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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

MORTGAGE AND KINDS OF MORTGAGE

TRANSFER OF PROPERTY

Mr. P. JOGI NAIDU Sir

(Assistant Professor for Transfer of Property)

BASWA PRAVEEN (2015020)

Vth SEMESTER

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 INTRODUCTION

A mortgage is a method of creating charge on immovable properties like land and

building. A Mortgage involves the transfer of an interest in land as security for a loan or other
obligation. It is the most common method of financing real estate transaction. The Mortgagor is
the party transferring the interest in land to the Mortgagee1. Human beings have multifarious
needs, and borrowing money for satisfaction for these needs is perhaps as old as civilization
itself. Moneylenders wanted security for the repayment of the load give birth to the system of
hypothecation or mortgage of property, movable or immovable. Parties stated making conditions
and agreements for this kind of mortgage procedure. In absence of the clear rules, exorbitant
interest rates and conditional favorable to the mortgagee yet grossly adverse to the mortgagor,
the whole transaction of the mortgage was perceived as a transaction, on an entirely different
platform than other civil contracts, like sale and purchase of property.

A Mortgage is the transaction of the interest in specific immovable property for the
purpose of securing the payment of money advanced or to be advanced by way of loan, an
executing or future debt, or the performance of an engagement, which may give rise to a
pecuniary liability2.

If the Condition of a Mortgage is, that the Mortgagor should redeem during his Life, or
that the Mortgagor. The Heirs of his Body should redeem. If not Equity will admit the General
Heir of such Mortgagor to Redemption, because this can be no Purchase, since there is a Clause
of Redemption. When the Land was originally only a Pledge for Money, if the Principal and
Interest were offered, the Land is free. It would be very hard, that it should be in the Power of the
Scrivener, or griping Usurer, by such impertinent Restrictions, to elude the Justice of the Court.3

However, if a Man borrows Money of his Brother, and agrees to make him a Mortgage,
and that if he has no Issue Male, his Brother should have the Land; such an Agreement made out
by Proof, may well be decreed in Equity.4

1
www.law.cornell.edu
2
Madan Lal Sobti Vs. Rajasthan State Industrial Development and Investment Corporation[ AIR 2007 (NOC) 638
(Del)]
3
1 Vern. 33, 190, S. C.; 2 Chan. Ca. 147, S. C. Vide Bonham v. Newcomb, infra pl. 13
4
Howard v. Harris [1 Vern. 193, per North, Lord Keeper]. Also see Vide Bonham v. Newcomb [infra. pl. 13]

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 DEFINITION AND NATURE OF MORTGAGE

DEFINITIONS:

DEFINITION OF MORTGAGE

According to Section 58 of the Transfer of Property Act, 1882 defines mortgage as:

A mortgage is the transaction 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 agreement which may give rise to pecuniary
liability.

The transferor is called the mortgagor, the transferee a mortgagee. The principle money
and interest of which is secured for the time being are called the mortgage money and the
instrument (if any) by which the transfer is effected, is called a mortgage deed5.

NATURE:

The mortgage agreement is a contract made between the lending bank, called the
mortgagee, and the borrower, called the mortgagor. This agreement states that the borrower
receives the funds she needs to purchase the home while the lender receives a lien to the
property.6 As the definition suggests mortgage is a transfer of an interest, in a specified
immovable property and not an absolute transfer of property or ownership. This is made to
secure payment of a loan.

The prevalent understanding of a mortgage deal was that it is a transaction, where, a

person who is in need of money and borrows it from another on the strength of some tangible
property of value higher than the loan amount. The Mortgagee promises to pay the loan with the
specified time. In this manner, the economic needs of the borrower are met with. The benefit
coming to the mortgagee in this transaction was that he was entitled to charge an interest on the

5
Mortgage is the transfer of interest for the purpose of securing the repayment of the debt, but such interest is in
itself immovable property see, Ali Hussain Vs. Nilla Kanden, [(1864) 1 Mad HC 356]
6
http://budgeting.thenest.com/mortgage-agreement-3770.html

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loan amount and would get back more than what he had lent. The transaction, in theory,
therefore, was for the mutual benefit of both the parties. However, the inequality of the standing
of both the parties was evident as almost in all communities, the general practice was that in the
event of non-payment of loan amount by the mortgagor, the ownership in the property passed to
the mortgagee without him having to pay anything extra.

In this transaction, the possession of the property was delivered to the mortgagee who
was entitled to use it until the repayment of load by the mortgagor. A mortgage by conditional
sale was also prevalent in Hindu and Muslim law of English mortgage, to begin with, was
limited to contracts involving Europeans and inhabitants of the presidency towns. After the
enactment of the TP Act, systematic and detailed rules were laid down to govern law relating to
mortgages and to determine the rights and liabilities of both the mortgagor and the mortgagee.

A mortgage is not the loan money that transfers hands from the lender to the seller in a
real estate transaction. It's the interest in the home itself. It is a pledge from the new homeowner
that in case of default, he gives up his claim to the property to the lender. The official name for
this pledge is a property lien. Keep this fact in mind as you seek to understand the purpose of the
mortgage agreement.

HISTORICAL BACKGROUND:

As understood by 17th-century attorneys, the etymology of the word mortgage of the

Old French term morgage. The word has been in English much longer than the 17th century,
being first recorded in Middle English with the form morgage and the primary sense "pledge (of
Germanic origin)" in a work written before 1393.7

During 1552-1634, Sir Edward explained, who is the great jurist, succinctly explained
how the word mortgage was come from Old French words mort, gage, dead and Pledge.
If mortgagor does not pay the debt forever, it is dead to him upon condition. If mortgagor does
pay the debt, then the pledge/ mortgage is dead with regard to mortgagee.

