The Rights & Liabilities of Mortgagor and Mortgagee

By Ayushi Budholia

Published at: 17 August 2022 at 23:35 IST

INTRODUCTION

The two important parties in the mortgage are the mortgagor and the mortgagee. Whenever a mortgage deed is entered into, some rights and liabilities of the parties are formed. This article will give a brief explanation of the rights and liabilities of the mortgagor and mortgagee.

One of the important concepts through which loans are secured is the Mortgage. The term mortgage was derived from an old French word which meant “dead pledge.” A mortgage was called a dead pledge as the pledge comes to an end when the stated obligation comes to an end, or in case the debt is not repaid back, then the property is taken for foreclosure or for sale by the lender.

The key function of a mortgage is to provide security to the lender against the amount of money or loan borrowed. Under this, in order to secure a loan, the borrower has to deposit some assets as security with the lender. Mortgage is defined in Section 58(a) of the Transfer of Property Act of 1882 as–

“A mortgage is the transfer of an interest in specific immoveable 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.”

“The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being arc called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.”

There are six kinds of mortgage defined under the Transfer of Property Act, 1882 –

• Simple Mortgage [Section-58(b)]
• Mortgage by conditional sale [Section-58(c)]
• Usufructuary Mortgage [Section-58(d)]
• English Mortgage [Section-58(e)]
• Mortgage by deposit of title deeds [Section-58(f)]
• Anomalous Mortgage [Section-58(g)]

RIGHTS AND LIABILITIES OF MORTGAGOR

RIGHTS OF MORTGAGOR

• Right of Redemption [Section 60]

The Section 60 of the Transfer of Property Act, 1882 talks about the right of redemption of the mortgagor once the debt amount is paid off. The law provides that on the payment of the debt at the proper time and place, the mortgagee is required to-

(a) deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee.

(b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and

(c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished:

• Obligation to transfer to third party instead of re transference to mortgagor [Section 60A]

This right was introduced by the Transfer of Property Amendment Act, 1929. According to this section, where the mortgagor is entitled to redemption, he can ask the mortgagee to transfer the mortgaged debt as well as mortgaged property to a third party instead of re transferring it.

• Right to inspection and production of documents [Section 60B]

According to this section the mortgagor has the right to ask the mortgagee to present the documents of the mortgaged property which are in his possession for the purpose of inspection, given on notice of reasonable time. But the expenses that are incurred by the mortgagee to procure those documents for inspection are to be borne by the mortgagor and this right is available till the mortgagor has the right to redeem.

• Right of usufructuary mortgagor to recover possession [Section 62]

According to this section, the mortgagor has a right to recover possession of the property together with the mortgage deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee on the condition that he has paid the principal amount of the loan or on the expiry of the prescribed time stated for the payment of the mortgage amount.

• Accession to mortgaged property [Section 63]

Accession means addition to the property. In the absence of a contract to the contrary, the mortgagor upon redemption is entitled against the mortgagee to such accession. When the accession to the property is capable of separation without causing damage to the principal property and is acquired by the mortgagee on his own expenses, the mortgagor is required to pay the mortgagee the expense of acquiring it.

If such separate possession or enjoyment is not possible, the accession must be delivered with the property, with the mortgagor liable, in the case of an acquisition necessary to preserve the property from destruction, forfeiture, or sale, or made with his assent, to pay the proper cost thereof, as an addition to the principal money, with interest at the same rate as is payable on the principal, or, where no such rate is fixed, at the rate of nine percent per annum.

• Improvements to mortgaged property [Section 63A]

According to this section, if an improvement is made to the mortgaged property during the continuance of the mortgage, the mortgagor is entitled to such improvement on the redemption of the property. The mortgagor is required to pay the cost only when such improvement was effected at the cost of the mortgagee and was necessary to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient, or was made in compliance with the lawful order of any public servant or public authority.

• Renewal of mortgaged lease [Section 64]

In case the mortgagor has entitled a leasehold property as the mortgaged property and during the duration of the mortgage, the lease is renewed then on redemption of the property the mortgagor shall be eligible for the benefits of the renewed lease and this right is available to the mortgagor unless he enters into any contract which is contrary to this condition with the mortgagee.

• Mortgagor’s power to lease [Section 65A]

According to this section, the mortgagor is allowed to grant a lease of the mortgaged property if he has the possession of that property subject to the following conditions-

1. The conditions of the lease should be as per the local laws and customs to avoid any further fraudulent transaction.
2. No rent or premium shall be paid prior by the mortgagee.
3. The contract cannot contain any provision with regard to renewal of lease.
4. Every such lease shall be enforced within a period of 6 months from the date of execution of the lease.
5. The term of the lease should not be more than 3 years in total where the mortgaged property is a building.

LIABILITIES OF MORTGAGOR

• Waste by mortgagor in possession [Section 66]

This section talks about the liability of the mortgagor to avoid waste. According to this section, the mortgagor is not liable to the mortgagee in case of permissive waste, i.e., the minor waste of the property caused by the mortgagor while he has the possession of the mortgaged property. However, he must not commit any act which is destructive or permanently injurious thereto, if the security is insufficient or will be rendered insufficient by such act.

