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REAL ESTATE LAW


Topic: Mortgage and types of mortgages

Submitted to- Mr Ajay Raj


Submitted by- Mansi Delu
A3221615024
B.com. LLB (H)
Sec-‘A’
Sem-7
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INTRODUCTION

A mortgage is the transfer of an interest in the 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.
A legal agreement that conveys the conditional right of ownership on an
asset or property by its owner (the mortgagor) to a lender (the mortgagee) as
security for a loan. The lender's security interest is recorded in the register of
title documents to make it public information, and is voided when the loan is
repaid in full.
Virtually any legally owned property can be mortgaged, although real
property (land and buildings) are the most common. When personal property
(appliances, cars, jewelery, etc.) is mortgaged, it is called a chattel mortgage. In
case of equipment, real property, and vehicles, the right of possession and use of
the mortgaged item normally remains with the mortgagor but (unless
specifically prohibited in the mortgage agreement) the mortgagee has the right
to take its possession (by following the prescribed procedure) at any time to
protect his or her security interest.

A mortgage is a debt instrument, secured by the collateral of specified real


estate property, that the borrower is obliged to pay back with a predetermined
set of payments. Mortgages are used by individuals and businesses to make
large real estate purchases without paying the entire value of the purchase up
front. Over a period of many years, the borrower repays the loan, plus interest,
until he/she eventually owns the property free and clear. Mortgages are also
known as "liens against property" or "claims on property." If the borrower stops
paying the mortgage, the bank can foreclose.
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 What are mortgage loans?


Section 58 (a) of the TRANSFER OF PROPERTY ACT, 1882, defines
mortgage as, “A mortgage 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 engagement which may give rise to a pecuniary
liability. “
The bold letters signifies the essential elements for the creation of valid
mortgage in favor of the lender over the immoveable property.

Characteristics of Mortgage
1. A mortgage can be affected only on immovable property, the immovable
property includes land, benefits that arise out of things attached to the earth
like trees, buildings, and machinery. But a machine which is not permanently
fixed to the earth and is shiftable 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
and differs from sale wherein the ownership of the property is transferred.
Transfer of an interest in the property means that the owner transfers some of
the rights of ownership to the mortgagee and retains the remaining rights
with himself. For example, a mortgagor retains the right to redeem the
property mortgaged.
3. The object of transfer of an 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 the
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 need not always be
transferred to the mortgagee.
6. The interest in the mortgaged property is re-conveyed to the mortgage 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.

 How do mortgages work?


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All mortgages work in the same basic way: you borrow money to buy a
property, pay interest on the loan and eventually pay it back.
Then they start getting complicated and you are looking at:

 different interest rates


 different ways to repay
 borrowing for different periods of time
 particular mortgages for special situations
 various charges to pay

Different Types of Mortgage


There are six types of mortgages are;

1. simple mortgage,
2. mortgage by conditional sale,
3. usufructuary mortgage,
4. english mortgage,
5. mortgage by deposit of title deeds, and
6. anomalous mortgage

These are described below;

1. 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.
It has below characteristics:-
i) That the mortgagor must have bound himself personally to repay the
loan
ii) That to secure the loan he has transferred to the mortgagee the right to
have the specific immovable property sold in the event of his having failed
to repay
iii) That the possession of the property is not delivered to the lender.
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2. Mortgage by Conditional Sale:


It’s defined as a situation, where the mortgagor ostensibly sells the
mortgaged property –
i) on the condition that on default of payment of the mortgage money
(loan) on a certain date the sale shall become absolute or
ii) on condition that on such payment being made the sale shall become
void or,
iii) on the condition that in such payment being made the buyer shall
transfer the property to the seller,
PROVIDED that no such transaction shall be deemed to be a mortgage,
unless the condition is embodied in the document which affects or purports
to affect the sale?
This kind of mortgage came into vogue in India during Muslim rule and
was given legal recognition in the Bengal Regulation Act, 1978.

3. Unsufructuary Mortgage:
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
partly in payment of the mortgage money, partly in lieu of interest and partly in
payment of the mortgage money, the transaction is called
an usufructuary mortgage and the mortgagee a usufructuary mortgagee.
It has below characteristics:-
i) That the possession of the property is delivered to the mortgagee;
ii) That the mortgagee is to get rents and profits in lieu of the interest or
principal or both;
iii) That no personal liability is incurred by the mortgagor and
iv) The mortgagee cannot foreclose or sue for sale.
v) That no time limit can be fixed expressly during which the mortgage is
to subsist.
This is not prevalent in India

4. English Mortgage:
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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It has below characteristics:-


i) That the mortgagor should bind himself to repay the mortgage
money/loan on a certain day;
ii) That the mortgaged property should be transferred absolutely to the
mortgagee ; and
iii) That such absolute transfer should be made subject to a proviso that
the mortgagee will recover the property to the mortgagor, upon the
payment by him of the mortgage money on the appointed day
The difference between the mortgage by conditional sale and English
mortgage is that in English mortgage, the mortgagor binds him personally
to repay the money.
5. Mortgage by Deposit of Title Deeds:
In England and popularly in India, this mortgage is called the equitable
mortgage. Under the definition under Section 58 (f) of Transfer of
Property Act, 1882, the essential requisites of such mortgage are:
i) a debt should be there
ii) deposit of the title deed with the lender (most essential)
iii) said deposit is with intention that the said title deed shall be security
for the debt.

Section 96 of the Transfer of Property Act, 1882 places mortgages by


deposit of title deeds on the same footings as simple mortgages. As such,
the security can, like a simple mortgage can be enforced by a suit for sale
of mortgaged property, of course, by the process of the law. And this kind
of mortgage does not require registration and is at par with any other legal
mortgage.

7. Anamolous Mortgage:
A mortgage which is not a simple mortgage, a mortgage by conditional
sale, an usufructuarymortgage, an English mortgage or a mortgage by deposit of
title deeds within the meaning of section 58 is called an anomalous mortgage.
A mortgage which is not a simple mortgage, a mortgage by conditional
sale, an usufructuary, an English mortgage or a mortgage by deposit of
title deeds within the meaning of Section 58 of Transfer of Property Act is
an Anomalous mortgage.
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CONCLUSION

A mortgage is a loan that a bank or mortgage lender gives you to help


finance the purchase of a house. It is most advantageous to borrow
approximately 80% of the value of the house or less. The house you buy acts as
collateral in exchange for the money you are borrowing to finance the mortgage
for a house. A mortgage payment is composed of four parts: principal, interest,
taxes and insurance. It is normally paid on a monthly basis.
Mortgage loans are usually entered into by home buyers without enough
cash on hand to purchase the home. They are also used to borrow cash from a
bank for other projects using their house as collateral. There are several types of
mortgage loans and buyers should assess what is best for their own situation
before entering into one. Types of loans are characterized by their term dates
(usually from 5 to 30 years, some institutions now offer loans up to 50 year
terms), interest rates (these may be fixed or variable), and the amount of
payments per period.
Mortgages make larger purchases possible for individuals lacking
enough cash to purchase an asset, like a house, up front. Lenders take a risk
making these loans as there is no guarantee the borrower will be able to pay in
the future. Borrowers take risk in accepting these loans, as a failure to pay will
result in a total loss of the asset.