7
http://www.legalservicesindia.com/article/article/word-history-of-mortgage-in-india-1593-1.html

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 A mortgage in Law French for dead pledge and is a device used to create a lien on real
estate by contract. It is used as a method by which individuals or businesses can buy residential
or commercial property without paying the full value upfront. The borrower here we call as the
mortgagor uses a mortgage to pledge real property to the lender, called the mortgagee, as
security against the debt, also called hypothecation for the rest of the value of the property. In
legal terms, the creation of a mortgage gives the legal title of the land to the mortgagee and an
equitable title called equity of redemption, to the mortgagor. The legal title, however, only
exists as a security for a debt and does not convey any title or powers associated real property.8

At common law, a mortgage was a conveyance for land that on its face was absolute and
conveyed a fee simple estate, but which was in fact conditional, and would be of no effect if
certain conditions were not met usually, but not necessarily, the repayment of a debt to the
original landowner. Hence the word mortgage, Law French for dead pledge, that is, it was
absolute in form, and unlike a live gage, was not conditionally dependent on its repayment
solely from raising and selling crops or livestock, or of simply giving the fruits of crops and
livestock coming from the land that was mortgaged. The mortgage debt remained in effect
whether or not the land could successfully produce enough income to repay the debt. In theory, a
mortgage required no further steps to be taken by the creditor, such as acceptance of crops and
livestock, for repayment.

In many U. S. states, however, a mortgage has been converted by statute to a device for
creating a security interest in land. When the landowner fails to perform on the obligation
secured by the mortgage, the mortgage holder may file a foreclosure to cause the property to be
sold at auction, usually by the sheriff.

IN INDIA:

A legal agreement by which a bank, building society, etc. lends money at interest in
exchange for taking title of the debtor's property, with the condition that the conveyance of title
becomes void upon the payment of the debt. A mortgage is a security interest in real property
held by a lender as a security for a debt, usually a loan of money. Wex Law Dictionary defines

8
http://www.edinformatics.com/real_estate/about_mortgages.htm

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Mortgage as, A mortgage involves the transfer of an interest in land as security for a loan or
other obligation.

For the purpose of this guide, origination consists of lending officers taking applications
from prospective borrowers at the bank, on the Indian Reservation, or at any location convenient
to the borrower and bank. Some banks reach out to customers on reservations by using mobile
branches, mini-branches in supermarkets, or temporary booths at community events or festivals.

Usually, lending officers meet with prospective borrowers and take applications from
them directly. Alternative origination methods may prove useful to banks extending mortgage
loans in remote areas of Indian country. In addition to originating loans through face-to-face
customer contacts in the bank, some banks originate loans by accepting application submitted
through home personal computers or through loan officers who take applications from borrowers
in nonbank locations.

The Acts which Deals with Mortgage in India:

In India, The Transfer of Property Act, 1882 deals with mortgage of immovable property.
Chapter IV, Sections 58 104 of the said Act deals with mortgage .The Transfer of Property Act
deals with the substantive part of mortgage of immovable property on the other hand The Civil
Procedure Code, 1908 deals with the substantive part of it. Chapter XXXIV of The Civil
Procedure Code, 1908 Suits relating to the mortgage of immovable property deals with the
procedural part of it. The Indian Contract Act, 1872, guides the general principles of mortgage
contract.

In India there are six types of Mortgage is followed, they are:

1. Simple Mortgage [58(b)]

2. Mortgage by conditional sale [58(c)]
3. Usufructuary mortgage [58(d)]
4. English mortgage [58(e)]
5. Mortgage by deposit of title-deeds [58(f)]
6. Anomalous mortgage [58(g)]

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CHARACTERISTIC FEATURES OF A MORTGAGE:

In terms of the definition, the following are the characteristics of a mortgage:

(1) A mortgage can be affected only on immovable property. Immovable property includes
land, benefits that arise out of land and things attached to earth like trees, buildings and
machinery. However, a machine which is not permanently fixed to the earth and is shift
able from one place to another is not considered to be immovable property.
(2) A mortgage is the transfer of an interest in the specific immovable property. This means
the owner transfers some of his rights only to the mortgagee. For example, the right to
redeem the property mortgaged.
(3) The object of transfer of interest in the property must be to secure a loan or performance
of a contract, which results in monetary obligation. Transfer of property for purposes
other than the above will not amount to mortgage. For example, a property transferred to
Liquidate prior debt will not constitute a mortgage.
(4) The property to be mortgaged must be a specific one, i.e., it can be identified by its size,
location, boundaries etc.
(5) The actual possession of the mortgaged property is generally with the mortgager.
(6) The interest in the mortgaged property is re-conveyed to the mortgagor on repayment of
the loan with interest due on.
(7) In case, the mortgager fails to repay the loan, the mortgagee gets the right to recover the
debt out of the sale proceeds of the mortgaged property.
(8) Actual possession of the property need not always be transferred to the mortgagee.
(9) If there are more than one co-owners of an immovable property, every co-owner is
entitled to mortgage his share in the property.
(10) The interest in the mortgaged property is re-conveyed to the mortgagor on the
repayment of the amount of the loan with interest thereon

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 (11) The mortgagee gets, subject to the terms of the mortgage deed and the provisions
of the Transfer of Property Act, 1882, the right to recover the amount of the loan out of
the sale proceeds of the mortgaged property.9

ESSENTIAL ELEMENTS OF A TRANSACTION OF A MORTGAGE:

The essential elements of a transaction of a mortgage are:

i. Parties to a mortgage
ii. Transfer of an interest
iii. In a specific immovable property
iv. The purpose is to secure the repayment of money advanced or to be advanced/or for
performance of an engagement that may give rise to a pecuniary liability.

