Law > Civil Laws > Transfer of Property Act > Types of Mortgages
The classification of mortgage has been made on the basis of the nature of the interest which is transferred for securing the loan. Accordingly, there is a difference in the rights and liabilities in each kind of mortgage. These six types of mortgages also differ regarding the formalities that are necessary for effecting them.
As per Section 58, six types of mortgages are Simple mortgage, Mortgage by Conditional Sale, Usufructuary mortgage, English mortgage, Mortgage by deposit of title-deeds, and Anomalous mortgage.
Simple Mortgage:
Section 58(b): 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 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.
As per Section 58 (b). Where the mortgagor promises to pay the mortgage-money (loan) without delivering possession of the mortgagor-property and agrees expressly or impliedly that in case of non-payment of the loan, the mortgagee shall have the right to cause the mortgaged property to be sold through a decree or order from the Court, the mortgage is a simple mortgage. Thus in a simple mortgage, the mortgagee is not put into possession of the property pledged to him. The mortgagor merely parts with the right of sale and nothing more.
The mortgagee cannot foreclose i.e. keep the property in lieu of the mortgage-money but acquires right of sale the property by the intervention of the Court.
Characteristics of a simple Mortgage:
- In such a mortgage, the mortgagor takes a personal undertaking to pay the loan.
- In such a mortgage, the possession of the mortgagee-property is not given to the mortgage.
- In such mortgage in the case of non-payment of the loan, the mortgagee has the right to have the mortgage-property sold through the intervention of Court.
- A simple mortgage can be made only through a registered document irrespective of the sum of money secured. (Section 59 of the Act)
- A simple mortgagee is entitled to a decree for sale as a matter of course. He cannot acquire absolute ownership by foreclosure.
- In a simple mortgage, the security for the debt is two-fold: (i) the personal obligation; and (ii) The property.
Case Laws:
In Ram Narayan Singh v. Adhindra Nath, AIR (1916) PC 119 the Court held that the fact that some immovable property has been mentioned as security for its repayment does not displace the personal liability of mortgagor to repay the loan with interest.
In Kishan Lai v Ganga Ram (1891) 13 Allahabad 28 case, the Court held that the very words “right to cause the property to be sold” in section 58 (b) of the Transfer of Property Act, 1882 indicates that the power of sale is not to be exercised by the mortgagee without the intervention of the court.
Mortgage by Conditional Sale:
Section 58 (c): Mortgage by conditional sale:
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 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 effects or purports to effect the sale.
As per section 58(c) of the Transfer of Property Act, the sale with a condition that upon repayment of the consideration amount, the purchaser shall retransfer the property to the seller is known as Mortgage by conditional sale. Although, the whole transaction looks like a conditional sale, yet, in the intention of the parties is to secure the money (an essential ingredient of the mortgage) which the seller takes as a loan from the purchaser.
Characteristics of Mortgage by Conditional Sale:
- There is an ostensible (appearing to be true but not necessarily so) sale of immovable property.
- It is a conditional sale. The sale is subject to any of the following conditions: (i) On non-payment of mortgage-money (price) the sale would become absolute or, (ii) On payment of mortgage money the sale shall become void or the buyer shall retransfer the said property to the seller.
- The condition must be embodied in the same document.
Case Laws:
In Rama v Samiyappa ILR (1881) 4 Mad 179 183 184 case, the Court held that the essential of this form of mortgage is that with the default of payment the transaction is closed and the mortgage security becomes the absolute property of the mortgagee. There is no personal liability on the part of the mortgagor to repay the debt. The mortgagor’s right of redemption will be lost only by a decree for foreclosure.
In Natesa Pathar v Pakkirisamy Pathar, AIR 1997 Mad 105 case, the condition of sale and resale was engrafted in the same document. The purchaser was specifically prohibited from encumbering the property within the period of five years stipulated for repurchase. There was a substantial difference between the actual value of the property and consideration as stipulated in the deed. The transaction was held to be a mortgage by conditional sale.
In Chunchun Jha v. Ibadat Ali, AIR 1954 SC 345 case, the Court held that if the sale and repurchase are embodied in separate documents then the transaction cannot be a mortgage whether the documents are contemporaneously executed or not.
