchase. In this case, you may approach a bank or a financial institution for a mortgage loan. The lender assesses your eligibility based on factors such as your income, credit history, and the value of the property.

Let’s say the lender agrees to provide you with a mortgage loan of ₹40 lakhs, which is 80% of the property value. You agree to the terms and conditions, including the interest rate and repayment period.

In this scenario, you become the mortgagor, and the property you are purchasing becomes the collateral. The lender becomes the mortgagee, who provides you with the funds required to buy the property. As per the terms of the mortgage, you will make regular monthly payments, including both principal and interest, over a specified period, which is typically 15 to 30 years. The interest rate can be fixed or variable, depending on the agreement.

If you fail to make the monthly payments as agreed, the lender has the right to initiate foreclosure proceedings. Foreclosure involves legal action through which the lender can take possession of the property and sell it to recover the outstanding loan amount. Once you complete the repayment of the mortgage loan, the property becomes entirely yours, and the mortgage is considered fully satisfied. It’s important to note that the specific terms, interest rates, and processes may vary among different lenders and mortgage products in India. It is advisable to thoroughly understand the terms and conditions of a mortgage before entering into such an agreement and seek professional advice if needed.

Essential Elements of a Mortgage Deed

In order to understand a mortgage deed one must look into its various components. Following are the various elements of a mortgage deed:

1. Identification of Parties: There are two key Parties in a deed of mortgage
2. Mortgagor: A mortgagor is a person or organization that borrows money to purchase a piece of real estate. Mortgagors can obtain loans from financial institutions or individuals. In other words, anyone who borrows money in exchange of which the property is mortgaged.
3.  Mortgagee: A mortgagee is an individual or entity that lends money to this mortgagor and accepts the property as security.

2.  Description of Property: The mortgage deed should provide a detailed description of the property being mortgaged. This includes the property’s address, boundaries, measurements, and any other relevant information that accurately identifies the property.

3. Purpose of Mortgage: The mortgage deed should clearly state the purpose for which the mortgage is being created, such as the purchase of the property, construction, renovation, or any other purpose specified by the parties involved.

4. Loan Amount and Interest: The mortgage deed should specify the loan amount being provided by the mortgagee to the mortgagor. It should also mention the agreed-upon interest rate, whether it is fixed or variable, and any other charges or fees associated with the mortgage.

5. Repayment Terms: The mortgage deed should outline the terms of repayment, including the frequency of payments (monthly, quarterly, etc.), the duration of the loan, and the method of repayment. It may also mention any provisions for early repayment or prepayment penalties, if applicable.

6. Rights and Responsibilities: The mortgage deed should clearly define the rights and responsibilities of both the mortgagor and the mortgagee. It should specify the obligations of the mortgagor to make regular payments, maintain the property, and comply with any other conditions outlined in the deed. It should also outline the rights of the mortgagee, such as the right to inspect the property, receive payments, and take legal action in case of default.

7. Default and Foreclosure: The mortgage deed should include provisions regarding default and foreclosure. It should specify the actions that can be taken by the mortgagee in case of non-payment or breach of the mortgage agreement, including the process for initiating foreclosure proceedings and the rights of the mortgagor during foreclosure.

8. Signatures and Witnesses: The mortgage deed should be executed by both the mortgagor and the mortgagee, and their signatures should be witnessed by two or more witnesses. The witnesses should provide their names, addresses, and other necessary details.^[1]

Relevant Sections of Indian Law

Under Indian law, the primary legislation governing the concept of mortgage deed is the Transfer of Property Act, 1882 with the registration of the deed made mandatory by the Indian Registration Act, 1908.

Transfer of Property Act, 1882:

The Transfer of Property Act governs mortgage transactions in India. Sections 58 to 104 of the Act specifically deal with various aspects of mortgage deeds, including rights and duties of the mortgagor and mortgagee, different types of mortgages, and procedures for foreclosure and redemption.