I. PARTIES TO A MORTGAGE:

MORTGAGOR:

A person effecting the mortgage of his property is called a mortgagor and the one in
whose favour it is executed is called a mortgagee. A mortgagor must be a person competent to
contract and capable to transfer the property. Where the guardian of a minor executed mortgage
of the property of the minor without the sanction of the court, the mortgage is not void but
voidable at the option of the minor which he can exercise on attaining majority.

Mortgagor is a person who has borrowed money and pledged his/her real property as
security for the Mortgagee. He has rights, and is liable to certain duties as such. He cannot
commit waste, nor make a lease injurious to the mortgagee. As between the mortgagor and third
persons, the mortgagor is owner of the land. He can, however, do nothing which will defeat the
rights of the mortgagee, as, to make a lease to bind him.10 In mortgage loan documents, the buyer
is often referred to as the borrower in the note, and mortgagor in the mortgage document. The

9
http://bankofinfo.com/characteristics-of-bank-mortgage/
10
http://legal-dictionary.thefreedictionary.com/mortgagor

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difference between being a borrower and a mortgagor is that the mortgage provides security, or a
lien in real estate, for the money borrowed.11

MORTGAGEE:

Any person who is competent to hold property can be a mortgagee irrespective of

competency to contract. It is competency to hold the property and not competency to contract,
which is material here, and therefore even a minor12 is competent to be a mortgagee. However,
as the court is not a person, it is not competent to be a mortgagee.13

A mortgagee is an entity that lends money to a borrower for purchasing a piece of real
property. By accepting a mortgage on the real property, the lender creates security in the full
repayment of the loan in the future.14 Mortgagee is a person or business making a loan that is
secured by the real property of the person mortgagor who owes him/her/it money.

II. TRANSFER OF AN INTEREST:

In a mortgage there is, necessarily, a transfer of an interest in the property for a specific
purpose. For instance, A borrows money from B and undertakes to repay it within a period of
one year. The agreement also provides that if A is not able to arrange money, he would sell his
property and repay the loan out of the sale proceeds. This is not a transaction of mortgage, as no
interest has been transferred in favour of the mortgagee. What that interest is, would depend
upon the nature and type of mortgage, which is affected. For example, in a simple mortgage, the
transferor transfers a right to cause the property to be sold. In Usufructuary or possessory
mortgage, the right to possess and enjoy the property is transferred. Likewise, in an English
mortgage, what is transferred is the ownership while the mortgagor retains a right of redemption
(or) a right to get his property back.

A transfer of interest is a transfer of ownership of any object, real property, or business

entity from one party to another. Most often, though, this term refers to the transfer of one
partys ownership in a business, and it may refer to an interest in a partnership, a limited liability

11
https://www.firstfoundation.ca/mortgage-glossary/mortgagor/
12
Zafar Ahsan Vs. Zubaida Khatun [AIR 1929 All 604]; Thakur Das Vs. Putli [AIR 1942 Lah 611]
13
Mehdi Ali Vs. Chunni Lal [AIR 1929 All 834]; Raghubir Singh Vs. Jai Indra Bahadur Singh [AIR 1919 PC 55]
14
http://www.investopedia.com/terms/m/mortgagee.asp

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company (LLC), corporation, or other business entity. Generally, the transfer will be executed
through a transfer of interest agreement.

Though people rarely refer to it as such, every purchase that is made technically involves
a contract, and through that contract, a transfer of interest in property is made. The purchase of
food from a supermarket is a contract that results in a transfer of the interest in the food from the
supermarket to the purchaser. Likewise, the interest in clothes purchased at a store is transferred
through a contract between the purchaser and the store.

These transfers can be made through an agreement to any terms, notwithstanding any
special restrictions or legal stipulations on the type of interest to be transferred. The agreement
just must clearly state the parties, the interest to be transferred, and the consideration being given
for the transfer. Once the intent to make the transaction is manifested in the words or actions of
the parties, the agreement is officially executed and the transfer is complete.15

Transfer of an interest as distinguished from a personal liability creates a relationship of

the transferee with the property. Therefore even if the property changes hands, i.e., the
ownership changes, the relationship of the transferee with the property continues. After effecting
a mortgage by transferring an interest in the property, if the mortgagor sells the property to a
third party, the mortgage would continue to be effective and valid. Rather, the third party takes
the property subject to the mortgage.

Interest:

Ownership of the property comprises a bundle of rights and when a person executes a mortgage,
he parts with some of the rights in favour of the mortgagee.16 At the same time, the ownership17,
a right to redeem18, and a right to transfer the Property19, remain with the owner. The transfer of

15
http://www.wisegeek.com/what-is-a-transfer-of-interest.htm
16
Pappamma v. Ramch, (1896) 19 Mad 249.
17
State of Punjab v. Labb Singh, (1985) 4 SCC 52.
18
Sohanlal v. Mohan Lai, AIR 1928 All 729.
19
Ramkinkar v. Satyacharan, AIR 1939 PC 14; Bharat Singh v. Chadi, AIR 1947 All 27; Jagdamba Loan Co. v.
Shiba Prasad Singh, AIR 1941 PC 36.

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a right to obtain the tea export quota20, a right to receive rents and profits for a certain term of
years21, a right of redemption,22 or a transfer of an interest of the mortgagee by the person may
constitute mortgage.23

Covenant not to sell the Property:

A covenant by the owner not to sell his property till the loan is repaid does not make this
a transaction of mortgage. Transfer of an interest in a specific immovable property is necessary.
For instance, A, the owner of a house, borrows money from B and undertakes to repay it within
two years. The contract also provides that until the money is repaid, A would be incompetent to
sell his house as the same stands as a security for its repayment. This condition was inserted to
facilitate the sale of the property, should the need arise. However, this transaction would not
amount to a mortgage, as no right in the property has been transferred. It is a simple covenant not
to sell the property.

