In India, legal matters relating to
property like conveyance, transfer, inheritance etc. are all governed by the
Transfer of Property Act, 1882 (Act). The Act governs the transfers of
immovable property in different situations like sale, purchase, transfer etc.
that may arise. Despite being an Act solely dedicated to property, it must be
known that the word property has not been clearly defined in the same. However,
in layman terms, a property can be anything that is physical or virtual that is
under the ownership of an individual or owned by a group of individuals. The
concept of property must be understood before moving into the concept of
mortgage which is applicable to property itself. Jurists like John Locke and
Jeremy Bentham have defined property as the following – Locke states “every man
has a property in his own person” while Bentham went on to say that “property
is nothing, this is expectations and desirability”. Jurist Salmond based on the
applicability of the definition of property went on to approving the definition
given by Bentham.
Before 1882, when there was no fixed
act governing the transactions related to property, the Act is said to be an
extension of the law of contracts enforced in 1872 and it is deeply rooted to
the logic and principles followed in
Contract law. Act bifurcates itself automatically when an element of personal
laws are added to it. Over the years, the right to property has evolved - from
being a fundamental right to it being declared a legal right under Article
300(A) of the Indian Constitution, and ever since then the laws of property
have encountered a continuous evolution.
In an evolutionary judgment of Vidya
Devi v. The State of Himachal Pradesh and Others passed in the year
2020 the right to property was declared a human right by Justices Indu Malhotra
and Ajay Rastogi. The judgment stated that the State cannot dispossess a
citizen of his property except in accordance with the procedure established by
law. The obligation to pay compensation, though not expressly included in
Article 300 (A), can be inferred in that Article. To forcibly dispossess a
person of his private property, without following due process of law, would be
violative of a human right, as also the constitutional right under Article 300
(A) of the Indian Constitution.
Being owners of property adds a
sense of owning an asset. On the other hand, it also has an element of
liability attached to it with one of the forms being Mortgage. It acts as the
second side of the same coin. It is this concept that can make the assets into
a liability in no time and overtime. A mortgage is a transfer of an interest in
immovable property. A person gives his/her property to another person that acts
as a security for the loan that he is further able to secure as against that.
This loan can be taken against an immovable property that is tangible in nature
and the failure of repayment of loan, gives right to the Mortgagor to sell or
use the property to compensate for the loss caused to him by the Mortgagee, the
two parties to the mortgage transaction.
The history of mortgage transactions
can be traced back to the time when there was no specific law in place and
there were people performing these transactions. With the Act being introduced,
the relationship of a mortgagor and mortgagee saw a systematic change, and
detailed regulations were made. The principle foundation of the relation
between Mortgagee and Mortgagor is that of debtor and creditor with no
fiduciary element existing.
Under the Act, provisions of
mortgage transactions have been provided from Section 58 to 104. Section 58 of
the Act defines mortgage as “a mortgage is a 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 performance of an engagement which may
give rise to pecuniary liability.” In the cases relating to transfer of
property, the Supreme Court may observe that mortgage law that is embodied in
Section 58 of the Act, has to be read with CPC. Further, Order XXXIV, Rule 1-15
deals with transactions arising out of suits related to mortgage. The court
dealing with the suit is barred from going beyond these provisions and creating
a restriction.
The suit of mortgage that is brought
to court is subject to the rule of lis pendens which means that during pendency
of suit, the mortgagor cannot enter into a lease contract creating a
restriction for the mortgagor. The essential feature of a mortgage is that
there is a proviso for redemption; it is a conveyance of the legal interest in
property. It means that after the repayment of the loan, the conveyance which
is the legal transfer of rights, ownership, title or lien from one person to
another and that further becomes void.
The discussion moves ahead by presenting the different types of Mortgages that include Simple Mortgage, Mortgage by conditional sale, Usufructuary mortgage, English Mortgage and Anomalous mortgage.
- Simple Mortgage – Present in Section 58 (b) of the Act. In simple mortgage, the mortgagor does not transfer immovable property to the mortgagee but agrees to pay the mortgage money. The mortgagee agrees on a condition that in the event of not paying the mortgage money the mortgagee has every right to sell the property and can use the proceeds of the sale and such a transaction.
- Mortgage by conditional sale – Given in Section 58(c) of the Act, in this mortgagee places three conditions to the mortgagor, and the mortgagee shall have the right to sell the property if:
- The lender/mortgagor defaults in payment of mortgage money on a certain date.
- As soon as the payment is made by the mortgagor the sale shall become void.
- On the payment of money by the mortgagor, the property is transferred, and such a transaction is called a mortgage by conditional sale.
- Usufructuary Mortgage – Present under Section 58 (d) of the Act, in this kind of mortgage, the mortgagor delivers the possession of the property to the mortgagee and authorizes the mortgagee to retain such property until the payment is made by the mortgagor and further authorize him to receive the rent or profit arising from such mortgaged property and to appropriate the same instead of payment of interest.
- English Mortgage – English Mortgage is defined under Section 58(e) of the Act and under this the mortgagor transfers the property absolutely to the mortgagee and binds himself that he will repay the mortgage money on the specified date and lays down a condition that on repayment of money mortgagee shall re-transfer the property.
