Mortgage: Meaning, Explanation And Kinds

This article seeks to explain the meaning and kinds of mortgages under the Transfer of Property Act 1882. A mortgage creates interest on the immovable property. This article defines a mortgage. The article explains the key terms in understanding mortgages. The article mentions the three elements of the mortgage, and finally, the article explains the six kinds of mortgages and the key elements of the kinds of mortgages.

I. Meaning

According to section 58, a mortgage is the transfer of an interest in some specific immovable property for the purpose of securing the –

1. Payment of money advanced or to be advanced by way of loan,
2. An existing or future debt, or
3. The performance of an engagement.

Which may give rise to a pecuniary liability.

A mortgage is the transfer of interest in some immovable property. It is given by way of security for a loan. A person who takes a loan and gives some security for repayment of the load in the form of a transfer of some interest in any immovable property is called a mortgage of property.

The ownership of the property remains in the debtor, but some of his interests in the property are transferred to the creditor who has given the loan. In case the advanced money cannot be recovered by the creditor (person advancing the money), he can recover his money based on his interest in that property. Therefore, it may be said that a mortgage if for the creditor's security.

In a mortgage, the right in the property created by the transfer is an accessory to the right to recover the debt.[i]

II. Key terms

1. Mortgagor – the person who transfers the interest in the property in a mortgage is known as a mortgagor. Under section 59A, a person deriving title under the original mortgagor is also included in the term mortgagor.
2. Mortgagee – A mortgagee is a person in whose favour the mortgage is created. A person deriving title under the original mortgagee is also included. Every deed of mortgage must have the name of the mortgagee. Otherwise, the deed will not be a valid one.
3. Mortgage money – According to section 58, the principal money and interest of which the payment is secured for the time being are called mortgage money.
4. Mortgage deed – The instrument by which transfer is effected in a mortgage is known as a mortgage deed.

III. Elements of mortgage

1. Transfer of interest – Mortgage debt is not an actionable claim under this Act, but it is only a transfer of interest in an immovable property. The mortgagor gives the interest to the mortgagee.
   1. A mortgage is a transfer of interest, and it creates a right in rem, but a mere agreement to create a mortgage does not create any interest in the property mortgaged.
   2. Without the transfer, if there is an interest, there is no question of there being a mortgage within the meaning of section 58(a).
2. Specific immovable property – The interest created by the mortgage must be in some specific immovable property. The property must be specifically defined in the mortgage deed, not in general terms.
3. Consideration – the consideration may be either money advanced or to be advanced by way of a loan, existing or future debt or the performance of an engagement giving rise to a pecuniary liability. A transfer made by way of discharging debt is not a mortgage.

A transaction of mortgage does not become ineffective merely because the mortgagee could not advance the money on the date of execution of the deed.[ii]

IV. Kinds

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 t pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of the 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.

Clause (b) of section 58 says that where –

1. Without delivering possession of the mortgaged property;
2. The mortgagor –

1. Binds himself personally to pay the mortgage-money, and
2. Agrees that in the event of his failure to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of a sale to be applied in payment of the mortgagee's money.

In a simple mortgage, possession of the property remains with the mortgagor, and he personally covenants to pay the mortgage money.

2. Mortgage by conditional sale

When 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 a mortgage unless the condition is embodied in the document which effects or purports to effect the sale.

1. In this type of mortgage, the mortgagor ostensibly sells the property.
2. The property is sold on the condition that –
3. On default of payment of the mortgage money on a certain date, the sale shall become absolute, or
4. On such payment being made, the sale shall become void, or
5. On such payment being made, the buyer shall transfer property to the seller,

Such a transaction is called a mortgage by conditional sale, and the mortgagee is called a mortgagee by conditional sale. Every sale accompanied by an agreement for reconveyance of property does not constitute a mortgage by conditional sale.[iii]

If there is no relationship between debtor and creditor, the question of it being a mortgage by conditional sale does not arise.[iv]

A mortgage by the conditional sale can be effected in the following ways –

1. Where the principal money secured is Rs. 100 or more by a registered instrument signed by the mortgagor and attested by at least two witnesses.
2. Where the principal money secured is less than Rs. 100 by a registered instrument signed by the mortgagor and attested by at least two witnesses or by delivery of property.

3. Usufructuary mortgage

Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorises 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, the transaction is called a usufructuary mortgage.