Therefore, a covenant against alienation, or a security bond by which property is merely

charged does not amount to a mortgage. However, a security bond executed in favour of the
Registrar of the court for the benefit of the creditors is a mortgage. 24 A covenant in the sale deed
by the mortgagor in favour of the mortgagee providing for renewal of debt in case of defect in
title is not a mortgage.25

20
Ramchand v. Saraswatipore Tea Co., 40 Cal WN 1 199; see also Ghose and sons v. Chandrapore Tea Co., 39 Cal
WN 1261, wherein it was held that the right to obtain tea export quota is not an interest in the mortgaged properties
in case of a mortgage of a tea estate.
21
Anantha lyer v. Mittadar, (1914) Mad WN 891.

22
Khub Chand v. Kalian Lhs, (1876) ILR 1 All 240; Kanti Ram v. Kutubbudin, (1895) ILR 22 cal 33.

23
Muthu Vijaya v, Venkatachalam, (1897) ILR 20 Mad 35; Ram Shankar v. Ganesh Prasad, (1907) ILR 29 All 385

24
Girindra v. Bejoy, (1899) ILR 26 cal 246; Tokhan Singh Girwar, (1905) ILR 32 cal 494.
25
Ram Khelawan v. Ramnanadan Prasad, (1949) AP 505.

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Movable Property:

The TP Act lays down rules governing the mortgage of only immovable property, though
mortgage of movables is also recognized in India.26 A mortgage of shares, printing press, stock
and trade, fishing boats, paddy boats, floating logs of timber, bullocks, are instances of mortgage
of movables.

A mortgage of property yet to come in existence such as future crops, indigo cakes to be
manufactured, future dues for work to be done, a future decree but not of profits accruing from
year to year, are also recognized as valid but cannot be enforced against a purchaser for value,
without notice.27

Mortgage of Movables:

Mortgage of movables does not require delivery of possession and a mortgagee is not entitled to
take possession in the event of non-payment of loan. His right is to enforce the mortgage by
suing for a sale of the property or by appointment of a receiver to secure its possession so that his
security may realize;28 but if the mortgagee is in possession of the mortgaged movables, he can
sell them without the intervention of the court. In a contract of pawn/pledge, the pledgee has a
special property while the general property remains with the pledgor/mortgagor. The right of
property vests in the mortgagee/ pledgee only so far as necessary to secure his debts. Therefore,
the deeds of pledge do not have the effect of transferring the ownership to the
mortgagee/pledgee. The same can be attached for being appropriated towards the Provident
Funds dues.29

III. Specific Immovable Property:

26
Arjun Prasad v. Central Bank ofIndia, AIR 1956 Rang 32.
27
Co-operative Hindustan Bank v. Surendra, AIR 1932 Cal 524.
28
Venkatachalam v. Venataraman, AIR 1940 Mad 929.

29
Maharashtra State Co-operative Bank Ltd. v. Assistant Provident Fund Commissioner, AIR 2010 SC 868

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 The security must be in the shape of a specific immovable property, i.e., transfer of a
specific right in a specific immovable property is the fundamental requirement in a mortgage,
Specific immovable property means that the property should be sufficiently identified 30, and the
description should not be general or ambiguous in character.

For instance, A borrows money from B and undertakes to repay it within a period of two
years. The contract also provides that if A failed to repay the loan within a period of two years, B
can sell any of his properties. A owns three properties? X Y and Z. This is not a transaction of
mortgage, as the security for repayment of money has not been identified as a specific
immovable property.

The description of the property as previously mentioned should be as specific as possible.

If, from the description of the property, it cannot be easily identified, the transaction would not
amount to a mortgage transaction. The proper way of describing it is by its name, if any, with the
full postal address. If the property is a land, it should be described clearly and if need be, with
reference even to the neighboring properties.

The descriptions like, my house at place Y, when the person had two houses at that
place, all my wealth and property, one of my seven villages, a share in our Zamindari
properties, my house and landed property, the whole of my property, our property with
rights and incidents therein, are general descriptions and not specific, but descriptions like, my
house Shanti Niwas, in Ashok Nagar, or, my five bighas of land at village Bhagpur, house
situated at place X and owned by us where the persons stating so own only one house, are
sufficient descriptions.

IV. PURPOSE OF A MORTGAGE:

30
Najibulla v. Nasir, (1881) ILR 7 Cal 198; see also Dakkam v. Sasnapari, (1914) Mad WN 270 wherein it was held
that if the description was such as to enable the land to be determined. It is a sufficient specific description; see also
the Deccan Agriculturists Relief Act, 1879, s. 22, where the meaning of the term specifically mortgaged is
identical.

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 Buying a home is often referred to as one of the American dreams. Many first-time
homebuyers will tell you they experienced feelings of independence and accomplishment when
they were first handed those keys to their very own property.

The problem with getting that first home is that it can be very expensive. It could easily take
several decades to save enough money to pay cash for a home. Thus, many first-time
homebuyers take out a mortgage instead.

