EQUITABLE MORTGAGE, REDEMPTION AND FORECLOSURE

Essentials of deposit of title deeds?

Section 58(f) of the Transfer of Property Act deals with deposit of title deeds. This is a type of recognised modes of mortgage, especially to meet the urgent financial needs. A person delivers to the creditor or his agent, documents of title of immovable property with an intention to create security for the amounts borrowed, is called deposit of title deeds. Accordingly the essentials of the deposit of title deeds are debt, deposit of title deeds and intention to create a security.

Equitable mortgages?

In law, deposit of title deeds is called as equitable mortgages. It is so called, because in the absence of any legally executed document, merely on basis of possession of title deeds by mortgagee, the equity would ensure the return of the money.

Where the title deeds are to be delivered?

The title deeds are to be delivered to the creditor or his agent at specified towns. The State Government notifies the places where the documents are to be deposited with the creditor, and documents should be deposited only in such places. The place need not necessarily be the place where property is located. Originally this facility was available only in Kolkata, Mumbai and Chennai. At present it is extended to all important commercial centres. The property might be situated in Mysore, but title deeds may be deposited in Bangalore with the creditor.

Existence of debt?

The purpose of depositing the title deeds is to secure the amount borrowed. The debt may be existing or future debt or may be even borrowed earlier. One may deposit the title deeds to borrow in future also. But the determining factor is debt.

What are the documents to be deposited?

The title deeds of the property that is the documents, which establishes the title of the property to the owner have to be deposited with the creditor. The sale deed, gift deed, partition deed great certificate are some of the documents, which establishes the title.

What is meant by intention to create the security?

The borrower should have intention, that is willingness to create a security to the amount borrowed against the property. That intention is very important, mere holding of the documents is not sufficient but must be supported by bonafide intention.

Is it necessary to obtain any letter about deposit of title deeds?

As per the Transfer of Property Act, there is no need to have any written document witnessing the deposit. But to be practical, to establish the intention it is always advisable to reduce the deposit in writing. The borrower may deliver the documents with a covering letter.

Whether this mode of mortgage attracts Stamp Duty and Registration?

As the deposit may be made orally it does not attract Stamp Duty and Registration. Even the covering letter, which merely records the intention of the party and deposit, does not attract any Stamp Duty and Registration. But if such letter contain references to any terms of contract; amount of loan, rate of interest, repayment period etc., it attracts Stamp Duty and Registration. It should always be noted that the date of deposit should not coincide with date of loan. However many States have made the Registration of Covering letter compulsory.

What remedy is available in case of failure of the borrower to repay?

The remedy available is by enforcing a decree for sale of the mortgaged property by suit. Such suit should be filed within 12 years from the date on which money becomes due.

Right of redemption:

This is a very important right of the mortgagor, which the law protects. Generally law stands in favor of the weaker party and mortgagor being debtor; law safe guards his right. Section 60 of Transfer of Property act deals with Right of Redemption which is a right available to mortgagor to get back the (redeem) the property mortgaged that is after any time, the principal amount has become due, on payment of all the dues. The mortgager may demand from the mortgagee, the mortgage deed, all the documents, and if the property had been delivered, to deliver the possession of the property. The entire cost of this process to be borne by the mortgagor. He may also direct the mortgagee to deliver the deed; documents, possession of the property so any third person. If the mortgage has been effected by registered document, the redemption or re-conveyance deed also need to be registered.

This right of redemption is available before the mortgagee files a suit for enforcement of mortgage.

Whether partial redemption is allowed?

The mortgage is indivisible Section 60 of the Transfer of property act does not allow partial redemption, one of the mortgagors cannot redeem part of the mortgaged property by paying the proportionate amount. If redeemed, the entire property has to redeemed. The only exception is that if the mortgagee is a creditor himself and is responsible for breaking the integrity of the mortgage by allowing the co-mortgagor to redeem partially or when he acquires the interest of one of the co-mortgagors.

What is clog on redemption?

Clog means obstruction. A mortgagor has the right to enjoy hold of the property as he was entitled before the mortgage. If that right is prevented/restricted, such conditions are called clogs. A term/condition in a mortgage transaction is treated as clog, if it is unreasonable.

Foreclosure:

This is a right available to the mortgagee. The relevant section is 67 of Transfer of property act. This right can be exercised if there are no contrary conditions in the mortgage deed and after the mortgaged money has become due and before the mortgagor gets decree of redemption, or mortgaged money has been paid, deposited. In simple terms the right can be enforced on failure of the mortgagor to repay the money borrowed on due date. The mortgagee may obtain a decree from the court, that the mortgagor is prohibited from right to redeem the property or property be sold. This is suit for foreclosure. However the remedy depends upon the nature of the mortgage.

In the simple mortgage the foreclosure is not available. Remedy is either proceed against the mortgagor personally or per sale of the property mortgaged, so also in care of Usufructuary mortgage, where the mortgagee is in possession of the property and continues to be so until the debris repaid on full. In case of conditional sale, the mortgagee matures into sale on the failure of the payment of the debt, so the mortgage may foreclosure depriving the right of redemption. In English mortgage they may bring a suit for sale of the property. In case of mortgage by deposit of titles deeds. The remedy is sued for personal decrees or for sale of the property.

In anomalous mortgage, the remedy depends upon the terms of mortgage.

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