(This post explains the essence of Mortgage of properties and several forms of mortgage of immovable properties in India viz. Equitable Mortgage, Simple Mortgage, English mortgage, Mortgage by conditional Sale, Usufructuary Mortgage, and Anomalous Mortgage which are major types of mortgage systems currently existent in India.)
The essence of Mortgage of properties:
The transfer of an interest in a specific immovable property to secure the money advanced or to be advanced or performing a promise which may give rise to financial liability is called a mortgage of immovable property. The mortgage of immovable property can be recognized only when the following motives are established.
- Transfer of interest in the immovable property (like land, building, plant, and machinery).
- The immovable property should be specific (For example, if the mortgagor states that “all of my property” in the mortgage deed then it is not a mortgage)
- The consideration for the mortgage is to secure the payment of loan existing or future debt or performance of an obligation which results in financial liability.
Parties to the mortgage:
The following are the parties to the mortgage of immovable property.
- Mortgagor (borrower or guarantor who is the owner of the property to be mortgaged).
- Mortgagee (The lender/Banker)
- Registrar of Assurance ( Where registration of mortgage or registration of memorandum of mortgage takes place)
- Registrar of companies (In the case of Limited companies, for registration of charges).
The following are the different forms of mortgages that exist in India;Equitable Mortgage: A mortgage by deposit of ‘title deeds’ is called an equitable mortgage. The Equitable mortgage is the most common form of mortgage in India. Section 58(f) of Transfer of Property Act 1882 defines a mortgage by deposit of title deeds as under;
“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”.
Major ingredients of Equitable Mortgage:
The major ingredient to form a valid equitable mortgage is (i) There shall be a debt, may be existing or future or partly existing and partly future. (ii) Deposit of title deed should be made in notified centers only and not in all the places. (iii) All the Owners of the property or their agents (insist on Registered Power of Attorney, in case POA is authorized to create mortgage). The delivery of the title deed should be only to the Creditor or his agent. (e.g.: delivery to the wife of the creditor or an attorney does not create a valid mortgage) (iv) All those title deeds deposited with the creditor should be material evidence of title (v) The deposit of title deed is made with an intent to create a security thereon.
The procedure of creating an ‘Equitable mortgage’:
In ‘Equitable mortgage’, the owner of the property calls at the Bank in a notified town and delivers the title deeds of his property to the Branch Manager or an Authorized Official of the bank, with the intent to create a charge on the property to secure a loan existing or future or performance of an obligation which results in financial liability. The bank official makes a not in their title deed register (security register) which is also called a Memorandum of Oral Assent. The noting contains the narration with full details of the owner of the property, property details, and title deed documents details, the amount of limit sanctioned. The oral expression of the mortgager about his intention to create the mortgage for the purpose stated therein is also will be recorded. Below is the noting the Branch Manager and Bank Official would sign. The Signature of the borrower shall not be taken on the security register. The title deeds so deposited by the mortgage will remain in the custody of the bank till the financial liability of the borrower is fully settled. In earlier days, no stamp duty was levied on the equitable mortgage. Now stamp duty is payable in almost all the states for the equitable mortgage. The registration of an equitable mortgage is not compulsory. Banks, therefore normally advise their customers for registration of the memorandum of the mortgage so that the encumbrance on the property offered as security will be appearing in the property records of ROA at the lesser cost of stamp duty.
Simple Mortgage: A simple mortgage is created through a registered deed and hence it is also called a registered mortgage. A Simple mortgage is preferred over equitable mortgages in exceptional cases such as :(i) where the original title deeds are not available OR (ii) the party has already created a mortgage and a second mortgage has to be created in favour of the Bank. In simple mortgages, no delivery of possession of assets is required. The mortgagor binds himself, personally responsible for the satisfaction of dues to the creditor. The mortgagor also agrees to the lender’s right to dispose-off the mortgaged property for settlement of financial liability of the borrower in case of defaults.
Mortgage by conditional Sale: In a mortgage by conditional Sale, the mortgagor sells the property to the mortgagee (Creditor) with a condition that on default, the sale of property shall become absolute and on full settlement of dues the sale shall be void and the creditor (buyer) shall transfer back the property to the mortgagor.
Usufructuary Mortgage: In a Usufructuary mortgage, possession of the property is delivered to the mortgagee, with a condition that the mortgagor is entitled to repossession of the property on payment of dues, or, debt is satisfied by rents and or profit received by the mortgagee (Creditor). The mortgagee will be in full enjoyment of the property till he receives the full and final settlement of dues. However, the mortgagee cannot sue the mortgagor for foreclosure or the sale of the property.
English Mortgage: In English Mortgage, the mortgage will be registered. It is a transfer of property to the mortgagee for debt or a promise to be performed. The mortgagee shall re-transfer the property to the mortgagor upon payment of dues or discharge of promise.
Anomalous Mortgage: The mortgage which cannot be classified under any of the above mortgages or it is a combination of two or more of the above mortgages, then such mortgage is called an Anomalous mortgage.
Sub-Mortgage: When a mortgagee mortgages the property mortgaged to him to another person as a security, then it is called sub-mortgage.
Second-Mortgage: Where the mortgager needs further loan against the security of the immovable property already mortgaged, he creates another mortgage on the same property then it is called the second mortgage. The second mortgage can be made to same in favour of the existing mortgagee or any other person.
Records maintained by CERSAI to help search frauds in respect of security offered to the banks:
The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) has been incorporated to operate and maintain the Central Registry under the provisions of the SARFAESI Act, 2002. The records maintained by the Central Registry (CERSAI) will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of the same property as well as the fraudulent sale of property without disclosing the security interest over such property.
