Rights And Liabilities Of A Mortgagor In India- IPleaders Blog
This post is composed by Amandeep Kaur, a trainee of Symbiosis Law School, Pune. The author in this post has discussed the basic principles of mortgagor and mortgagee and also the rights and liabilities of a mortgagor.
Introduction
Nowadays mortgage is a very commonly utilized word. Every single person has the understanding that if he wants a loan to be approved, he needs to pay some security and for that, he needs to mortgage his residential or commercial property with a bank. Mortgagor and mortgagee are the celebrations who have a crucial function to play during mortgage of a residential or commercial property. Various statutes offered in India deals with a mortgage. Following legislation handle mortgage:
The Transfer of Residential Or Commercial Property Act, 1882- Sections 58-104, which are pointed out in Chapter IV deals with the considerable part of mortgage.
The Civil Procedure Code, 1908- The procedural part of mortgage of immovable residential or commercial property is dealt in Chapter XXXIV of CPC.
Indian Contract Act, 1872- Any agreement related to mortgage and its general principles are discussed in the Indian Contract Act of 1872.
When do rights & liabilities of a mortgagor arise?
The rights and liabilities of a mortgagor emerge during a mortgage. A loan may be secured or unsecured. Where a loan is provided just on the basis of debtor's pledge to pay (e.g. on promissory-note), such loans are called as unsecured loans. But, where the lender takes security from the debtor for the payment of his money, the loan is called secured loans. One such method to secure loans is mortgage. Section-58( a) of the Transfer of Residential Or Commercial Property Act, 1882 has defined mortgage as the transfer of an interest in a specific immovable residential or commercial property for securing:
The payment of money provided to him or to be provided through loan, or
An existing or future financial obligation, or
The efficiency of an engagement which might offer increase to a budgeting liability.
Who is a mortgagor?
The person who has moved the interest in a particular stationary residential or commercial property is called mortgagor. For example, A wants a loan from B. Now B wants his quantity to be protected which he is going to loan A. A will transfer the interest in a specific immovable residential or commercial property to B and will offer him the authority of offering it in case A is unable to pay back B's quantity. Here A is the mortgagor.
Who is a mortgagee?
The transferee or individual in whose favour the interest is being transferred is called mortgagee. In the above-given example, the person who is lending cash i.e. B is the mortgagee.
What is mortgage-money?
The primary amount which is offered as loan and the interest amount which mortgagor will pay to mortgagee in addition to the principal quantity. Sum of both the primary quantity and interest is understood as mortgage-money.
What is a mortgage deed?
It is an instrument by which the transfer of interest in a particular stationary residential or commercial property is affected. It is a type of contract which legally binds both the mortgagor and mortgagee.
Different type of mortgage
There are 6 sort of mortgage which are acknowledged under the Transfer of Residential Or Commercial Property Act, 1882. They are discussed in the act from section 58( b) -58( g). Following are the various kinds of mortgage:
Simple Mortgage [section-58( b)] Mortgage by conditional sale [section-58( c)] Usufructuary Mortgage [section-58( d)] English Mortgage [section-58( e)] Mortgage by deposit of title deeds [section-58( f)] Anomalous Mortgage [section-58( g)]
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Rights of Mortgagor
Every mortgage-deed leaves a right to the mortgagor and a corresponding liability for mortgagee and vice versa. Following are the rights offered to a mortgagor given by the Transfer of Residential Or Commercial Property Act, 1882:
Right to redemption
Right to transfer mortgaged residential or commercial property to a 3rd party instead of retransferring
Right of evaluation and production of documents
Right to accession
Right to enhancements
Right to a renewed lease
Right to approve a lease
Right to Redemption (section-60)
It is one of the most crucial rights of a mortgagor provided under section of the Act. This best puts an end to mortgage by returning the residential or commercial property of mortgagor. The right to redeem further grants 3 rights to the mortgagor:
Right to end mortgage deal
Right to move mortgaged residential or commercial property to his name
To reclaim possession of residential or commercial property in case of delivery of possession
In the case of Noakes & Co. vs. Rice (1902) AC 24, Rice was a dealership who mortgaged his residential or commercial property, facility and goodwill to N subject to the arrangement that if R paid back the whole amount, the residential or commercial property would be moved back to his name or any other person's. A covenant was connected that specified whether the amount is due, R would just offer Malt alcohol by N in his properties. Because of this covenant, R had problem in redemption and it didn't give him outright right over his residential or commercial property. House of Lords held that anything which obstructs this right is bad and they came up with the principle that 'once a mortgage constantly a mortgage' and stated that mortgage might never ever be irreducible.
This principle was included to secure the interest of a mortgagor. Any condition or arrangement which prevents a mortgagor from redeeming his mortgaged residential or commercial property is a blockage on the right of redemption. The right to redemption continues despite the fact that the mortgagor fails to pay back the loan quantity to mortgagee. In the case of Stanley v. Wilde, (1899) 2 Ch 474, it was held that any provision mentioned in the mortgage-deed which has an effect of avoiding or impeding the right to redemption is void as a clog on redemption.
Exceptions to the right- The right to redeem has 3 exceptions. It can be extinguished under the following cases:
By the act of parties
By operation of law
By decree passed by the court
Obligation to move to the third party rather of moving it to mortgagor (section-60A)
This right was included the Act by Amendment Act of 1929. This best supplies the mortgagor with authority to ask the to assign the mortgage debt and move the residential or commercial property to a 3rd individual directed by him. The function of this right is to assist the mortgagor to settle the mortgagee by taking a loan from a 3rd individual on the very same security.
