Rights and liabilities of a Mortgagee

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 transactions.2 The

mortgagor is the party transferring the interest in land.3 The mortgagee, usually a financial

institution, is the provider of the loan or other interest given in exchange for the security

interest.

RIGHTS OF A MORTGAGEE

Sections 67 to 77 deal with the rights and liabilities of the mortgagee, just as Sections 60 to

66 have dealt with the rights and liabilities of the mortgagor. Sections 67, and 68 to 73 refer

to the mortgagee’s rights and ss 67A, 76 and 77 refer to the mortgagee’s liabilities.

1. Section 67. Right to foreclosure or sale.

Section 67 is the counterpart of s. 60, and essentially gives the mortgagee a right to

foreclosure or sale in default of redemption by the mortgagor.38 If the mortgagor has

paid or deposited the mortgage-money, there is no occasion for the exercise of the

right of foreclosure or sale.

Section 68. Right to sue for mortgage money.

This section refers to the personal remedy of the mortgagee, while s. 67 refers to the

remedy against the property mortgaged.

Section 69. Power of sale when valid.

The power of sale in clauses (b) and (c) must be expressed. A provision in mortgage

deed that the mortgagee should ‘have all the rights, powers, remedies and privileges

conferred upon a mortgagee by Act 4 of 1882’ does not confer an express power of

sale under this section.

Section 70. Accession to mortgaged property.

Section 70 refers to the mortgagee’s right to accessions to the mortgaged property and

is, therefore, the converse of s 63 which deals with the mortgagor’s rights to

accessions. As regards natural accessions, it is a corollary to s 63, for such accession

is incorporated in the mortgaged property, from part of the mortgagee’s security, and

reverts to the mortgagor upon redemption

Section 71. Renewal of mortgaged lease.

is based on the principle that the new lease is treated as engrafted on the stock of the

old lease, and forming part of the mortgage security.

Section 72. Rights of mortgagee in possession.

This section represents to a large extent the English rule that the mortgagee is entitled

to be indemnified against all expenses, so long as he acts reasonably as a mortgagee,

and is allowed all proper ‘costs, charges and expenses’ incurred by him in relation to

the mortgage security.65 The costs must be costs which the mortgagee has incurred as

mortgagee. Such costs form the entire decretal amount,66 and are the costs, charges

and expenses referred to in o 34, r 2(1)(a)(iii) of the Code of Civil Procedure.67 Costs

incurred by a mortgagee after a proper tender of the mortgage money have been

disallowed.

Section 73. Right to proceeds of revenue sale or compensation on

acquisition.

This section is an instance of the application of the doctrine of substituted security,

viz that the mortgagee is, for the purpose of his security, entitled not only to the

mortgaged property, but also to anything that is substituted for it.

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Liability

Section 67A. Mortgagee when bound to bring one suit on several

mortgages.

This section of the Transfer of Property Act, 1882 was inserted by the amending act

20 of 1929. This section is essentially the counterpart of s. 61, which deals with the

mortgagor’s right of redemption. The principle of consolidation is abolished by

section 61 as regards mortgagors, and a mortgagor who has given different mortgages

on different properties or successive mortgages of the same property is entitled to

redeem each mortgage separately.74 However, the principle of consolidation which is

abolished as regards the mortgagor is applied by this section to the mortgagee.75 If the

mortgagee holds different mortgages of different properties or successive mortgages

of the same property from the same mortgagor, he must enforce all or none, unless

there is a contract to the contrary.

Section 76. Liabilities of mortgagee in possession.

This section enacts the statutory duties of a usufructuary mortgagee, or of a mortgagee

in possession.82 Section 76 is not applicable unless the mortgagee is in possession qua

mortgagee. Even if a mortgage deed entitles a mortgagee to take possession, collect

rents and profits, his liability to account for such rents and profits will not arise,

unless and until he has taken such possession.83 A mortgagee is not in possession qua

mortgagee if he enters the property as lessee.84 In some cases, the mortgagee is both a

lessee and a mortgagee, and then it is a matter of construction whether the

transactions of mortgage and lease are separable. If they are separable, the mortgagee

is possession as lessee and is not liable to account under this section.

Section 77. Receipts in lieu of interest.

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Section 77 essentially enacts an exception to s 76. It omits reference to clause (c) of s

76, which makes it obligatory on the mortgagee to pay government revenue.90 There

is no account to be taken between the mortgagor and mortgagee when the rents and

profits are taken in lieu of interest, or in lieu of interest and defined portions of the

principal.91 In such cases, if the mortgagee does not realise the full value of the

ususfruct, it is the mortgagee and not the mortgagor who suffers

conclusion-

A mortgage is as valuable to a mortgagee as it is to a mortgagor. Obviously, the main benefit

is that a rate of interest can be charged for the money lent, and an income is generated for the

mortgagee on the security of what is, in all but the most severe economic conditions, an asset

that is going to appreciate in value. However, just as the property owner uses the mortgage to

liquidate his assets, the mortgagee uses the mortgage to capitalise his income. The inherent

characteristic of a mortgage is that it is security for money lent, and the ultimate goal of any

mortgagee will be to recover payment of the principal debt, plus interest and related costs.

This is why and where the rights and the liabilities of a mortgagee come into play, for the

benefit of all the parties in the long run

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