From the borrower's perspective, mortgages help those with a stable income and adequate
credit history purchase a home earlier in their lives. Mortgages also can be used to repair or
renovate a home or provide additions, such as an additional bedroom or a garage, to a home.
From a lender's perspective, a mortgage provides a way to make money by charging interest on a
loan, while protecting themselves with collateral in case of non-payment.31

DEVELOPMENT OF MORTGAGE IN INDIA:

The Pre-Action Mortgage Protocol and House Possession Court Duty Scheme are
considered to have improved mortgagors protection. The Protocol was introduced in November
2008 and it encourages lenders and borrowers to discuss the borrower's financial situation and
obliges them to explore ways in which the borrower's financial position can be aided before
possession is sought. At first glance, the protocol seems rather toothless, supporting the view that
it is a complete waste of time and paper (McAuslan, 2009, p3). But evidence has emerged that
it is having a positive impact. The Protocol has been largely embraced by all of those involved in
domestic mortgage repossessions (Wood, 2009, p34).

The Ministry of Justice suggested it was highly likely that the Protocol led to a marked
reduction in possession claims (Greer, 2009, p522). In the first three quarters of 2008, the
number of claims was consistent at around 38,500 but after the Protocol was introduced in the
final quarter, this number fell to 26,008. The Council of Mortgage Lenders (CML) forecast in
February 2009 that there would be 75,000 repossessions in that year but this figure was revised
downward in June 2009 and again in November 2009 to an estimated 48,000 (Wood, 2000 p34).

31
http://study.com/academy/lesson/what-is-a-mortgage-definition-purpose.html

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Wood also believes that the Court Scheme, which provides free legal advice for mortgagors, was
another 'significant step forward' in providing protection (Wood, 2000 p34).

Two reforms introduced by the Government promised much but ultimately failed to
deliver. Firstly, the Mortgage Rescue Scheme (MRS) was introduced in January 2009 offering
the potential facility to mortgagors in arrears to remain in their property by allowing a social
property owner to obtain a full or partial equity stake in their home. Secondly, the Homeowners
Mortgage Support Scheme (SMI) was established in April 2009, permitting mortgagors in
financial difficulties to suspend interest payments for up to two years. On paper these reforms
appear to increase mortgagors protection but the low take up of these schemes suggest they are
having little impact. It was reported in July 2009 that only 16 borrowers had been supported
under SMI (Wood, 2009, p35) and in the three months prior to November 2009 only 92
borrowers had been helped under the MRS (Wood, 2009, p35). Given that annual repossessions
run into the tens of thousands, these figures support the argument that overly rigid eligibility
criteria prevent sufficient numbers of lenders from being helped to have any meaningful impact
in improving mortgagors protection (Wood, 2009, p35).

Legislative change has also been advocated. The Citizen's Advice Bureau argued that
lenders of first charge mortgages should be prevented from exercising a power of sale or self
help over a residential dwelling without court order and Andrew Dismore MP has attempted to
introduce a private member's bill aimed at implementing this (Greer, 2009, p520). However, the
CML has cautioned against any major changes to the law, stating that this could have far-
reaching effects for lenders, consumers, and the economy (Greer, 2009, p520). While these
proposals would increase protection for mortgagors, it may cause lenders to become more careful
about offering credit and a depressed lending market will hardly help the prospects of economic
recovery (Greer, 2009 p524). The cost of lending would be increased with the result that access
to credit for the wider population would be reduced. Finally there is little evidence that
mortgagees are using the Horsham possession route on a wide scale (Greer, 2009, p521) and that
in a depressed housing market it is actually in the financial interests of the lender not to do so
(Wood, 2009,p35).

In conclusion, currently a mortgagee has the technical right to evict a mortgagor from his
home in the event of default without seeking a court order. This can be done by taking advantage

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of contractual provisions contained in the mortgage deed or by using statutory powers. The
confirmation of this in Horsham prompted a series of reforms and proposals. Some reforms are
credited with affording mortgagors greater protection than existed previously while other
reforms have been criticized for having overly rigid eligibility criteria, which prevent them from
having any meaningful impact. There has been some call for legislative change in this area,
which would provide increased protection to existing mortgagors. However, this would be at the
price of increasing borrowing costs, which would exclude more people from home ownership
and damage the UKs prospects for economic recovery. So in the absence of evidence of wide
scale use of the Horsham possession route by mortgagees such legislative change should be
resisted.

DIFFERENCE FROM OTHER SIMILAR PARTS:

Mortgage and Pledge:

A pledge consists of the loan of money in return for the delivery of possession of chattels
to the lender. In pledge, although the lender has certain powers of sale, the general property in
the goods remains in the borrower and the lender has possession. In a mortgage, on the other
hand, the whole legal title in the property passes conditionally to the mortgagee, and if the
property is not redeemed at the time stipulated the title becomes absolute. Further, in the case of
a pledge of personal property the right of the pledge is not consummated except by possession
and ordinarily when that possession is relinquished, the right of the pledgee is extinguished or
waived.

However, in the case of a mortgage of personal property the right of property passes by
the conveyance to the mortgagee and possession may or may not be essential to create or support
the title.

Mortgage and Charge:

A charge is regarded, for most practical purposes, as a species of mortgage but there is an
essential difference between the two. A mortgage is a conveyance of property subject to a right

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of redemption whereas a charge conveys nothing and merely gives the charge holder certain
rights over the property concerned as security for the loan.32

The distinction between the two may be indicated in the following manner:

1. A charge only gives a right to payment out of a particular immovable property without
transferring any interest in it. A mortgage on the other hand conveys an interest in
specific immovable property.33
2. A mortgage can be enforced against a bona fide purchaser for value with or without
notice; while a charge cannot be enforced.
3. In a charge no right in rem is created; in a mortgage, on the other hand, it is created.
4. A mortgage is created by the act of the parties whereas a charge may be created either
through the act of parties or by operation of law.
5. A charge created by operation of law does not require the registration as prescribed for
mortgage under the Transfer of Property Act. But a charge created by act of parties
requires registration.
6. A mortgage is for a fixed term whereas the charge may be in perpetuity.
7. A simple mortgage carries personal liability unless excluded by express contract. But in
case of charge, no personal liability is created. But where a charge is the result of a
contract, there may be a personal remedy.
8. A charge only gives a right to receive payment out of a particular property, a mortgage is
a transfer of an interest in specific immovable property.
9. A mortgage is a transfer of an interest in a specific immovable property, but there is no
such transfer of interest in the case of a charge. Charge does not operate as transfer of an
interest in the property and a transferee of the property gets the property free from the
charge provided he purchases it for value without notice of the charge.
10. A mortgage is good against subsequent transferees, but a charge is good against
subsequent transferees with notice