The transactions relating to mortgages by deposit of title deeds to secure any loan or advance granted by banks and financial institutions will be registered in the Central Registry. It may be noted that under the provisions of Section 23 of the SARFAESI Act, 2002 particulars of any charge creating the security interest over property must be filed with the registry within 30 days from the date of creation.
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Sir could you please explain that after taking the deed in their custody, how does the bank informs the ADSR that this particular property has been mortgaged.
Another thing, what is mortgage notified area?
A mortgage by deposit of title deed does not require registration. Sometimes, a memorandum of equitable mortgage will be registered at ROA to create encumbrance in the records of sub-registrar. This paper examines the circumstances under which a memorandum accompanying the deposit of title deeds requires registration.The stamp duty involved in registration of memorandum of an equitable mortgage is much lower than what is paid in registered mortgage.
The procedure for the registration will be the same as for the other documents registered.An identical copy (photo copy) of Mortgage deed or memorandum of mortgage as the case may be, required to be produced before the jurisdictional Sub-Registrar. The same will be duly recorded in Book-I maintained by the registration authorities. Any encumbrance certificate applied on this immovable property by any person whatsoever will contain due reference to the execution and registration of the deed of mortgage including the description of the immovable property covered under the mortgage deed.
I’m sharing the following as my reply to your other queries
https://bankingschool.co.in/loans-and-advances/mortgage-of-immovable-properties-in-india/
Sir if a borrower has a gift deed. but he wants to do registered mortgage in home loan. is it possible?
I am not able to understand your question. Whether the borrower had received the property under gift deed or he has gifted the property to somebody else?
Dear Sir,
Please let me know you please for the charges for the registration of memornadum of deposit of title deeds charges is it bank or person taking the credit.
Regards,
Easwar
Borrower has to pay the stamp duty and registration charges. Banks collects all the expenses viz. professional fee paid for legal opinion/valuation etc. from the borrower. It’s a common rule in all the banks.
Sir
In case of KCC loan, what documents are required? And whether equitable mortgage allowed or not?
For KCC letter of pledge will be taken instead of letter of hypothecation as in the case of OCC. The stocks will be under the lock and key of the bank. All other documents are same for OCC & KCC. No problem in obtaining collateral security by way of mortgage of property.
hi Sir,
can you please help to confirm what is the timeline for a bank to claim/possess the property if the borrower is in default.
also is it necessary to cancel the mortgage deed registered? even though the bank has provided the receipt of repayment.
If the mortgage continues beyond 12 years, the title holders have to redeposit the title deeds in the bank before completion of 12 years. It is necessary to cancel the registration of mortgage once the loan is repaid. Till you cancel the mortgage charge your property records at ROA show encumberance on your property.
DEAR SIR I HV BOUGHT A FACTORY SHED INCL LAND AND LETTER FROM WEST BENGAL FINANCE CORPORATION KOLKATA STATING SALE AND POSSESION WAS GIVENTO ME AND THE LAND WAS AGAIN MORGAGED. I HV PAID LAST INSALLMENT ON 4/9/2010 ANDNO OBJECTION HAS BEEN GIVEN BY THE CORPORATION ON 28/3/11.THE CORPORATION THE N O C SSTATING THE ALL SECURITY DOCUMENTS RELEASED HEREBY.
THE SECURITY DOCUMENTS IN ORIGINAL ARE MISPLACED /LOST IN TRANSIT.
CAN IGET CERTIFIED VCOPY FROM THE REGISTRAR ASSYRANCE OF THE FOLLOWING
CERTIFIED COPY OF MORTGAGE DEED RELESED BY W B F C KOLKATTA
CERTIFIED COPY OF DEED MORTGAGED
PROCEDURE FOR SAME.
GERA TARA CHAND
You can get the certified copies from Sub-registrar’s office. But in the absence of original title deeds getting loan or selling the property with the copies of title deeds is always difficult.
There is one Father who is eligible financially to take LAP, he has inherited property which he intending to mortgage. he got 3 sons out of 2 are ok to come on loan structure, another is not staying in town, i mean he resides in some other city,
as per lender all legal heirs should be part of the loan structure, is it right?
Yes. Banks insist for consent of all the legal heirs for mortgage of the property to avoid litigation in the event of disposal of the property for recovery of dues.
Loan is sanctioned to a party in one state against the property situated/located at other state , then where to create mortgage .
Sir please reply,,In mortgage by conditional sale after default of payment on certain date by mortgagor,sale become absolute and mortgagee is the owner of property or mortgagee will go to court for foreclosure and ownership of property then he will be the owner of property.
In case of a mortgage by conditional sale, a mortgagor ostensibly sells the mortgaged property on the condition that on default of repayment of the mortgage money by a certain date the sale will become absolute. The mortgager loses his right over the property if he does not close the loan before the certain date mentioned in a conditional sale. The mortgager or the mortgagee need not go to court, once the sale becomes absolute.
Sir,
My wifes brother has mortgaged their ancestral property with a bank.This property has not been legally partitioned.But he says that he has transferred the property in his name 3 years back,without the knowledge of my wife.What happens to my share of the property if he deafaults.Also how can the bank give a loan against the ancestral property when there is no partition.
It’s a legal issue. Contact a lawyer for appropriate actions.
Sir, our branch is in a rural area and not a notified area so we deposit title deeds in other branch to create equitable mortgage, so if we want to register that equitable mortgage whether we have to register at the sub registrar office where that branch is located or under which registrar office that land comes, please guide in this issue.
You have to register the mortgage at the sub-registrar (registrar of assurance) office within whose jurisdiction the mortgaged property falls. NOT WHERE THE BRANCH IS LOCATED.
Tq Sir for u r prompt reply