• Liabilities arise through implied contract [Section 65]

In absence of a contract to the contrary the mortgagor shall be deemed to contract with the mortgagee –

1. that the mortgagor will defend, or, if the mortgagee be in possession of the mortgaged property, enable him to defend, the mortgagor’s title thereto;
2. that the mortgagor will, so long as the mortgagee is not in possession of the mortgaged property, pay all public charges accruing due in respect of the property;
3. When the property is leased by the mortgagor, then it would be the duty of the mortgagor to direct the rents and profits of the lease to the mortgagee till the property is not redeemed back by the mortgagor. The mortgagor shall direct the lessee to send the rents directly to the mortgagee.

RIGHTS AND LIABILITIES OF MORTGAGEE

RIGHTS OF THE MORTGAGEE

• Right to foreclosure or sale [Section 67]

According to this section, after the mortgage money has become due, the mortgagee has a right to debarred the mortgagor of his right to redeem the property. This right can be exercised at any time after the mortgage-money has become due to him, and before a decree has been made for the redemption of the mortgaged property, or the mortgage-money has been paid or deposited.

• Right to sue for mortgage-money [Section 68]

According to this section, the mortgagee has a right to sue for the mortgage money under the following conditions –

1. Where the mortgagor binds himself to repay the same.
2. Where the mortgaged property is completely or partially destroyed without any fault of them mortgagee.
3. where the mortgagee is deprived of the whole or part of his security by or in consequence of the wrongful act or default of the mortgagor.
4. In specific mortgage, where the mortgagee is entitled to possession of the security but the mortgagor fails to do so.

• Right to sell [Section 69]

According to this section, the mortgagee has a right to sell the mortgaged property without the intervention of the court. However, this right can only be exercised under the following conditions –

1. Where the mortgage is an English Mortgage and the mortgagor and mortgagee are not Hindus, Muhammadan, Buddhist or a member of any race, sect, tribe or as stated by the official gazette of the State government.
2. Where this power of mortgagee is explicitly stated by the mortgagee in the mortgage deed and the mortgagee is itself government and the property are located in specified towns i.e., Calcutta, Madras or Bombay originally.

• Right to accession [Section 70]

According to this section, if any accession is made to the mortgaged property after the date of execution of the mortgaged deed, then the mortgagee has a right over those accession.

• Renewal of mortgaged lease [Section 71]

According to this section, when the mortgaged property is as lease, and the mortgagor obtains a renewal of the lease, the mortgagee, in the absence of a contract to the contrary, shall, for the purposes of the security, be entitled to the new lease.

• Rights of mortgagee in possession [Section 72]

According to this Section, the mortgagee in possession has a right to spend money for the preservation of the mortgaged property from destruction, forfeiture or sale; for supporting the mortgagor’s title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease.

LIABILITIES OF THE MORTGAGEE

• Mortgagee when bound to bring one suit on several mortgages [Section 67A]

According to this section, when a mortgagee has two or more mortgage of same or different kind against the same mortgagor, then he has a right to get a decree of the court under section 67 against the same mortgagor and in case the mortgagee wishes to sue the mortgagor on anyone of the mortgages, then he shall have to sue all the mortgages where the mortgage money is due on part of the mortgagee.

• Liabilities of mortgagee in possession [Section 76]

When, during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property, then he has the duty to –

1. Manage the property well in manner of ordinary prudence.
2. Collect rents and profits of the property to his best endeavor.
3. Pay the government dues duly while the property is in his possession.
4. Make the necessary repairs of the property unless it is contrary to the contract.
5. Not commit any act which may damage or deteriorate the value of the property permanently.
6. Apply for insurance money for reinstating the property or in case he receives reduction in mortgage money from the mortgaged property.
7. Keep proper accounts of all the sums received and spent by him over the mortgaged property.
8. Apply for rents and profits for discharging the interests of principal amount and make certain deductions.

LANDMARK JUDGEMENT

Right of Redemption (Section 60)

• Noakes & Co. Vs Rice, (1902) AC 24

In this case, the House of Lords observed that anything which obstructs or comes in the way of right to redemption of mortgagor is bad and came with the phrase “once a mortgage always a mortgage” and clarified that mortgage is not reducible.

• Stanley Vs Wilde, (1899) 2 Ch 474

It was decided that even under condition where the mortgagor fails to pay his debts or the loaned amount, wouldn’t take away the right to redemption of the mortgagor, and if there is any such provision clogging the right to redeem, then it will be considered void.

Right of foreclosure or sale (Section 67)

• K. Vilasini Vs Edwin Periera, AIR 2009 SC 104

It was noted that an order of foreclosure is passed only after determining the kind and nature of mortgage and the parties who are operating within the mortgage.

CONCLUSION

The transfer of property in India is governed by the Transfer of Property Act, 1882. It came into force on July 1^st, 1882. The Act addresses the concept of “mortgage,” which is defined in Section 58(a). Whenever a mortgage deed is entered into, two major parties are created, i.e., the mortgagor and the mortgagee.

A finalized mortgage deed gives rise to certain rights and liabilities of the parties that are defined under the Act. There are certain rights and liabilities that have existed since the enactment of this Act, while others have been inserted through the Transfer of Property Amendment Act of 1929.

ABOUT THE AUTHOR

Ayushi Budholia is a third-year, B.A.LL.B Student of Lloyd Law College, Greater Noida.

Reference:

• Mortgage
• Types of Mortgages
• Redemption Rights in Mortgage
• Mortgage via Conditional Sale