Mortgage and Lien:

32
Megarry's Manual of the Law of Real Property, 4th ed. p. 461.
33
J.K. Private Ltd. v. N. Knseri Hind Spinnings & Weaving co. Ltd, AIR 1970, S.C. 104.

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 A lien is the right to retain possession of another's property until a debt is paid. Lien is a
mere passive right of retention, giving no right to sell or otherwise deal with the property and is
extinguished if the creditor parts with possession to the debtor or his agent.34

A mortgage confers an interest of legal character in the mortgagee and it is not always
necessary that the mortgagee should have possession of property.

Mortgage and lease:

In a mortgage, some interest in an immovable property is conveyed for securing payment

of loan and a right of redemption is reserved in favour of the mortgagor. In a lease, on the other
hand, the lessee conveys physical possession of immovable property for use and occupation of
the same. In lease, property is not transferred by way of security for the payment of money
borrowed.

In M.K. Umma v. P.P. Amma35, the Supreme Court observed that the test to be applied
in determining if a document is a lease or mortgage is whether the purpose of the transaction is
enjoyment of the property by the transferee or whether it is intended to secure the repayment of
debt by the transferor. In the former case, it is a lease and in the latter case, it is a mortgage.

Mortgage and sale with a condition of retransfer:

In case of mortgage property is transferred by way of security for payment of a loan and a
relationship of creditor and debtor exists. In a sale with a condition of retransfer, there is no debt
and therefore relationship of creditor and debtor does not exist. In mortgage only some rights of
the mortgagor in the property is transferred; while in a sale with a condition of retransfer all
rights in the property is transferred and the transfer merely reserves a personal right Of a re-
purchase which is lost if not exercised in a stipulated time. The distinction between die two was
pointed out for the first time in Alderson Vs. White36 in the following words:

The rule of law on this subject is one dictated by common sense that prima facie an
absolute conveyance containing nothing to show that relation of debtor and creditor is to exist
34
Penningtan v. Reliance Motor Works Ltd. , (1923) 1 K.B. 127.

35
AIR 1971 S.C. 1575
36
2de. Gex. And j. 105

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between the parties does not cease to be an absolute conveyance and become a mortgage merely
because the vendor stipulates that he shall have a right to repurchases.

The distinction between the two, however, is one of intention. No precise and clear-cut
distinction can be postulated. Where the intention of the parties is clear from the document itself,
other oral evidence is not admissible to prove that the transaction is one of mortgage and not of
sale.

RIGHTS AND LIABILITIES OF MORTGAGOR AND MORTGAGEE

RIGHTS OF A MORTGAGOR:

1. Right of Mortgagor to Redeem:

Section 60, Transfer of Property Act provides that at any time after the principal money has
become due, the mortgagor has right on payment or tender, at a proper time and place, of the
mortgage money, to require the mortgagee.

1. To deliver to the mortgagor the mortgage deed and all documents relating to the
mortgaged property which are in the possession or power of the mortgagee;
2. Where the mortgagee is in possession of the mortgaged property, to deliver possession
thereof to the mortgagor; and
3. At the cost of the mortgagor either to re-transfer the mortgaged property to him or to such
third person as he may direct, or to execute and where the mortgage has been effected by
a registered instrument to have registered an acknowledgement in writing that any right
in derogation of his interest transferred to the mortgage has been extinguished.

Provided that the right conferred by this section has not been extinguished by the act of the
parties or by decree of court.

2. Rights to inspection and production of documents:

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 A mortgagor as long as his right of redemption subsists, shall be entitled at all reasonable
times at his request and at his own cost, and on payment of the mortgagees cost and expenses in
this behalf, to inspect and make copies or abstracts of or extracts from documents of title relating
to the mortgaged property which are in the custody or power of the mortgagee.

3. Redeem Of Property:

As the loan is returned then a mortgagor has a right to redeem the property. All
documents and the mortgage deed should be returned to the borrower.

4. Right To Claim Damages:

If the property is damaged during the possession of the mortgagee then the mortgagor has
a right to claim the damages from the mortgagee.

5. Right To Claim Damages:

If the property is damaged during the possession of the mortgagee then the mortgagor has
a right to claim the damages from the mortgagee.

6. Right Of Lease:

If the possession of the property is in the hands of mortgagor then he can make lease of
this property for the ordinary period.

7. Recovery Of Possession:

When the mortgagor returns the loan then he has a right to recover the possession of the
property from the mortgagee.

LIABILITIES OF MORTGAGOR:

1. Obligation to transfer to third party instead of re-transference to mortgagor:

Section 60 A, Transfer of Property Act provides that where a mortgagor is entitled to

redemption, then on the fulfillment of any conditions on the fulfillment of which he would be
entitled to require a retransfer, he may require the mortgagee, instead of retransferring the
property, to assign the mortgage debt and transfer the mortgaged property to such third person as

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the mortgagor may direct the mortgagee and the mortgagee shall be bound to assign and transfer
accordingly.

The provisions of this section do not apply in the case of mortgagee, who is or has been
in possession.

