ANALYSIS: RIGHTS AND LIABILITIES OF A MORTGAGOR

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INTRODUCTION

The Transfer of Property Act, 1882 governs the definition and elements of what constitutes a mortgage- also known as ‘liens against property’  or ‘claims on property’- in the eyes of the law. As a debt instrument, it is a means to raise capital for a specific immovable property by way of acquiring a loan, an existing or future debt or for the performance of an engagement which could potentially lead to monetary liability. A transference of interest creates the base to a transaction of such kind.

Section 58(a) explains the roles of each party to a mortgage, them being; the mortgager themselves, as an individual who seeks to transfer interest and the mortgagee the person to whom the interest and/or property are transferred to. To arrive at a settlement for the amount payable, the mortgagor usually pays the principal amount along with interest, which will be referred to, hereinafter, as mortgage-money. Thus, the legal document used to specify all terms and conditions relating to that particular deal is called a mortgage deed.

TYPES OF MORTGAGE

Section 58 of the aforementioned Act speaks of five different types of mortgages that are prevalent in the financial market:

  1. Simple Mortgages [Section 58(b)]: Simple mortgages are scenarios where instead of delivering the property to the mortgagee, the mortgagor binds themselves to pay the mortgage-money. In cases where they are unable to recompense, the mortgagee then reserves the right to sell the property and use the proceeds to pay off the debt.
  1. Conditional Mortgages [Section 58(c)]: It is one where on the face of it the mortgagor “sells the property”. However, once the debt is paid off the sale shall be deemed to be void and the property is transferred back to the borrower. On the other hand, in cases of a default in payment of the mortgage money, the sale shall be absolute in nature.
  1. Usufructuary Mortgages [Section 58(d)]: Where the possession of the property is handed over to the mortgagee in order to derive rent and profits that accrue from it as payment of the interest charged or the mortgage-money itself.
  1. English Mortgage [Section 58 (e)]: The mortgagor here binds himself to the repayment of the debt and transfers the property to the mortgagee provided in lieu of a re-transfer of the property once the mortgage money is paid off.
  1. Mortgage by deposit of title-deeds [Section 58 (f)]: Where an individual delivers the title-deeds of his immovable property as collateral in repayment of the debt, such a transaction is known as a mortgage by deposition of title-deeds.
  1. Anomalous Mortgage [Section 58(g)]: Just like its name implies, a mortgage that does not fit the criteria of any of the previously mentioned types are considered to be anomalous by nature.

RIGHTS OF MORTGAGOR

The Rights bestowed upon a mortgagor is documented under Sections 60-64 and 65A of the Transfer to Property Act, 1882.

  1. Right to Redeem [Section 60]: This bestows a right upon the mortgagor, upon payment of the amount due, to receive any deeds or documents of the property from the mortgagee’s possession. The mortgagee is also entitled to transfer the property whilst also executing a written acknowledgement stating that any right in derogation of the mortgagor’s interest to the mortgagee has been extinguished. This right to redeem can be enforced by means of a suit called a ‘suit for redemption.’
  1. Right to Transfer to Third Party [Section 60A]: A mortgagor who is entitled to redemption has the right to retransfer the mortgage or assign the mortgage debt to a third party. This plays into mortgages being an incorporeal right under the division of Jura in re aliena also often referred to as encumbrances.
  1. Right to Inspection and Production of Documents [Section 60B]: A mortgagor has the right to inspect, make copies of, abstracts of or extract from any document relating to the immovable property that has been mortgaged that are currently in the custody of the mortgagee.
  1. Right to Redeem Separately or Simultaneously [Section 61]: When a person has executed two or more mortgages, in cases where such is not specified in the contract, may be entitled to redeem any mortgaged property separately or together once the principal amount is due.
  1. Accession to Mortgaged Property [Section 63]: If an accession takes place when the mortgagee is still in possession of the property, upon redemption the mortgagor will reserve the right to such accession unless specified otherwise as per the contract. Ought to be remembered is that accession may be of two types, Natural and Acquired.
  1. Right to Improvements to Mortgaged Property [Section 63A]: During the subsistence of a mortgage with the mortgagee making improvements to the property, the mortgagor is entitled to such improvements with the costs borne by the mortgagee. Unless such improvement was made to keep in order with lawful order or preservation of the property from destruction or deterioration in which case the mortgagor is liable to pay for the costs in addition to the principal amount along with interest.
  1. Right to the Renewal of Mortgaged Leases [Section 64]: When the mortgaged property is leased out by the mortgagee, the mortgagor shall be empowered to reserve the right to obtain the benefits of the new lease post redemption.
  1. Right to Lease [Section 65A]: Every mortgagor has the right to lease out the mortgaged property while in lawful possession of it and thus binding the mortgagee. Such being subject to conditions
  2. Every lease must be in accordance with the local laws, customs and usage.
  • No rent or premium shall be paid, promised or payable in advance.
  • No lease can contain a covenant for renewal.
  • The lease must come into effect no later than six months from the date on which it was made.
  • In cases where a lease is applied on buildings, the duration of the lease shall not exceed three years and it must contain a covenant for payment of rent and for non-payment of such conditions of re-entry must be specified.

LIABILITIES OF MORTGAGOR

Every mortgagor has certain liabilities to go along with their rights. Such is mentioned under Section 65 and 66 of the Transfer of Property Act, 1882.

  1. Liability to Transfer Interest [Section 65(a)]: Every mortgagor has the liability to transfer interest during the subsistence of the debt. Such transferable interest in the property must be possessed by the mortgagor and any breach in the contract will hold the mortgagor liable to compensate the mortgagee.
  1. Liability to Defend the Title [Section 65(b)]: As per Section 65(b), the mortgagor has the duty to defend their title or enable the mortgagee to do so on their behalf, thus bearing any costs that may be furnished in the process.
  1. Liability to Pay Public Charges [Section 65(c)]: Any public charges that are accrued with respect to the property that has been mortgaged falls upon the mortgagor to pay off as long as the mortgagee is not in possession of the property.
  1. Liability to Abide by Conditions of a Lease [Section 65 (d)]: Where the mortgaged property is a lease, as per Section 65(d), the mortgagor is instilled with the responsibility to pay the rent reserved by the lease, abide by all the conditions contained within the lease as well as indemnify the mortgagee from any claims that may arise due to non-payment, non-performance or non-observance of the conditions in the contract.
  1. Liability to Discharge Principal Money and Interest [Section 65 (e)]: Section 65(e) makes mention of second or subsequent encumbrances on the property. The mortgagor is thus liable to pay any interest that may be accrued from prior encumbrances as well as discharge the principal amount when due
  1. Waste by Mortgagor in Possession [Section 66]: Section 66 makes provisions for properties that are still in the mortgagor’s possession. There is an implied duty that the mortgagor must not commit any act that could destroy or is permanently injurious to the property which may result in the depreciation of the property value.

CONCLUSION

The Transfer to Property Act of 1882 serves as a valuable instrument towards creating a semblance of law and order in the financial markets that involve raising capital through any type of mortgaging. The Act has taken upon itself to define the important aspects of what qualifies as key elements to such transactions and placed down a balance of duties and rights for both parties that stand justiciable. Ever since its induction into the judicial system, the act hasn’t gone through a number of amendments in comparison to its counterparts, whether or not it requires a thorough redefining to keep up with the changing times is up for questioning.

Authors: Nengchonghoi Bora

Editor: Kanishka Vaish, Editor, LexLife India.

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