In Prakasam v. Rajambal, AIR 1975 Mad. 282 case, the document was described as a sale deed but the stamp paper was provided by the transferor and the consideration (price) was much less than the actual value of the property. There was a specific condition that on payment of ‘principal’ amount the property should be reconvened. It was held by the Madras High Court that the transaction was a mortgage by conditional sale and not an outright sale.
In Kamal Shivajirao Katkar v. Gajrabai Sopanrao Algude, AIR 2001 Bom. 369 case, where A, the owner of the land, gave possession of his land of B on receipt of money from him, and under the agreement B was to execute reconveyance on payment of the amount by A otherwise the sale was to be confirmed. In this case, payment of interest was not stipulated in the agreement. Accordingly, the court found that there was no intention of parties to treat the transfer of land as ‘security for debt’ which is an essential feature of a mortgage. The Bombay High Court held that the transaction was sale with the condition to repurchase and not a mortgage by conditional sale.
Usufructuary Mortgage:
Section 58 (d): Usufructuary mortgage:
Where the mortgagor delivers possession 1[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 2[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 3[or] partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee an usufructuary mortgagee.
As per section 58(d) of the Transfer of Property Act, when the mortgagor gives possession of the property to the mortgagee, then the mortgage is called usufructuary mortgage. Since possession is with the mortgagee, he enjoys the fruits of the property i.e. produce, benefits, rents or profits of the mortgage-property in lieu of interest on the principal money (debt) advanced by him. Therefore, on payment of a debt (principal money). The mortgagee has no right of possession.
Characteristics of Usufructuary Mortgage:
- Delivery of possession of the mortgage-property or, an express or implied undertaking by the mortgagor to deliver such possession.
- Enjoyment or use of the property by mortgagee until his dues are paid off.
- There is a transfer to the mortgagee of one of the incidents of ownership, namely, the right of possession and enjoyment of the usufruct.
- No personal liability of the mortgagor.
- The mortgagee cannot foreclose or sue for sale of mortgage-property.
- In this form of mortgage, no time-limit is fixed for the payment.
Case Laws:
In Chathu v Kunjan (1889) 12 Madras 109 case, the Court held that since there is no personal liability on the part of the mortgagor to repay the mortgage – money the mortgagor cannot be sued personally for the debt.
In Butto Kkristo v. Govindram, AIR (1939) Pat 540 case, where the mortgage-property is a tenanted house the only way in which possession can be given to mortgagee is to give him the right to collect the rents and appropriate them towards the debt.
In Hikmatulla v. Imam Ali, (1890) 12 All 203 case, the Court held that mortgagee is entitled to retain possession until the money due is paid. In a usufructuary mortgage, the time up to which money may be paid by mortgagor is uncertain. If any time is fixed the mortgage would not be a
usufructuary mortgage.
English Mortgage:
Section 58 (e): English mortgage:
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.
As per section 58(e) of the Transfer of Property Act, in English mortgage, there is an absolute transfer of property to mortgagee with a condition that when the debt is paid off on a certain date, he (mortgagee) shall re-transfer the property to the mortgagor. According to section 58 (e) of this Act, where mortgagor binds himself to repay the money (debt) on a certain date and transfers the mortgage-property absolutely subject to the proviso that mortgagee will re-transfer it to mortgagor on payment of debt as agreed, the mortgage is English mortgage. In an English Mortgage, the ownership of the property is transferred with a promise to repay the debt on a certain date. And the mortgagee is entitled to the possession of the property and to the enjoyment of the profits arising therefrom.
Characteristics of English Mortgage:
- The mortgagor binds himself to repay the mortgage money (debt) on a certain date.
- The mortgage-property is transferred absolutely to the mortgagee.
- The absolute transfer is subject to a proviso that mortgagee will re-transfer the property to mortgagor on payment of mortgage-money on the said date.
- It is known to mortgagee with certainty when the mortgagor is to redeem or he to proceed to foreclose or sell.
Case Laws:
In Narayana v Venkataramana, ILR (1902) 25 Madras 220 (235) (FB) case the court opined that the English Mortgage has three essential ingredients. First, the mortgagor has to bind himself to repay the mortgage money on a certain day. Secondly, the property mortgaged is transferred “absolutely” to the mortgagee. Thirdly, this transfer is subject to a proviso that the mortgagee will reconvey the property to the mortgagor upon payment of the mortgage – money on the date fixed for repayment.