2. Follow The Agreement Deed:

The mortgagor will observe all the conditions contained in the agreement deed. He will
also defend the title of property if the property is in his possession.

3. Liability of Taxes:

If property is in the possession of the mortgagor then the liability of all types of taxes will
be on the mortgagor over of Modarba certificates is not impressive. Now the ratio of equity is
very high in relation to debt financing.

4. Control of Modarba Companies:

There are many checks on the Modarba companies to regulate the modarba. The state
bank, religious board, corporate law authority, and registrar of modarba are responsible to
regulate the modarba company.

5. Appointment of Auditor:

It is very necessary that modarba company should appoint the auditor. Auditor should be
qualified charted accountant approved by the registrar. The auditor should certify the objectives
and accounts of the modarba.

6. Audit Report of The Company:

Auditor verified balance sheet and profit and loss report about the company must be
given to the modarba certificate holders within six month of the closing accounts period.

RIGHTS OF MORTGAGEE:

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 1. Selling Right:

If borrower fails to return the loan in time then the mortgagee has the right to sell the
property of the mortgagor. However, it will be sold and getting decree from the court. Property
will be sold by auction.

2. Shortage Of Money Case:

After selling the property if amount is less than the loan, the balance can be recovered from
the person by getting the decree from the court.

3. Usufructuary Case:

In this case, mortgagee has no right to sell the property and to obtain the decree from the
court. The banker can retain the possession until the recovery of the loan.

4. Refusal Of Debt:

If a borrower refuses to return the loan or he is unable to pay the debt then the lender can get
a foreclosure decree from the court.

5. Adjustment Of Payment:

The banker has a right to distribute the payment received after the sale of property according
the principal amount, interest and other charges.

6. Joint Suit:

If the mortgagor is more than one person then suit will be filed against all of them if the loan
is not returned.

7. Sale Of Private Property:

In case of private property, the mortgagee will issue at least 3 months notice to the mortgagor
before selling the property.

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LIANILITIES OF MORTGAGEE:

When property is in the possession of the mortgagee then it has the following duties or liabilities:

1. Property may not be damaged.

2. No alteration is allowed in property.
3. The property must be insured.
4. Property must be kept secured.
5. Rent of the property must be collected.
6. Govt. Revenue must be paid.
7. Property must be kept clear from all dues.

SIMPLE MORTGAGE:

DEFINITION:

Section 58(b) defines about Simple mortgage:

Where, without delivering possession of the mortgaged property, the mortgagor binds
himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the
event of his failing to pay according to his contract, the mortgagee shall have a right to cause the
mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary,
in payment of the mortgage-money, the transaction is called a simple mortgage and the
mortgagee a simple mortgagee.

EXPLINATION:

In a Simple mortgage, the possession of the mortgaged property is not transferred from
mortgagor to the mortgagee. If the mortgagor fails to repay the loan, the mortgagee has the right
to sell the property and recover the loan from the sale amount.

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 Simple mortgage is executed where without any property being delivered to the
mortgagee. The mortgagor makes himself liable to repay the debt. 37 It is implied by him in an
express or implied manner that in the event of non-repayment of loan, the mortgaged property
can be used to make good of the loan by the mortgagee38. The fundamental characteristic of
simple mortgage is that the mortgagee has no right to liquidate the property without the
permission of the court.39

In a Simple mortgage, the possession of the mortgaged property is not transferred from
mortgagor to the mortgagee. If the mortgagor fails to repay the loan, the mortgagee has the right
to sell the property and recover the loan from the sale amount.

ESSENTIAL INGREDIENT OF SIMPLE MORTGAGE:

A simple mortgage envisages the following essential ingredient:

i. Mortgagor has received the money borrowed by him from the Mortgagee.
ii. There is no need to deliver possession of the property under mortgage.
iii. The mortgagor binds himself personally to pay the mortgage money; and
iv. The mortgagor agrees expressly or impliedly that if he fails to pay the mortgage money
according to his contract, the mortgagee will have a right to cause the mortgage property
to be sold and to apply the sale proceeds in the payment of mortgage money so far as may
be necessary.

37
Simple Mortgage is used to notify all mortgage deeds where the debtors binds himself through a personal
covenant and gives his property as security to the creditor. See Jangi Singh v chander (1908) ILR 30 All 390

38
In a deed of simple mortgage, the transfer of right signifies the right to liquidate the property. There is no rule
stating that such right be expressly mentioned in the mortgage deed. See dalip Singh v Bahadur ram (1912) 34 All
446.

39
Fundamental Characteristics of Simple Mortgage available at
sjecnotes.weebly.com/uploads/5/2/5/1/5251788/mortgage.doc (Last Visited on 16/3/2014)

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If the above conditions are fulfilled such mortgage is called as simple mortgage and the
mortgagee is called a simple mortgagee.

PERSONAL LIABILITY:

A simple mortgage entails two types of liabilities, personal liability and the mortgaged
property.40 In a standard mortgage deal, the mortgagor does not have any personal liability and
on non-repayment of loans, the mortgagee can move on to liquidate the mortgaged property in
order to make good of the loan. But in a simple mortgage, there is a personal liability on part of
the mortgagor to repay the loan along with the mortgaged property, hence the mortgagee has to
option to move against either the mortgagor personally thus obtaining a decree against him or he
can move against the mortgaged property to liquidate it for the payment of loan. The presence of
a personal covenant is very important in a simple mortgage and that is what distinguishes it from
other forms of mortgage.

NO DELIVERY OF POSSESSION:

There is no delivery of mortgaged property in simple mortgage. The money can be

recovered by a money decree. A clause to transfer the complete interest of a mortgaged property
to the mortgagee on non-payment of loans changes the simple mortgage into mortgage with
possession.