- Anomalous Mortgage – Given under Section 58 (f) of the Act, this is a type of mortgage which is not any one of the mortgages mentioned above is called an anomalous mortgage.
The essential ingredients of a mortgage transaction are also important to discuss as those constitute what qualifies it to be. They are as follows: -
- There should be transfer of interest: At this point, a crucial difference that must be noted is that there is a transfer of interest only and not the ownership. Nature and quantity of interest or rights transferred will depend on the kind/form of mortgage and the right of the Mortgagee acts as an accessory right which is intended to secure due payment of debt.
- Has to be of immovable property: The property must be immovable in nature and have a specific mention in the deed. For instance, in a deed, the mention of “my land or house” should not be the way to mention. Instead, the property must be mentioned in a reasonable manner in order for it to be distinguishable.
- With the intention for securing the payment of money: This can further be divided into three sub-parts –
- Advanced or to be advanced by way of loan
- Existing or future debt
- Performance of an engagement which may give rise to pecuniary liability
Since Mortgage comes across as a universal concept, it becomes imperative to understand an international aspect to it as well. In this blog, the international mortgage system will be discussed briefly and what are the laws pertaining to it in the United Kingdom (UK) and in Canada. In the UK, the mortgage laws are governed by the Law of Property Act, 1925 and under this the only legal mortgages are: -
- a lease granted for a stated number of years, which terminates on repayment of the loan at or before the end of that period; and
- a deed expressed to be a charge by way of legal mortgage.
The remaining types of mortgages come under the equitable ones which are the cases in which the mortgagee obtains an equitable interest in the property only.
The legal remedies that are available to the mortgage include a claim under the law of contracts for the repayment of loan. The mortgagor does not have the funds to repay the mortgage repayments and hence the bad debt. Foreclosure is another remedy available in which the mortgagee takes possession of the property. The remedy of foreclosure cannot be made effective until the contractual obligation of the mortgagor to keep up with the mortgage repayments has been broken. The final remedy is of possession and sale in which there may be certain circumstances in which the mortgagee may use any income generated from the property to repay the debt. For example, if the property has been let out to a tenant.
As per the last legal remedy of possession and sale, the Section 101(1)(i) of the Law of Property Act 1925 grants the mortgagor the power to sell the land, even if it is not explicitly given in the deed. If a direct comparison is drawn between the remedies, the remedy of Foreclosure is less advantageous when compared to the aforementioned because - a court order is not required for a sale as is the case with foreclosure, it is not legally binding, the negotiation of sale can be done in a way that parties may find fit and it could be done by way of auction as well. The sale, lastly, is also preferable to the mortgagor as the mortgagee may be liable to the mortgagee for any loss as a result of negligence when selling the property.
Canadian law, which is a common-law province, remedies available to mortgage lenders include: foreclosure, action on the covenant, appointment of a receiver, judicial sale, power of sale and possession, keeping in mind the availability of such remedies will differ from province to province. For example, in the province of Quebec, analogous remedies include a personal right of action against the debtor, as well as the hypothetical rights of taking in payment, sale by a secured creditor, sale by judicial authority and taking possession for the purposes of administration. While, in provinces like British Columbia, Alberta, Ontario and Québec are concerned, the lender has the complete right to sue in the court for foreclosure which results in title to the property passing to the lender in full satisfaction of debt i.e. recovery of his debt. The lender in another remedial measure available to them, is that of a permit wherein he can apply for a judicial sale of the property and the remaining discrepancy is fulfilled by the mortgagee.
The main point to be understood would be that a phenomenon like mortgage should be entered into with thorough prior knowledge. A common person seeking to buy a property as against some security must weigh out the consequences in advance and this is where the legal representatives or lawyers come into help. The Act has been in existence since the British Raj and the Law of Property Act which is the governing act in the UK was enforced in 1925, which gives an idea on the point that since this act came in later, it would accommodate for a lot more situations and circumstances.
While in Canada, all laws differ provincially as stated the point of suing for foreclosure being available subject to provincial availability. India does provide for a similar solution of foreclosure in Section 67 of the Act but the real question that ought to be posed here is whether the knowledge of such remedies is known to people?
India as a nation must work on amending the existing law as per the growing needs of the nation. While the existing act does accommodate and provide for the different types of mortgages, the solutions to them should be made more dynamic and adaptable as per the needs of the situation. Encountered in the practical situations, mortgaging in the unorganized manner should be monitored under statutes that have rules and regulations made till levels of zila and municipalities. These rules and regulations should be seen as a measure to maintain checks and balances, have slight penal obligations attached to it and help in prevention of overexploiting as well.
The general idea behind the idea of
Mortgage is to provide people with a loan against the property they mortgage.
Even though a mortgage helps the person in obtaining the loan required, as time
passes, internal factors like lack of awareness and external factors like the
most important example is that of the Coronavirus pandemic make mortgage a
liability as well. The Indian mortgage
laws should have a separate act in place dealing with the various situations
and have applicability based on the dynamics of the same. They should be basic
established standards that ensure conformity at the most general level, then
define the rules and regulations putting the act into implementation and it
ought to be read both literally and strictly as the case may require.
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