Mortgage
A mortgage is the transfer of an interest in specific immovable property to secure the payment of money advanced as a loan or an existing or future debt.
What is a Mortgage?
A **mortgage** is a legal arrangement in which the owner of **immovable property** (land or buildings) transfers an interest in that property to a lender as **security for a loan** or debt. The property serves as collateral — if the borrower fails to repay, the lender has certain rights over the property to recover the money owed.
In simple terms, when you take a home loan from a bank, you mortgage your house to the bank. You continue to live in the house, but the bank has a legal claim on it until you repay the loan in full. If you default, the bank can take steps to sell the property and recover its money.
Legal Framework in India
Transfer of Property Act, 1882
The primary law governing mortgages in India is the **Transfer of Property Act, 1882 (TPA)**, specifically **Sections 58 to 104**.
**Section 58** defines a mortgage as: *"A mortgage is the 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 the performance of an engagement which may give rise to a pecuniary liability."*
Key terms defined in Section 58:
- **Mortgagor:** The person who transfers the interest — the borrower or property owner.
- **Mortgagee:** The person to whom the interest is transferred — the lender.
- **Mortgage money:** The principal amount and interest secured by the mortgage.
- **Mortgage deed:** The document that creates the mortgage.
Other Relevant Laws
- **Registration Act, 1908:** Most mortgages must be registered to be legally valid. Section 17 mandates registration for instruments that create or transfer an interest in immovable property.
- **Indian Stamp Act, 1899:** Mortgage deeds attract stamp duty, which varies by state and the amount of the mortgage.
- **Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act):** Allows banks and financial institutions to enforce mortgage security without court intervention.
- **Transfer of Property (Amendment) Act:** Amendments over the years have refined mortgage provisions.
Types of Mortgages
Section 58 of the TPA recognizes **six types of mortgages**:
1. Simple Mortgage — Section 58(b)
The mortgagor personally binds themselves to pay the mortgage money and agrees that if they fail to pay, the mortgagee shall have the right to cause the property to be **sold through the court** and recover the money from the sale proceeds. There is no delivery of possession to the mortgagee.
2. Mortgage by Conditional Sale — Section 58(c)
The mortgagor ostensibly sells the property on the condition that the sale shall become absolute if the mortgage money is not paid by a certain date, or that the sale shall become void if the money is paid. This protects the borrower's right to get the property back upon repayment.
3. Usufructuary Mortgage — Section 58(d)
The mortgagor delivers **possession** of the property to the mortgagee and authorizes the mortgagee to **receive the rents and profits** (usufruct) from the property. The rents are applied toward payment of the mortgage money. The mortgagor is not personally liable to pay.
4. English Mortgage — Section 58(e)
The mortgagor transfers the property absolutely to the mortgagee and binds themselves to repay the mortgage money by a certain date. Upon repayment, the mortgagee must re-transfer the property. This gives the mortgagee both possession and absolute title as security.
5. Mortgage by Deposit of Title Deeds (Equitable Mortgage) — Section 58(f)
The mortgagor delivers the **title deeds** of the property to the mortgagee with the intention of creating a security. This type of mortgage is valid only in certain towns notified by the state government (originally Kolkata, Mumbai, Chennai, and other specified towns). No formal deed is required, though it is advisable to execute one.
This is the most common form of mortgage used in **home loans** — the borrower deposits the original title documents with the bank.
6. Anomalous Mortgage — Section 58(g)
Any mortgage that does not fall into the above five categories or combines elements of two or more types is an anomalous mortgage.
Key Rights and Duties
Rights of the Mortgagor
- **Right of Redemption (Section 60):** The most fundamental right — the mortgagor has the right to **redeem (get back)** the property upon payment of the mortgage money. This right subsists until it is extinguished by a decree of foreclosure or by sale.
- **Right to Inspection and Production of Documents (Section 60A).**
- **Right to Accession (Section 63):** Any accession (natural addition) to the property belongs to the mortgagor upon redemption.
- **Right to Improvements (Section 63A):** Improvements made by the mortgagor on the property are also protected.
Rights of the Mortgagee
- **Right to Foreclosure or Sale (Section 67):** If the mortgagor defaults, the mortgagee can institute a suit for foreclosure (in mortgage by conditional sale) or sale (in simple mortgage, English mortgage, etc.) of the property.
- **Right to Sue for Mortgage Money (Section 68):** In a simple mortgage or English mortgage, the mortgagee can sue for the personal liability of the mortgagor if the sale proceeds are insufficient.
