Different Types of Mortgages

Introduction

Mortgage is defined by Section 58 (a) of the Transfer of Property Act, 1882 (TPA) as a transfer of an interest in specific immoveable 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 (monetary) liability.

• The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is affected is called a mortgage-deed.

Types of Mortgages

• Simple Mortgage:
  • Section 58(b) of TPA defines simple mortgage.
  • It states that 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.
  • The essential elements of simple mortgage are:
    • There is a personal undertaking by the mortgagor to repay the loan.
    • Possession and enjoyment remain with the mortgagor.
    • There is a power of sale but to be exercised only through Court.
    • It must be affected by a registered instrument.
    • There is no delivery of ownership or possession.
    • There is no foreclosure.
  • In the case of a simple mortgage, the mortgagee has two remedies:
    • A personal undertaking to obtain a money decree against the mortgagor.
    • To sue on the mortgage and obtain a decree for the sale of the property.
• Mortgage by Conditional Sale:
  • Section 58(c) of TPA defines mortgage by conditional sale.
  • It states that where 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 and the mortgagee a mortgagee by conditional sale.
  • 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.
  • The essential elements of mortgage by conditional sale:
    • There is an ostensible sale by the mortgagor to the mortgagee of the mortgaged property.
    • There is a condition that the sale shall be void if the loan is repaid on a particular date. The property is then retransferred to the mortgagor.
    • The remedy of the mortgagee is by a suit for foreclosure.
    • Registration is compulsory only if the consideration exceeds Rs. 500.
    • There should be only one document.
  • A transaction can be deemed to be a mortgage by conditional sale only when the condition is embodied in the same document which purports to affect the sale.
  • In this form of mortgage, there is no personal liability on the part of the mortgagor to pay the debt.
  • The remedy of the mortgagee is by foreclosure only.
  • In the case of Sunil K. Sarkar v. Aghor K. Basu (1989), it was held that where separate documents of sale deed and reconveyance deed are executed between the same parties in the same transaction and in respect of the same property, the transaction could not be called a mortgage by conditional sale.
• Usufructuary Mortgage:
  • Section 58(d) of TPA defines usufructuary mortgage.
  • It states that 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 in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee.
  • There cannot be two different usufructuary mortgages on the same property at the same time, as the possession can only be given to one only.
  • In this type of mortgage, the mortgagee has the advantage to repay himself.
• English Mortgage:
  • Section 58(e) of TPA defines English mortgage.
  • It states that 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.
  • The word ‘absolutely’ emphasizes that the characteristics of a sale are more pronounced in the case of an English mortgage, but it does not suggest that there is absolute transfer in the nature of sale.
  • The remedy for this type of mortgage is by sale and not by foreclosure.
  • In this, the mortgagor ordinarily undertakes to pay the debt personally.
• Equitable Mortgage:
  • Section 58(f) of TPA defines mortgage by deposit of title-deeds which is popularly known as equitable mortgage.
  • It states that where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.
  • The object of the Legislature in providing for this kind of mortgage is to give facility to the mercantile communities in cases where it may be necessary to raise money all of a sudden before an opportunity can be afforded of preparing the mortgage deed.
  • The provisions which apply to a simple mortgage are also applicable to a mortgage by deposit of title deeds.
  • In both mortgages, no delivery of possession of property takes place.
  • The mortgagee’s remedy is by a suit for sale, he can also sue for the mortgage money.
• Anomalous Mortgage:
  • Section 58(g) of TPA defines anomalous mortgage.
  • It states that a mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of Section 58 of TPA is called an anomalous mortgage.
  • The rights and liabilities of the parties to such a mortgage are to be determined by their contract, as evidenced in the mortgage deed and failing that, by local usage.
  • In such a mortgage, the possession may or may not be delivered.
  • The mortgagee’s remedy is by sale and also foreclosure, if the terms of the mortgage permit it.