Right to examination and production of files (section-60B)
This section is likewise inserted by the Amendment Act of 1929. It is the right of mortgagor to ask mortgagee for the production of copies of files of the mortgaged residential or commercial property in his possession for inspection on notice of affordable time. The expenses incurred on production or copies of documents or travel expenditures of a mortgagee are to be paid by the mortgagor. This right is readily available to the mortgagor only as long as his right to redeem exists.
Right to Accession (section-63)
Basically, accession indicates any addition to residential or commercial property. According to this right mortgagor is entitled to such accession to his residential or commercial property which remains in the custody of mortgagee. There are two types of accession:
Artificial accession- It is when mortgagor made some efforts and it increased the worth of land.
Natural accession- The name itself defines i.e. without any manufactured efforts.
In case an accession is made to the residential or commercial property due to the efforts of mortgagee or at his cost and such accession is inseparable, mortgagor, in order to be entitled to such succession, needs to pay the mortgagee the cost of acquiring such accession.
If such different possession or enjoyment is not possible, the accession must be provided with the residential or commercial property; it is the liability of mortgagor, in the case of an acquisition which is necessary to preserve the residential or commercial property from destruction, forfeit or sale, or made with his assent, to pay the correct cost thereof, as an addition to the principal money, with interest at the exact same rate as is payable on the primary quantity, or, where no such rate is fixed, at the rate of nine percent per year.
Right to Improvements (section-63A)
According to this right if the mortgaged residential or commercial property has been improved while it remained in ownership of mortgagee, then on redemption and in the lack of any agreement to the contrary mortgagor is entitled to such enhancement. The mortgagor is not liable to pay mortgagee unless:
Improvements made by the mortgagee were to secure the residential or commercial property or with the prior consent of mortgagor.
Improvements were made by the mortgagee with the permission of the general public authority.
Right to Renewed Lease (section-64)
If the mortgagor is entitled the mortgaged residential or commercial property is a leasehold residential or commercial property and during the duration of mortgage the lease gets renewed then, on redemption the mortgagor is entitled to have the benefit of the new lease. This right is readily available to the mortgagor unless he gets in into any contract to the contrary with mortgagee.
Right to give a Lease (section-65A)
This right was introduced by the Amendment Act of 1929. Prior to this right, the Transfer of Residential Or Commercial Property Act did not allow a mortgagor to rent out the mortgaged residential or commercial property on his own however just with the consent of mortgagee. Now, a mortgagor can lease out the mortgaged residential or commercial property while he remains in lawful belongings of that residential or commercial property, subject to the list below conditions:
All conditions in the lease need to be according to the local laws and customs to prevent any deceitful transaction.
No lease or premium shall be paid in advance or assured by mortgagee.
The agreement will not contain any provision for the renewal of the lease.
Every such lease shall come into effect within a period of 6 months from the date of its execution.
Where the mortgaged residential or commercial property is a building, the term of the lease ought to not exceed three years in total.
Duties/liabilities of a mortgagor
Together with the rights provided to a mortgagor, the Transfer of Residential or commercial property Act has also gave some responsibilities on him. Following are the duties of a mortgagor:
Duty to prevent waste
Duty to indemnify for defective title
Duty to compensate mortgagee
Duty to direct rent of a lease to mortgagee
Duty to prevent waste (section-66)
This area imposes a task on the mortgagor to not to devote any act which causes the waste of residential or commercial property or any act which decreases the worth of the mortgaged residential or commercial property. Waste is divided into 2 classifications:
Permissive waste- A mortgagor who remains in possession of the mortgaged residential or commercial property is not liable to the mortgagee for any minor waste.
Active waste- When an act is done which causes major waste of the residential or commercial property or causes the decrease in the value of mortgaged residential or commercial property, then the mortgagor will be liable to the mortgagee.
Duty to indemnify for faulty title
It is the duty of a mortgagor to compensate the mortgagee for a defective title in the mortgaged residential or commercial property. A faulty title describes a circumstance when a 3rd party starts declaring or interferes with mortgaged residential or commercial property. It is a liability for the mortgagor to compensate for the expenses sustained by mortgagee for safeguarding the title of that residential or commercial property.
Duty to compensate mortgagee
If the mortgaged residential or commercial property is in ownership of mortgagee who is paying all the taxes and other public charges, then it is the responsibility of mortgagor to compensate mortgagee for sustaining such costs. Similarly, when there is no delivery of possession i.e. the mortgaged residential or commercial property is still in possession of mortgagor, then it is his responsibility to pay all public charges and taxes levied on it.
Duty to direct rent of a lease to mortgagee
Where the mortgaged residential or commercial property is leased by mortgagor then it is his task to direct lessee to pay the rent, and so on to the mortgagee.
A mortgage-deed creates many rights and liabilities for both the parties involved i. e. mortgagor and mortgagee. These rights and liabilities were created and consisted of in the Transfer of Residential Or Commercial Property Act in 1882 which is rather old and for that reason is obsoleted. Though modifications were made in the Amendment Act of 1929, but no recent amendments have actually been made in the chapter of rights and liabilities of mortgagor. This has resulted in different deceptive transactions as both the mortgagor and mortgagee has actually found numerous new techniques of tricking each other. Therefore, the need of the hour is to change the laws and make it more strict so that no celebration tries to go into in deceitful transactions.