The statutory power of sale by an English mortgagee arises when the mortgagor and the mortgagee are not Hindus, Muhammadans or Buddhists or members of any other race, sect, tribe or class from time to time specified in this behalf by the State Government in the Official Gazette. This means that majority of people in India, though entitled to go in for English mortgage, cannot have the statutory power of sale due to confinement of this power only to certain communities such as Christians, people of English origin only.
Mortgage by Deposit of Title deeds:
Section 58 (f): Mortgage by deposit of title-deeds:
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 immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds
Section 58(f) provides for the mortgage by way of deposit of Title deeds. Mortgage by deposit of title-deeds is a peculiar kind of mortgage. It is peculiar in the sense that in this mortgage, execution of mortgage-deed by mortgagor is not necessary. Mere deposit of title-deeds of immovable property by a mortgagor to mortgagee is sufficient. Title-deeds
are those documents which are legal proof that a person owns a particular property. The object of this kind of mortgage is to provide easy
mode of taking loans in urgent need particularly by a trading community of the commercial towns. This is called in English law an equitable mortgage. The towns specified in the section are called notified towns. Many other places have been notified by the State Governments for depositing title – deeds for creation of mortgages. There are territorial Restrictions for application of this form of a mortgage. In accordance with the provisions of Section 96 of the Transfer of Property Act, 1882, mortgage by deposit of title deeds, though without writing or by any deed, is equivalent to a simple mortgage. Bankers, in most of the cases, adopt the mortgage by deposit of title deeds since it is simple, inexpensive and non-time-consuming. The remedy of this mortgagee lies in filing a suit for sale of the mortgaged property. Title-deeds may also be deposited with banks to secure an overdraft account. This is a common practice among the trading community or persons involved in the business.
Characteristics of Mortgage by Deposit of Title deeds:
- Existence of a debt. The debt may be an existing or future debt.
- Deposit of title-deeds in notified town,
- Intention to create security, and
Case laws:
In K.J. Nathan, S. Maruthi, AIR (1965) SC 430 case the physical delivery of the title-deeds had taken place outside the towns specified. But the intention to create equitable mortgage by these deeds was formed after delivery of the deeds and in a town which was within the notified area. The Supreme Court held that an equitable mortgage was created under section 58 (f) of the Transfer of Property Act. The Court opined that there must be a bona fide intention that possession of title-deeds with the creditor is by way of security for the money advanced by him. However, the intention to create security by the deposit of title-deeds is a question of fact and not of law.
In Jethibai v. Putlibai, (1961) 14 Bom. L.R. 1020 case, the Court held that there is no equitable mortgage unless there is a connecting link between the debt and the possession of title-deeds suggesting a definite intention on the part of the debtor that deeds are in possession of creditor as security for the debt.
Anomalous Mortgage:
Section 58(g): Anomalous mortgage:
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 this section is called an anomalous mortgage.
According to section 58 (g), a mortgage is an anomalous mortgage if it is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or, a mortgage by deposit of title-deeds.
When a transaction is a mortgage in all respects i.e. there is the existence of debt and security of immovable property for re-payment of that debt but the agreement between the debtor and creditor is of such nature that it cannot be included in any specific category of mortgage, the transaction is an anomalous mortgage. It may also be combination of any two or more forms of specific categories of mortgage.
In Madho Rao v Gulam Mohiuddin AIR 1919 PC 121 case, the Court held that while considering an anomalous mortgage, the intention of the parties must be gathered from the terms of the instrument as controlled by the provisions of the Act.
Some of the forms of anomalous mortgages are given below :
- A mortgage with possession containing a covenant to pay the principal and interest (Ramanarayanimgar v Maharaja of Venkatagiri AIR 1927 PC 32 (36)).
- A mortgage with possession having a stipulation that the transferee should appropriate the rents and profits for a specified term of years and then give back the land (Tukaram v Ramchand ILR (1902) 26 Bom 252 (258)).
- A mortgage with the mortgagee to remain in possession and the mortgagor to repay in installments with interest or to redeem at any time.
- A mortgage without possession with the mortgagor not to redeem before five years and the mortgagee has given a right of foreclosure (Ujagar Lai v Lokendra Singh AIR 1941 Allahabad 169 (171)).
- A mortgage having a covenant to pay interest, but without any covenant to repay the principal and the mortgagor subsequently depositing certain title – deeds not mentioned in the mortgage as additional security.