Step By Step, Place Became Property, Property Became A Mortgage, And Mortgages Became Derivative Investments.
INTRODUCTION
What Is a Mortgage?
A mortgage, as per section 58 of the Transfer of Property Act, is a sort of loan used to buy or keep up a house, land, or other pieces of real estate. The borrower agrees to make periodic payments to the lender, usually in the form of a series of regular instalment payments that are split into principal and interest. The property then acts as security for the loan.
Applying for a mortgage requires a borrower to make sure they meet several standards, including minimum credit ratings and down payments. Before closing, mortgage applications go through a thorough underwriting procedure. The borrower’s needs will determine the different mortgage options, such as fixed-rate and conventional loans.
Simple Mortgage
Definition
The simple mortgage is executed where without any property being delivered to the mortgagee; the mortgagor makes himself liable to repay the debt. It is implied by him in an express or implied manner that in the event of non-repayment of the loan, the mortgaged property can be used to make good of the loan by the mortgagee
The primary feature of a simple mortgage is that the mortgagee has no legal authority to sell the property without the court’s approval.
- Apply for permission from the court to sell the purchased property or,
- file a lawsuit to recover the full amount without selling the purchased property.
Features of Simple Mortgage–
- No Transfer of Property
A simple mortgage does not include the delivery of the property to the mortgagee. The mortgagee can get his money back by asking the court for a money decree.
- Personal Liability
Personal liability and mortgaged property are the two types of liabilities involved in a simple mortgage. In a standard mortgage agreement, the borrower has no personal liability, and in the case of loan default, the mortgagee may continue to sell the property to recover its losses. However, in a simple mortgage, the mortgagor is personally liable to repay the debt together with the mortgaged property. As a result, the mortgagee has the choice to take legal action against either the mortgagor personally and obtain a judgement against him or he can take legal action against the mortgaged property and sell it to pay off the loan. A simple mortgage is different from other types of mortgages in that it has a personal covenant, which is highly important.
- Adverse Possession
A trespasser who takes possession of the property after the mortgagor is gone still has the right to mortgage it. In a simple mortgage, the trespasser may acquire the mortgagor’s limited ownership rights over the mortgaged property, but this does not in any way affect the mortgagee’s legal ownership rights over the property. Adverse possession is only legal when the mortgagee, who has a claim to the mortgaged land, fails to take possession of the property in a timely manner and does so after the period of time that begins on the day he receives his right to an interest in the mortgaged land has passed. If the mortgagee has not accrued any rights to acquire the land, those rights cannot be taken away by the adverse claimant’s simple possession of that specific mortgaged land. 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.
- Sale of Property
In a mortgage, the mortgagor may expressly or implied provide the right to sell the property. In essence, this means that the mortgagee may sell the mortgaged property in the event of debt non-payment. However, even if the mortgage contract expressly provides for the sale of the property upon non-payment, the mortgagee is still unable to proceed with the sale of the mortgaged property and must wait for the court’s intervention before proceeding with it.
The following are the essentials of a mortgage
- Transfer of Interest
A mortgage can be summarised as a transfer of an interest in a particular immovable property. The principal interest in the property belongs to the mortgagor. However, he transfers the property while giving up a portion of his interest in order to pay off the debt. The interest of the mortgagor in the property decreases to the amount that it has been transferred to the mortgagee when the parties agree to enter into a mortgage. Until the mortgagor pays back the loan he has obtained, his ownership is also temporarily decreased. The mortgagee gains the right to collect the loan amount that he forwarded to the opposing party when the property is transferred to him.
- Existence of a Specific Immovable Property
A specific part of immovable property must exist. The mortgage deed needs to specifically address the immovable property. The purpose of naming a specific property is to allow the court to attach it in the event that the mortgagor is unable to repay the debt, allowing the mortgagee to obtain payment from the sale proceeds. For instance, in Delhi, X owns four distinct land plots. The mortgage loan site should be specifically identified in the deed. The deed would be invalid otherwise.
- Securing the payment of the Loan
In the case of a mortgage, the transaction is for completing any obligation or loan repayment. The mortgagor and the mortgagee take on the responsibilities of a debtor and a creditor, respectively, at the completion of the mortgage agreement. It won’t be considered s a mortgage at all if the debtor utilizes a specific immovable property to secure a loan from the creditor and specified in the mortgage deed that the creditor cannot sell the property before the loan is repaid. This is due to the lack of an interesting transfer in this instance. The difference between a sale and a mortgage is fundamental. When a property is sold, the complete ownership interest is transferred, or “transfer of rights.” However, with a mortgage, just a temporary stake in the property is transferred.
Rights of the Mortgagor
- Right of Redemption
In the following situations, the mortgagor has the right to recover the property he has transferred:
- On the due date, he paid back the loan.
- No party to the contract or the court has renounced his right to recover the property.
The mortgagee has the right to recover all property-related legal documents once the property has been redeemed by him. Additionally, he gains the right to reclaim ownership of the real estate.
- Accession to Mortgaged Property
When the mortgage loan is repaid, the mortgagee must return the property to the mortgage along with any improvements that have been made by the mortgagee with regard to the property, if any were made whereas the property was with the mortgagee.
- Right to Transfer the Property to Third Party
If at the repayment of the loan, the mortgage instead of taking back the possession of the property, instructs the mortgagee to transfer the property to some third person, the mortgagee is bound to transfer the property to such third person.
- Right to Inspection and production of documents
Even though the mortgagee is in possession of the documents relating to the mortgaged property, the mortgagor does have the option to inspect and keep a record of all the documentation that are there.