Relevant Sections of Transfer of Property Act, 1882:

• Section 58: Defines mortgage and its various types which are defined below:

1. Simple Mortgage: In a simple mortgage, the borrower (mortgagor) pledges the property as security for the loan without transferring possession to the lender (mortgagee). The mortgagee has the right to sell the property to recover the outstanding debt if the mortgagor defaults. However, the mortgagee cannot take possession of the property without a court order.
2. Mortgage by Conditional Sale: In a mortgage by conditional sale, the transaction appears to be a sale but is, in fact, a mortgage. The borrower sells the property to the lender on the condition that the ownership will be transferred back to the borrower upon repayment of the loan. Until repayment, the lender holds possession of the property. If the borrower defaults, the lender can sell the property without obtaining a court order.
3. Usufructuary Mortgage: In a usufructuary mortgage, the mortgagor transfers possession of the property to the mortgagee. The mortgagee is entitled to collect and retain the income or rent generated by the property to offset the loan amount. Once the loan is fully repaid, the possession of the property is returned to the mortgagor. If the mortgagor defaults, the mortgagee has the right to retain the property and the income derived from it.
4. English Mortgage: An English mortgage is characterized by the transfer of the property’s legal title to the mortgagee. The mortgagor retains the right of redemption, meaning they can reclaim the property upon repayment of the loan. If the mortgagor defaults, the mortgagee has the right to sell the property without court intervention.
5. Mortgage by Deposit of Title Deeds: This type of mortgage, also known as an equitable mortgage, does not require a written document. The borrower delivers the title deeds of the property to the lender as security for the loan. The lender retains the possession of the title deeds until the loan is repaid. Although a written document is not mandatory, it is advisable to create a memorandum of deposit of title deeds to evidence the mortgage.
6. Anomalous Mortgage: An anomalous mortgage is any mortgage that does not fall under the other specific types mentioned above. It can include combinations or variations of the different types of mortgages mentioned earlier, as long as they are not inconsistent with the provisions of the Transfer of Property Act.

• Section 60-63:  These provisions of the Transfer of Property Act 1882 provide an overview of the rights and liabilities of a mortgagor. They are as follows:

1. Right to redemption (Section 60): The mortgagor has the fundamental right to redeem the mortgaged property by paying off the mortgage debt, along with any accrued interest and other valid charges. This right can be exercised at any time before the foreclosure of the mortgage.
2. Right of subsequent transferee (Section 60A): If the mortgagor transfers the mortgaged property to another person, that subsequent transferee also has the right to redeem the property. However, this right is subject to certain conditions mentioned in the Act, such as the transferee being a bona fide transferee for value and having obtained the interest without notice of the mortgage.
3. Liability for interest after due date (Section 60B): If the mortgagor fails to repay the mortgage debt on the agreed-upon due date, they become liable to pay interest on the outstanding amount until the debt is fully repaid. This section clarifies that if the mortgagee receives any payment on account of interest or principal after the due date, the mortgagor can demand an account and apply the payment towards the principal amount owed.
4. Right of mortgagor to inspect and make copies of documents (Section 63): The mortgagor has the right to inspect and make copies of relevant documents, such as the mortgage deed, title documents, and account statements, at reasonable times and at their own expense. This section empowers the mortgagor to be informed about the status of the mortgage and related documents.
5. Liability to furnish particulars of encumbrances (Section 63A): If requested by the mortgagor, the mortgagee is obligated to furnish the particulars of any prior encumbrances on the mortgaged property, within a reasonable time. This provision ensures that the mortgagor has access to information about any existing encumbrances that may affect their rights or the value of the property.
6. Liability to keep the property in good condition (Section 65): The mortgagor is responsible for keeping the mortgaged property in a good state of repair and condition during the mortgage term. Failure to maintain the property may give the mortgagee the right to take possession of the property or seek appropriate remedies.
7. Liability for payment of money (Section 65A): If the mortgagor fails to pay the money due under the mortgage, the mortgagee can serve a notice requiring payment within a specified time. If the mortgagor fails to comply with the notice, the mortgagee has the right to proceed with the sale of the mortgaged property to recover the outstanding amount.^[2]