SALE OF PROPERTY:

In mortgage, the mortgagor may give the power to sale the property either expressly or
impliedly. This means that on the event of non-payment of debt, the mortgagee can sell the
mortgaged property. Nevertheless, even if the contract of mortgage specifically talks about
selling the property on non-payment the mortgagee cannot go ahead with the sale of the
mortgaged property and has to wait for the intervention of the court to sell the mortgaged
property.

ADVERSE POSSESSION:

40
Wahidunnia v Gobardhan [(1900) ILR 22 All 453]

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 A trespasser who removes the mortgagor and takes possession of the land that land can
still be legally mortgaged. The trespasser can become the owner of the limited right the
mortgagor has over the land mortgaged by him but it does not in any way take away the legal
rights of the mortgagee over the mortgaged land in a simple mortgage .Adverse possession is
valid only when the mortgagee who has a right over the mortgaged land does not take possession
over the land in time and he runs against time which is from the day he gets his right to interest
over the mortgaged land. If there is no accrual of rights to possess the land by the mortgagee, his
right cannot be taken away by the mere possession of that particular mortgaged land by the
adverse claimant.

If the mortgage has been declared illegal for being unregistered and the mortgagee has been in
possession of that land for more than 12 years then after 12 years, the mortgage becomes valid.

DIFFERENCES WITH KINDS OF OTHER MORTGAGES:

1. Mortgage by conditional sale section 58(c)

Where, the mortgagor ostensibly sells the mortgaged property-on condition that on default
of payment of the mortgage-money on a certain date the sale shall become absolute, or on
condition that on such payment being made the sale shall become void, or on condition that on
such payment being made the buyer shall transfer the property to the seller, the transaction is
called a mortgage by conditional sale

Provided that no such transaction shall be deemed to be a mortgage, unless the condition is
embodied in the document which effects or purports to effect the sale.

Essentials of mortgaged by conditional sale:

1. Mortgagor ostensibly sells the immovable property by a sale. It is only ostensible and not
real.

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 2. The Mortgagor has given title and possession to the mortgagee and hence mortgagee gets
a right to usufruct property.
3. On default of payment of mortgage-money, the sales shall be absolute.
4. In case mortgagor repaid the loan, the sale shall become void.
5. That mortgagor is entitled to get the property transferred on such payment.
6. No Personal security and right to sale is given to the mortgagee.
7. Mortgagee gets a right to foreclose the property

2. Usufructuary Mortgage Sec 58(d)

Where the mortgagor delivers possession or expressly or by implication binds himself to

deliver possession of the mortgaged property to the mortgagee, and authorizes him to retain such
possession until payment of the mortgage-money, and to receive the rents and profits accruing
from the property or any part of such rents and profits and to appropriate the same in lieu of
interest or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of
the mortgage-money, the transaction is called a Usufructuary mortgage and the mortgagee a
Usufructuary mortgagee

Essentials of Usufructuary mortgage:

1. No title is given to the mortgagee.

2. Mortgagor has given possession and hence mortgagee enjoy a right to usufruct.
3. Mortgagor has not given any personal security a right to sale a foreclosure toy the
mortgagee.

3. English Mortgage S 58 (e):

Where the mortgagor binds himself to repay the mortgage-money on a certain date, and
transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will
re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is
called an English mortgage.

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Essentials of English mortgage:

1. The mortgagor has given title , possession, right to usufruct to the mortgagor ;
2. The mortgagor binds himself to repay the mortgage money on a certain day.
3. The mortgagee is not given the right to foreclosure.

4. Mortgage by deposit of title-deeds Sec .58 (f):

Where a person in any of the following towns, namely, the towns of Calcutta, Madras,
and Bombay, and in any other town which the State Government concerned may, by notification
in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title
to immovable property, with intent to create a security thereon, the transaction is called a
mortgage by deposit of title-deeds.

The requisite essential:

1. Debt
2. Deposit of title deeds
3. An intention that the deed shall be security for the debt ; the documents of title to
immovable property with intend to create a security thereon .

This mortgage can only be made in any of the following towns namely Calcutta , Madras,
Bombay , Lucknow, Allahabad & Kanpur and in any other town which the state Government
concern may specify on this behalf.

5. Anomalous mortgage - Sec. 58(g):

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 within the
meaning of this section is called an anomalous mortgage.

It does not fit in above five mortgages, which is a combination of two or more of above
mentioned type mortgage.

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 6. Reverse Mortgage:

In the US, concept of Reverse Mortgage is fast catching up,

Meaning:

A reverse mortgage loan is a loan where the lender pays the monthly installments to you
instead of you making any payments to the lender. Hence, the name reverse mortgage, as the
payment stream is reversed. A Reverse mortgage enables senior citizens to convert their home
equity into tax-free income. Reverse mortgages enable eligible homeowners to access the money
they have built up as equity in their homes. They are primarily designed to strengthen seniors
personal and financial independence by providing funds without a monthly payment burden
during their lifetime in their home.

CONCLUSION:

In a Simple mortgage, the possession of the mortgaged property is not transferred from
mortgagor to the mortgagee. If the mortgagor fails to repay the loan, the mortgagee has the right
to sell the property and recover the loan from the sale amount.

Simple mortgage is distinguished from other forms of mortgage by the presence of a

personal covenant. In simple mortgage, the mortgagor binds himself personally to the mortgagee
to repay the loan and pledges his property as a security, which can be liquidated on default of
payment. However, a decree has to be passed by the court to liquidate the security and without
the intervention of the court, the security cannot be liquidated. One more characteristic that must
be kept in mind that there is only a partial transfer of interest from the mortgagor to the
mortgagee on transfer of property.

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