Essential elements

1. There is a delivery of possession to the mortgage or an express or implied undertaking of the mortgagor to deliver such possession.
2. Retention of the possession by the mortgagee till the payment of the mortgage money, or he has to receive rents and profits of the property either in lieu of interest on mortgage-money or in payment of mortgage-money or party in payment of either interest to mortgage-money.
3. There is no personal liability of the mortgagor.
4. The mortgagee cannot foreclose or sue for the sale of mortgage property.
5. The mortgagor is entitled to redeem the property when the amount due is paid, or the debt is discharged by rents and profits received by the mortgagee.
6. No time limit is fixed for the repayment.
7. Where the mortgage is for Rs. 100 or more, it must be registered, but where it is less than Rs. 100 it may be by a registered deed or by delivery of property.

Rights of usufructuary mortgagor – Under section 62, a usufructuary mortgagor has been given a right to recover possession of the mortgaged property from the mortgagee when –

1. Where the mortgagee was authorised to pay himself the amount of mortgage money from the rents and profits of the property, the money is paid,
2. Where the mortgagee is authorised to pay himself from rents and profits and the terms prescribed for the payment of the mortgage money, have expired, and the mortgagor pays the mortgage money or balance of it to the mortgagee or deposits it in the court.[v]

4. English mortgage

Where the mortgagor binds himself to repay the mortgage money on a certain date and transfers and 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.

1. Where the mortgagor binds himself to repay the mortgage money on a certain date, and
2. Transfers the mortgaged property absolutely to the mortgagee on the condition that he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed.

The transaction is called an English mortgage.

Essential elements

1. There is an absolute transfer of property to the mortgagee, i.e., the delivery of possession.
2. There is a personal covenant to pay the amount. The mortgagor binds himself to repay the mortgage money on the due date.
3. The property is transferred on the condition that the transferee-mortgagee will re-transfer it to the mortgagor on the payment of the mortgage money.

5. Mortgage by deposit of title-deeds

A mortgage by deposit of title deeds is also known as an equitable mortgage. According to sub-section (f), where a person –

1. In the towns of Calcutta, Madras, Bombay and in any other town specified by the state government concerned in this behalf.
2. Delivers to a creditor or his agent documents of title to immovable property
3. With intent to create a security thereon.

Such a transaction is called a mortgage by deposit of title deeds.[vi]

This is a special kind of mortgage because, here, the execution of the mortgage deed is not necessary. Mere deposit of title deeds of the immovable property by the mortgagor to the mortgagee is sufficient.

Essential elements

1. Debt – the debt may be an existing debt or a future debt. Any transfer of an interest in any property to secure the payment, advanced or to be advanced, or existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability is a mortgage and sub-section (f) defining equitable mortgage prescribes merely one of the modes of creating a mortgage.
2. Deposit of title deeds – It is sufficient if the deeds deposited bona fide relate to the property or are material evidence of title, and not all deeds need to be deposited. It would be hyper-technical to insist upon the formality of the creditor delivering the title deeds to the debtor and the debtor re-delivering them to the creditor.[vii]
3. Delivery with the intention of creating security – It is necessary that the title deeds are deposited with the intention of creating security for the debt. Such an intention cannot be presumed from possession because the mere possession of the deeds is not enough without evidence as to the manner in which the possession originated.

Mere possession of title deeds by creditors, coupled with the existence of a debt, does not necessarily lead to the presumption of a mortgage, that may be so when the title deeds are produced by the creditor after the lapse of many years without explanation.[viii]

6. Anomalous Mortgage

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.

For example – A combination of simple mortgage and usufructuary, mortgage usufructuary by conditional sale

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[i] Chetti Goundan v. Sundaram Pillai, (1865) 2 Mad HCR 51

[ii] State of Kerala v. Cochin Chemical Refineries AIR 1968 SC 1361

[iii] Raj Kishore v. Prem Singh, AIR 2011 SC 382

[iv] Tamboli Ramanlal Moti lal v. Gharchi Chimanlal Keshavlal, AIR 1992 SC 1236

[v] Sona Devi Jain v. Dr. Omprakash Sharma, AIR 2006 MP 181

[vi] KJ Nathan v. SV Maruty Reddy, AIR 1965 SC 430

[vii] Ibid

[viii] Jethibai v. Putlibai, (1912) 14 Bom LR 1020: 17 IC 722.

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