Different Types of Mortgage Loans That You Should Know

 

I this blog I will talk about  different types of mortgages, in which all ways mortgages can be created with examples. Before diving straight to the topic we need to understand what exactly is a mortgage. The concept of mortgage, mortgagor, mortgagee, mortgage money and mortgage-deed are clearly defined under Transfer of Property Act 1882. Section 58 . Now we can understand the concept of mortgage with the help of an example. Consider a property owner and he has some loan requirement. He directly goes to a bank or some individual which we can call as a lender. Before giving the loan amount the bank or the lender will sign an agreement which we can call as mortgage deed, it is also called loan agreement. After signing the loan agreement the lender will release the loan amount. The owner of the property who have received loan amount from the bank promises the bank that he will repay the main loan amount plus bank interest within the specified time as per the loan agreement. The bank is taking a risk here by giving money to the property owner . So in return to the risk taken by the bank they will mortgage the property . When the property owner takes loan from the bank with his property as mortgage . The bank will receive some rights on his property (ie) Right to sell .If something happens to the property owner such  that he won't be able to repay the loan amount, in such a case bank can  utilize its rights to sell  the mortgage so that the bank can recover the loan amount plus interest by selling the property . The bank can only utilize its right to sell the mortgage only if the owner of the property is unable to repay the loan amount. All these aspects are clearly mentioned under " Transfer of Property Act 1882 ,Section 58 " .

What is Mortgage ?

A mortgage is the transfer of interest. Ownership cannot be transferred here to specific immovable property, Which means that a loan is taken against a property, Bank can recover the loan amount only by selling the mortgaged property. For example consider the property owner I mentioned above is having 10 properties and in order to take the loan he mortgage one of his properties which means bank cannot touch rest nine properties. This is why specific immovable property is been clearly mentioned in the loan agreement. In order to secure the payment of money advanced or to be advanced by means of loan, It means that the bank is securing its money which is given as loan. Now what money could be this ? It's nothing but existing or future debt. Either the loan have been already given by the bank, Bank has already issued current loan. The property is being mortgaged to recover this loan. Suppose you have kept the property as a mortgage. So in case if he wants loan against the same property in the future, the property can still be mortgaged . In this case the liability is not limited to loan, if any other legal obligation is made to that particular owner such as monitory obligation, pecuniary liability will be their to give money back to the lender

Who is Mortgagor ?

The owner of the property is known as mortgagor. So when the rights are being transferred to the lender by taking a loan the mortgagor becomes mortgagee. For the time being the principal amount and the interest  is called mortgage money. This means the owner has promised he will return both the principal amount and interest to the lender  within the specified time as per the mortgage deed.

 Now we can understand another important topics with regard this

Accession to the Mortgaged Property

Accession to the mortgaged property is clearly explained under Transfer of Property Act 1882 , Section 70 . Accession means addition. Whatever Accession has been done within the mortgage will also becomes a mortgage. For example you have built a house on the mortgaged land or attached two more rooms on the already existing house on the mortgaged land. So in this case whole house on the mortgaged land  will automatically turns into mortgage . Here the bank have the provision to sell the property along with the house to recover the loan incase the owner of the property is unable to recover the loan.

Types of  Mortgages

Mortgages are mainly classified into six types. All types of mortgages are clearly defined under section 58 ,Transfer of Property Act .

1. Simple Mortgage

Simple Mortgage is very common in India. If we register it in Sub Registrar's office then it is called registered mortgage . Here the possession and the ownership  of the mortgaged property remains with the owner. But an interest will be transferred to the bank. When the interest is being transferred to the bank , the Mortgagor binds himself to pay the mortgage money, and agrees to the mortgagee that in the event of his failing to pay according to his contract, he shall have the  right to cause the mortgaged property to be sold. So Right to Sale is being transferred here. Incase the bank want to sell the property they can't do it directly, they need to go to court. Whatever money comes over the mortgage money will be return back to the owner. But the bank has got he provision for full recovery of its loan .This type of transaction is called simple mortgage.

2. Mortgage by Conditional Sale 

Mortgage by conditional sale is not much used in  India. In mortgage by conditional sale what happen is that mortgagor ostensibly sells the mortgaged property . Here the owner is basically selling his property to the bank. But this is a conditional sale . It's not fully sold. The exact rights are not getting transferred here. It will only be a completed sale if certain conditions are being met. If those conditions are not met, then this sale will also be returned . So let's see what are the conditions included in it. On condition of debt default of the mortgage money by the mortgagor on a certain date as per the mortgage deed the sale shall become absolute, It means If the owner is unable  to repay the loan amount, then this conditions will be removed and it will be considered as a proper Sale or an absolute sale and the Bank will become the proper owner of the mortgaged property. So either this condition can be written in the loan agreement or else, On condition that on such payment being made by the owner, the sale will become invalid, So that the ownership shall remain with the owner. This type of transaction is called ownership by Conditional Sale. In ownership by conditional sale the conditions should be clearly 

mentioned within the mortgage deed then only then it will be considered as a Mortgage. Otherwise it will be considered only as a normal Sale. 

3. Usufructuary Mortgage

Usufructuary mortgage is rarely used in India. Here the mortgagor delivers possession to deliver possession of the mortgaged property to the mortgagee. In this case he is giving the possession to the bank itself. Possession is either given immediately, or he is promising to the bank that he will give it in the future. He is expressly or by implication binds himself to it , that he will give the bank possession in the future. All these aspects will be clearly specified in the mortgage deed. Here the mortgagee retains all the possession until he pays back mortgage money. Until the mortgagee pays the principal amount + Interest possession will remains with the bank. Here Instead of Right to Sell bank is receiving Right to collect all sort of rent and profit from the property that is being mortgaged. If the bank recovers all its money that the mortgagee was supposed to pay to the bank, the bank will transfers the possession back to the property owner. This is called Usufructuary mortgagee. 

4. English Mortgagee

Here the mortgagor binds himself to repay the mortgage money on a certain date. But he transfers the mortgaged property absolutely to the bank. In this case total transfer of ownership take place , That is the owner makes the bank or the lender the owner of the property and in return for that he takes loan from the bank. But the bank have to return the property upon the successful completion of the loan by the property owner. Whatever transaction happen here is called English Mortgage.

5. Mortgage Deposit of Title Deeds

This is the most common mortgage in India. It is also called as Equitable Mortgage. Bank keeps the documents of the property and in return we are getting loan. This is basically delivered to a creditor or his agent documents of title to immovable property. What is the owner doing, This is the title deed of the property. Here main property documents are deposited to the bank as a security. This type of transaction is called Mortgage by Deposit of Title Deeds. The bank can sell the property to recover the loan. Here the loan recovery is very easy since there are not many number of legal hassles associated with it.

6. Anomalous Mortgage

If the mortgage is heavily customized within the mortgage deed it is called  Anomalous mortgage. The Recovery under this mortgage is clearly mentioned under two sections. First one is Section 67, Right to Foreclosure or Sale and the second one is Transfer of property act 1882. If the owner of the property didn't repay the loan, the bank have the right to approach the loan  and take orders from the court that the owner of the property should not be given right to redeem the property and grant them the ownership right. If the court grants them the right, the bank will attain the right to sell the property to recover the loan.