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Business Mortgage
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Mortgage Defined:
The Transfer of Property Act defines Mortgages as 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.
The transferor is called mortgagor and the transferee is called mortgagee. The deed under which mortgage is effected is called mortgage deed. The mortgage deed is generally registered.
Features of Mortgage:
1. There must be transfer of the interest in specific immovable property. There is no transfer of ownership or property. 2. This transfer must be for a debt or obligation. 3. The immovable property must be specific, specified in the mortgage deed. Mention must be made regarding the name, location and size of properties. 4. The object of transfer of interest by mortgage is to secure a loan. An existing overdraft can also be secured by mortgage of property. Total transfer of property in discharge of a loan is not mortgage. 5. The mortgagee not to be given possession of property. 6. The mortgagor gets back all rights over the property when the loan is repaid.
Mortgage of immovable properties are not favoured by banks in our country for the following reasons:
1. There are legal hindrances to the transfer of property. 2. It is very difficult to satisfy about the title of the customer. 3. The expenses for legal Mortgages are heavy. 4. The securities cannot be sold easily. 5. There is a variety of land tenures in our country. They are subject to changes.
6. There is difficulty in the valuation of security. 7. There will be considerable delay in the realization of security.
Inspite of the above difficulties the bankers do give advances against Mortgages, after taking several precautions. They must be very careful in their dealings. Generally they do not lend huge sums on Mortgages, as the Law relating to Mortgages is very complicated. But they find it advantageous to discount bills. Hence, it is said that the best banker is one who can distinguish between a discount and a mortgage.
Forms of Mortgages:
Mortgages can be divided into three categories: (1) Simple mortgage (2) Legal mortgage and (3) equitable mortgage.
1. Simple Mortgage. The Mortgagor undertakes to pay the mortgage money. He
does not deliver the possession of the mortgaged property, but
agrees that the mortgagee shall have the right to cause the
mortgaged property to be sold and the proceeds of sale applied
in payment of the mortgage money to the extent required. In
case of default, he has the right to apply to the court for
permission to sell the mortgaged property or to recover the
whole amount without selling the property. He has no right to
sell the property without permission from the court. In the
case of mortgage by conditional sale, the mortgagor sells the
mortgaged property with the condition that the sale shall become
absolute if the mortgagor shall transfer the property to the
mortgagor if the latter makes payment of the mortgage money
on a certain date. The mortgagor has not the right to claim
the mortgage money. He has only the right of foreclosure, that
is, the mortgagor loses his right to redeem the mortgaged property
in case of non-payment. In usufructuary mortgage, the possession
of the property is given to the mortgagor. The possession of
property is given with the object that the usufruct of the property
may be utilized by the mortgage for repaying the principal,
interest or partly principal and partly interest. A usufructuary
mortgagee cannot sue for foreclosure or for sale.
A mortgage which does not fall into any of the above categories is called an anomalous mortgage, in which the rights and liabilities of the parties are determined by their contract as evidenced in the mortgage deed, and if such contract does not exist, by local usage.
2. Legal Mortgage. In the case of legal mortgage, the mortgagor transfers legal title of the mortgaged property in favour mortgagee by a deed. On the repayment of mortgage money, the titled to the mortgaged property is retransferred to the mortgagor. In this type, the transfer of legal title involves expenses in the form of stamp duty and registration changes. 3. Equitable Mortgages. In this form the legal title to the property is not passed on to the mortgagee. The mortgagor transfers the documents of title of the mortgagee for the purpose of creating on equitable interest of the mortgage in the property. The mortgagor undertakes through a memorandum of deposit to execute a legal mortgage in case he fails repay the mortgage money.
Rights of Matrgagor:
The following are the rights of the mortgagor:
1. Right of Redemption. The mortgagor has a right to redeem the mortgaged property under the following conditions: a. He pays or tenders the money due on mortgage on the due date at the proper place and time. b. Provided his right has not been terminated an account of the act of parties or decree of the court. On account of the above said right the mortgagor can ask the mortgagee: a. To deliver him the mortgage deed and all other documents relating to the property mortgaged which are in the possession of the mortgagee. b. To deliver the possession of the property if it is in his possession. c. To retransfer the mortgaged property to any other person as directed to any other person as directed at the mortgagors cost. The mortgaged property is not divisible, hence cannot be redeemed in part. This right cannot declare void. If it is declared void the mortgagee causes to be a mortgagee and the property becomes absolute transfer. The mortgagor must file a suit for redemption within a period of 3 years of its becoming due. 2. Transfer to third party. The mortgagor can ask the mortgagee to transfer to the third party the mortgaged property instead of retransference to the mortgagor. The existence of the following conditions is necessary for the execution of this right: a. The right of redemption is still subsisting. b. The mortgagee is in the possession of property. c. The right to get it retransferred is a clear condition in the mortgage deed.
Rights of Mortgage:
The rights of Mortgagee are specified to the Transfer of Property Act, 1882. They are:
1. Right to foreclosure or sale. Foreclosure means debarring the mortgagor from exercising his right of redemption. It can be exercised by obtaining a decree from the court. This right can be exercised at any time after the mortgagee money has become due to him or in the absence of any contract to the contrary. The right of foreclosure may be exercised by a mortgagee (a) by conditional sale or (b) under an anomalous mortgage. 2. Right to Sure for mortgage money. The mortgagee has a right to sue for the money in the following cases: a. Where the mortgagor binds himself to pay the money. b. Where the mortgaged property is wholly or partially destroyed or security is rendered insufficient and the mortgagor has failed to provide further security to make the whole security sufficient. c. Where the mortgagee is deprived of the whole or part or his security by or in consequence or the wrongful act or default of the mortgagor or d. Where the mortgagee being entitled to the possession of mortgaged property, the mortgagor fails to deliver the same. 3. Right to sell without Court Intervention. The mortgagee has the power to sell the mortgaged property or a part there of without the intervention or the court in the following cases: a. Where the mortgage is an English mortgage provided neither party is a Hindu, Muslim or Buddhist. b. Where the power to sell without the intervention of the court is conferred in the mortgage deed and the mortgage is government or the mortgaged property or any part there of was, on the date of the execution of the mortgage, is situated the Kolkata, Chennai, Mumbai or any other town or area which the State Government may specify in this behalf. Before exercise the above power any one of the two following conditions must be satisfied: a. The mortgagor or one of the several mortgagors should have been served with a written notice demanding the payment of mortgage money and the default should have been for three months after serving such notice. b. Interest amount not less than Rs.500 should be outstanding for 3 months after it has become due. 4. Right to the accession to mortgage property. For the purpose of security, any accession to the mortgaged property, this occurs after the date of mortgage, if there is no agreement to the contrary. 5. Right to sure and Right to realize the security are distinct rights. The mortgagee possesses the right to sue the mortgagor and also sue for the realization of security. When ever a loan is taken on mortgage deed, the mortgagor subjects the property mortgaged to a liability of being sold for realization of the loan by the creditor and at the same time binds himself personally for payment of the loan. The creditor is thus vested with two rights: (i) enforce the personal liability of the debtor and (ii) to realize the money on the basis of security. 6. Right in case of a renewed lease. When the mortgage property is a property on lease and the mortgagor obtains renewal of the lease, the mortgage is entitled to the new lease for the purpose or security. 7. Right to recover money spent. Mortgagee may spend such money as is necessary to preserve the property and may add such money to the principal amount, in the absence of any agreement to the contrary.
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