- **Right to Spend Money on Preservation (Section 72).**
When Does This Term Matter?
Taking a Home Loan
When you take a **home loan** from a bank or housing finance company, you are required to mortgage the property to the lender. Understanding the type of mortgage (usually mortgage by deposit of title deeds) and your rights — especially the right of redemption — is essential.
Property Purchase and Due Diligence
Before purchasing property, it is critical to check if the property is already mortgaged. An **encumbrance certificate** from the sub-registrar's office reveals existing mortgages and other charges on the property. Purchasing a mortgaged property without the mortgagee's consent can create serious legal complications.
Loan Default and Recovery
If a borrower defaults on a secured loan, the lender can enforce the mortgage through:
- **SARFAESI Act, 2002:** Banks can issue a notice under Section 13(2), and if the borrower fails to pay within 60 days, take possession of and sell the property without court intervention.
- **Civil suit:** Filing a suit for foreclosure or sale under the TPA.
- **Debt Recovery Tribunal:** For debts above a specified threshold.
Business Financing
Businesses frequently mortgage commercial property to secure business loans, working capital facilities, and overdrafts. The type and terms of the mortgage affect the business's ability to deal with the property during the loan period.
Practical Significance
- **Registration is critical.** Most mortgages must be registered under the Registration Act, 1908, to be legally enforceable. An unregistered mortgage deed (except equitable mortgage by deposit of title deeds in notified areas) does not create a valid mortgage.
- **Stamp duty is payable.** Mortgage deeds attract stamp duty, which varies significantly by state. Failure to pay proper stamp duty renders the deed inadmissible as evidence.
- **Clog on redemption is void.** Any condition in the mortgage deed that makes redemption impossible or unreasonably difficult is void. The mortgagor's right to redeem cannot be extinguished by contract — this principle is known as "once a mortgage, always a mortgage."
- **Priority of mortgages.** If the same property is mortgaged to multiple lenders, priority is generally determined by the order of registration — the first registered mortgage takes precedence.
Frequently Asked Questions
What is the difference between a mortgage and a pledge?
A mortgage relates to **immovable property** (land and buildings) and is governed by the Transfer of Property Act, 1882. A pledge relates to **movable property** (goods, gold, securities) and is governed by the Indian Contract Act, 1872 (Sections 172-179). In a mortgage, the property may or may not be delivered to the lender depending on the type of mortgage. In a pledge, delivery of possession to the lender is essential.
Can a bank sell my property if I default on a home loan?
Yes. Under the **SARFAESI Act, 2002**, banks and financial institutions can take possession of and sell mortgaged property if the borrower defaults. The bank must first issue a notice under Section 13(2) giving the borrower 60 days to pay the outstanding amount. If the borrower fails to pay, the bank can take possession and sell the property. The borrower has the right to challenge the action before the Debt Recovery Tribunal under Section 17.
What is an equitable mortgage and when is it valid?
An equitable mortgage (mortgage by deposit of title deeds) is created when the mortgagor delivers the original title deeds of the property to the mortgagee with the intention of creating a security for a debt. Under Section 58(f) of the TPA, this is valid only in towns notified by the state government. Many states have now notified all areas within their jurisdiction for this purpose. It is the most common form of mortgage used in home loans.
Can I sell a property that is mortgaged?
Legally, a mortgagor can sell a mortgaged property, but the mortgage continues to attach to the property — the buyer takes the property subject to the existing mortgage. In practice, the mortgagee's consent is usually required, and the sale proceeds are first used to discharge the mortgage. Banks typically require the loan to be fully repaid before releasing the title deeds, and the process involves obtaining a no-objection certificate from the lender.
Disclaimer: This glossary entry is for informational purposes only and does not constitute legal advice.
Related Legal Terms
Lien
A lien is the legal right to retain possession of another person's property until a debt or obligation owed by the property owner is satisfied.
Encumbrance Certificate
An Encumbrance Certificate (EC) is an official document issued by the Sub-Registrar's office that confirms whether a particular property is free from any legal or monetary liabilities such as mortgages, liens, or pending litigation.
Stamp Duty
Stamp duty is a tax levied by the government on legal documents — especially those related to property transactions — to make them legally valid and admissible as evidence in court.
Execution of Decree
Execution of decree is the legal process by which a court enforces its decree, compelling the judgment debtor to comply with the court's decision by delivering property, paying money, or performing the required act.