Mortgages are loans used to buy homes and other real estate. The property serves as collateral to secure the loan i.e. it acts as an asset that a lender accepts as security for loan. During British India, Bengal regulation XV of 1793, Bengal Regulation XVII of 1806 and Madras Regulation XXXIV of 1802 contained the rights of the mortgagor and the mortgagee which were governed entirely by the contract between the parties. The transfer of property act, 1882 repealed the regulations and codified the law.
Mortgage is defined under section 58(a) of the transfer of property act, 1882 as “A mortgage may be a transfer of an interest in specific immovable property for the aim of securing the payment of money advanced or to be advanced by way of loan, an existing of future debt, or performance of an engagement which can produce to a pecuniary liability.” The one who mortgages his property is named mortgagor/borrower and therefore the person to whom the property is mortgage is mortgagee/lendee.
From the definition given above we can understand that for any mortgage to be valid it should contain the following factors:
- It should only be a transfer of an interest.
- The property to be mortgaged should be specific immovable property.
- Parties to the mortgage (Mortgagor and mortgagee) should be competent.
- Consideration or mortgage money.
Let’s discuss these points in detail.
It should only be transfer of an interest:
The first constituent of a valid mortgage is that there should be transfer of an interest in immovable property for the purpose of securing the payment money advanced by way of loan or for the aim of securing the performance of a contract. Basically transfer of an interest refers to transfer of any loan or asset from one person to another. This transfer of interest is only to secure the payment of money advanced.
Here, the word ‘Transfer of interest’ means that the interest which passes to the mortgagee does not give the mortgagee the right to ownership of the property, it acts merely as a security to the loan.
In Sita Ram Prasad vs. Mahadeo Roi the court observed that when a joint family property was subject to mortgage, there is no transfer of ownership and the family member being its lawful members are competent to allot the property in oral partition to any family member. And that person becomes the absolute owner and is entitled to redeem the mortgage.
The property to be mortgage should be specific immovable property:
The next constituent is that there should be immovable property and that property must be distinctly specified. There is a difference between the word “Specific” and the word “General”. For instance, the words “My house and landed property” are vague and general. On the opposite the words “a house situated in Mumbai owned and possessed by us” are specific. As per section 3 of TP Act, immovable property does not include standing timber, growing crop and grass. Sukry Kurdepa v. Goondakull (1872) court has explained that movability may be defined to be a capacity in a thing of suffering alteration. On the other hand, if a thing cannot change its place without injury to the standard it’s immovable.
Competence of parties:
The transferor is called mortgagor and the transferee is called mortgagee. Third constituent of a valid mortgage is that the parties must be competent to contract. Section 11 of the Indian contract Act, 1872 defines the capacity to contract, of a person to be depended on three aspects; (i) Attaining the age of majority, (ii) being of sound mind, (iii) not disqualified from entering into contract.
Consideration or mortgage money:
Fourth constituent of a valid mortgage is mortgage money which means the principal money and the interest of which payment is secured for the time being. Consideration exists in mortgage. A mortgagor cannot redeem the property on the repayment only of the principal money. He must also pay the interest thereon because the interest is regarded as a charge upon the property just as much as the principal amount. Every mortgage must be supported by consideration, which means something in return, the consideration of mortgage may be in the form of:
- Money advanced or to be advanced by way of loan, or
- An existing or future debt, or
- The performance of an engagement giving rise to pecuniary liability.
According to section 59 of the TP act, registration is necessary if the value of property is Rs. 100/- and above. It is optional, if the worth is below Rs.100/-. The registered instrument (if any) is to be signed by the transferor and attested by the two witnesses. A mortgage- deed is the instrument by which the transfer is affected. In other words it is a legal document that contains various terms and conditions about mortgage. It provides the mortgagee with interest and legal rights over a property.
singh, a. (2009). The transfer of property act. new delhi: universal law publishing co.