Indian Registration Act, 1908:

Under this act, a mortgage deed must be registered with the appropriate Sub-Registrar of Assurances within the jurisdiction of the property. Section 17(1)(b) of the Indian Registration Act stipulates that any mortgage deed that creates or transfers an interest in immovable property must be registered. The registration of the mortgage deed is essential to make it legally valid and enforceable. Similarly, according to Section 23 of the Act, a mortgage deed should be presented for registration within four months from the date of execution. If the deed is not registered within this period, it can still be registered within a further four months by paying a penalty. However, after the expiry of this additional four-month period, the deed cannot be registered, and it becomes invalid for creating a valid mortgage. This registration of mortgage deeds takes place at the office of the Sub-Registrar of Assurances, commonly known as the Registrar’s office. Each district has one or more registration offices where documents are registered. The Act also mandates a certain Stamp duty to be paid on mortgage deeds.

The concept of Foreclosure

Foreclosure refers to the legal process by which a mortgagee (lender) exercises their right to take possession of a mortgaged property and sell it in order to recover the outstanding loan amount. It is a mechanism available to the mortgagee in cases where the mortgagor (borrower) has defaulted on the loan repayment. Foreclosure allows the mortgagee to enforce their security interest over the property and recover their dues. The process of foreclosure is governed by various laws and regulations, including the Transfer of Property Act, 1882 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. These laws provide guidelines and procedures for the foreclosure process, ensuring transparency and protecting the rights of both the mortgagee and the mortgagor.

Under SARFAESI Act, foreclosure provides a legal framework for the enforcement of security interests by banks and financial institutions. Under the SARFAESI Act, mortgagees have the power to enforce their security interests over a mortgaged property without the need for court intervention, subject to compliance with the Act’s provisions. In case of default by the mortgagor, the mortgagee can take certain steps, such as issuing a demand notice, taking possession of the property, and conducting a public auction or private sale. The SARFAESI Act has contributed to streamlining the foreclosure process and enabling mortgagees to recover their dues efficiently while providing some safeguards to protect the interests of the mortgagors.^[3]

Conclusion

In conclusion, the concept of mortgage deed in India plays a crucial role in facilitating lending and securing financial transactions related to immovable properties. A mortgage deed serves as a legally binding agreement between the mortgagor and the mortgagee, outlining the terms and conditions of the mortgage. The registration of mortgage deeds under the Indian Registration Act is mandatory for their validity and enforceability. The SARFAESI Act also provides a specific legal framework for foreclosure that allows mortgagees to recover their dues through the sale of the mortgaged property, it also includes provisions to protect the rights of the mortgagor. Precedents and case laws continue to shape the interpretation and application of mortgage laws in India. It is important for individuals, lenders, and legal professionals to stay updated with the latest developments in this field to ensure compliance and to safeguard their interests. Understanding the relevant sections of Indian law, such as the Transfer of Property Act and the Indian Registration Act, is crucial for drafting and executing mortgage deeds effectively and also for anyone involved in property transactions or mortgage agreements in India. It is only after comprehending the intricacies of mortgage deeds, stakeholders can navigate the legal landscape with confidence and facilitate smooth lending and borrowing activities in the country.

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^[1] Essential Elements of a Mortgage Deed, studocu, available at https://www.studocu.com/in/document/veer-narmad-south-gujarat-university/bcom-llbhons/essential-elements-of-a-mortgage-deed/23399315,  last seen on 02/06/2023

^[2] Rights and Liabilities of a Mortgagor, Ipleaders, available at https://blog.ipleaders.in/rights-liabilities-mortgagor-india/?amp=1, last seen on 4/06/2023

^[3] Everything You Need to Know about Foreclosure in India, nobroker, available at https://www.nobroker.in/blog/foreclosure-in-india, last seen on 06/06/2023