Rights of Mortgagee
- Right to Sue for Mortgage Money
The mortgagee can sue the mortgagor for mortgage money in the following cases-
- In a situation where the property mortgaged is insufficient, partially destroyed or damaged, and the mortgagor has not provided any further security to the mortgagee.
- Where the mortgagor, through personal covenant takes up the liability to pay the loan amount to the mortgagee.
- In a case where the mortgagee has the right to security but the mortgagor is not able to pay any security.
- When, due to the mistake of the mortgagor, the mortgagee is denied his total or partial right in the mortgaged property.
- Right of Sale
In the event that the mortgage amount is not paid, the mortgagee has the right to sell the property by filing a lawsuit and requesting a court order. In accordance with the terms outlined in Section 69 of the Act, the mortgagee may sell the mortgaged property without taking legal action or requesting the court’s approval.
- Right of Foreclosure
The mortgagee also has the right to bar the mortgagor from claiming the property back by moving to the Court and filing a suit. In a case of a mortgage, the right of foreclosure can be claimed by anomalous mortgage and conditional sale.
- Right to Possession
The mortgagee is legally entitled to take possession of the property in case the loan amount is not repaid.
- Right to Accession
If any alteration is made to the property by the mortgagor, the mortgagor is entitled to both the property along with the alteration made as security.
Conclusion
In the case of a simple mortgage, the presence of a personal covenant is necessary. The mortgaged property serves as security for the mortgage, and the mortgagor accepts personal responsibility for loan repayment. The mortgaged property may be attached if the mortgagor is unable to make loan payments. In this case, getting the court’s approval is necessary before selling the property.
Case Law
Lal Umrao Singh V. Lal Singh and Chittu Mal
Several cases have been cited before us by the learned Counsel for the respondents. Among these, two come from this Court. The one, Karimunnissa v. Phul Chand [1893] 15 All. 134, was a case of a simple mortgage and nothing was said there which might possibly apply to a usufructuary mortgage. The other case Umra Singh v. Lal Singh A.I.R. 1924 All. 796, proceeded entirely on the consideration of the incidents of a simple mortgage. It may be that, if we apply the definition of mortgage as given in the transfer of property act, a simple mortgage and a usufructuary mortgage will stand on the same footing. Whether they do so stand or not for the purposes of the Civil Procedure Code we need not decide. It is enough to say, that there are essential differences between the incidents of a simple mortgage and those of a usufructuary mortgage. If we apply the definition, as given in the general clauses act, a difference might possibly be drawn between a simple mortgage and a usufructuary mortgage. The two cases from this Court, therefore, are no sure guide. We express no opinion as to their correctness or otherwise.
Indiabulls Housing Finance Limited vs. Deccan Chronicle Holdings Limited And Others
(Urban) Co-operative Banks respectively have required all the Banks to charge interest at monthly rests, commencing from 01.04.2003 and as such, the interest has to be necessary and is charged at the contracted/decreed rate of 14.50% from the date of Award at monthly rests. The Respondent Bank in_ its written comprehensive arguments has claimed the total debt due and payable by the borrowers as of 28.02.2021 is Rs.27,97,328.93 plus interest, expenses, and other charges from 01.03.2021 till the date of realization. Whereas, the Appellants have submitted a Memo of Calculations with simple interest from 01.02.2009 as per which the total amount payable by the Appellants as of 31,10.2021 is Rs.1,79,174.40 after deducting Rs.10,00,000/- paid in 2019-20 as per the order of this Tribunal. In support of the submissions of the Learned Counsel for the Appellants, the following case laws are relied on: 1. Judgment passed by the Hon’ble Supreme Court of India in Civil Appeal No.18/2018 dated 23.02.2018 in the matter of Indiabulls Housing Finance Limited Vs M/s Deccan Chronicle Holdings Limited and others. 2, (2017) 7 SCC 323 – Power Machines India Ltd v/s State of Madhya Pradesh and others. 13 1.A.No,2655/2019 IN D.No.1985/2019 (I.R. No.3766/2019) 3. (2017) 5 SCC 227 = Mm. Waseeq Cafetaria v/s Union of India. 4. 2016 SCC OnLine Bom 2574 – Sri Shivabasappa I. Kankanwadi vs Mapusa Urban Co-operative Bank of Goa Ltd. 5. (2005) 6 SCC 344 – Salem Advocate Bar Association, T.N. v/s Union of India Perused the case laws mentioned above. However, the same is not applicable in the present facts and circumstances of the instant case. Having regard to the fact of the instant case, it is seen that the facts are not much in dispute. The Appellants’ side has obtained the loan from the Respondent Bank and executed the mortgage deed. The Respondent Bank raised a dispute in February 2009 under Section 84 of the Multi-State Co-operative Societies Act, 2002 before the Arbitrator at Bangalore in Arbitration Case No.ARB/SV/BNG/05/2008-09-AWARD against the Appellants herein for recovering the claim amount of Rs.5,44,871/- plus further interest, court fee and other costs. The Learned Arbitrator finally passed judgment and award dated 21.05.2011 in favour of the Respondent Bank stating that the Respondent Bank is entitled to recover from the Appellants a sum of Rs.5,44,871/- as of 31.01.2009 (o/s Principal Balance
Reference
https://www.investopedia.com/terms/m/mortgage.asp
https://www.lawctopus.com/academike/simple-mortgage/
https://blog.ipleaders.in/analysis-concept-simple-mortgage/
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