Rights And Liabilities of Mortgagee in India

Introduction

In layman’s language mortgage is an agreement between the borrower and the money lender/financier/banker, where the lender is empowered to seize the mortgaged property of the borrower in default of repayment of the debt with interest. In other words, a mortgage is the conditional conveyance of immovable property devised to serve as a security for payment of money (of loans) or fulfillment or performance of specific contractual duties.

Let’s understand its legal definition, the original context of Section 58 of Transfer of Property Act, 1882 provides that a mortgage is the transfer of an interest in some 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.

As a mortgage is the transfer of an interest in a property, it serves as a security for repayment of existing or future debt or performance of a duty, which may lead to a pecuniary liability. There will be a conveyance of interest from the debtor to the lender, however, it is not the conveyance of ownership; the creditor will enjoy the transferred interest in the mortgaged immovable property of the debtor. The literal translation of the word mortgage is “dead pledge.” Through the eyes of Sir Edward Coke, the term (mortgage) comes from the Old French “dead pledge,” and apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

General Meanings

Mortgage

If a person takes a loan, he will grant some interest in his immovable property as security for repayment of the loan to the lender, it is known as a mortgage of property. In case of Chetti Goundan v. Sundaram Pillai[1], the court elucidated that in a mortgage the right in the property created by the transfer is accessory to the right to recover the debt. Thus, a mortgage only confers accessory right on the lender so as to secure the due payment, but not the ownership right.

Mortgagor and Mortgagee

The person who transfers the interest of property in a mortgage is the Mortgagor. The person on whose favour it has been transferred is the Mortgagee.

Mortgage deed

The document or instrument by which the mortgage has come into existence is called a mortgage deed.

Essentials of valid Mortgage

The essentials of a valid Mortgage are as follows:

1. There must be a transfer of interest in a property.
2. That property should be immovable, and the same has to be mentioned in the mortgage deed, not in general terms.
3. There should be a consideration to support the mortgage.
4. The parties should be competent enough to enter into the contract.
5. The mortgage deed should be registered and attested by two witnesses.

Rights and liabilities of the Mortgagee

Who is a Mortgagee?

A mortgagee is a person on whose favour the interest of the immovable property is transferred.

For example, S loans G, S wants her amount to be secured. For that, G has transferred an interest in his immovable property to S. G authorizes S to sell his property in case of loan default. Here, S is the Mortgagee, and G is the Mortgagor.

Lender = Mortgagee

Borrower = Mortgagor

Rights of Mortgagee

The Mortgagee is the person to whom the property is transferred. He holds catena of rights against the property and the Mortgagor as well.

Following are the rights of Mortgagee in a contract of mortgage,

1. Right to foreclosure 

Section 67 of the Transfer of Property Act, 1882 vested the Mortgagee with the right of foreclosure. This right emancipates the Mortgagee to take the collateral on loan when the loan payments have defaulted. The two pivotal rights that terminate a mortgage are the right to foreclosure and the right to redemption. Both the rights are co-extensive despite the fact that the former is provided for the Mortgagee (who claims to recover his outstanding loan money that has became due), whereas, the latter is for Mortgagor (who has paid the money back and is now entitled to take back the mortgaged property).

The Section defines foreclosure as “A suit to obtain a decree that a mortgagor shall be absolutely debarred of his right to redeem the mortgaged property is called a suit for foreclosure.” Thus, for foreclosure of a property, the Mortgagee can obtain a decree from the competent court that debars the Mortgagor from exercising his redemption right over the property. By the obtained decree, the Mortgagee can place a complete bar over the Mortgagor’s right to redeem the property.

Illustration:

If a Bank loans X against the security of his immovable property. The mortgage has been created, and the time for repayment of mortgaged money has also been fixed. Regardless, X failed to repay the loan, thereby, debt becomes due. Consequently, the right of foreclosure is readily obtainable by the Mortgagee (here, bank) as X hasn’t paid the principal amount with interest on the due date.

Conditions to exercise the right of foreclosure

• Money must be due for payment i.e. Stipulated time for repayment of the loan has expired, regardless, the payment is still pending.
• The mortgage deed should not contain any clause that waives the Mortgagee’s right to foreclosure.
• The decree of redemption should not be obtained by the Mortgagor prior to this claim.

In the case of K. Vilasini v. Edwin Periera[2], it was held that an order permitting foreclosure can only be passed upon ascertaining the nature of the mortgage and the parties’ right under it. 

2. Right to sue 

Pursuant to Section 68 of the Transfer of Property Act, the following are circumstances, under which a Mortgagee can sue for mortgage money,

1. Default in repayment – The Mortgagor had failed to repay the mortgage money, which he has to pay.
2. Destruction of the mortgaged property – The immovable property has wholly or partially been destroyed. But, it is not because of the wrongful acts of parties to the mortgage.
3. Insufficient security – The security is insufficient within the meaning of Section 66 of the Act, as The Mortgagor had failed to provide sufficient security in spite of being given a reasonable opportunity to do so.
4. Deprivation of security – The Mortgagee has dispossessed his security due to the wrongful act of the Mortgagor.
5. Non-delivery of the possession – The Mortgagee is entitled to possess the mortgaged property but deprived of the same as Mortgagor failed to deliver it.
6. Securance of the possession – The Mortgagee has entitled to possess the mortgaged property without the disturbance from the side of the Mortgagor or any other person claiming that he has a superior title over the mortgaged property.

3. Right to sell

Unlike the aforesaid provisions, this Section 69 of the Act emancipated the Mortgagee to sell the mortgaged property without the court intervention. As per this Section, the Mortgagee or his representative is authorized to sell the mortgaged property after the repayment becomes due, but this right is limited to the following three cases,

1. Where the mortgage is an English mortgage i.e. parties to the mortgage do not belong to the community of Hindu, Muslim, or any other race or sect notified by the state government.
2. Where the Mortgagee is government, and such Mortgagee’s power of sale without the intervention of the court has conferred by an express provision of the mortgage deed.
3. Where the mortgaged property is situated at Madras, Calcutta, Bombay, or any other towns specified in the official government gazette.

4. Right to appoint a receiver

Section 69A of the Transfer of Property Act dealt with the appointment of a receiver by the Mortgagee. Clause (3) of the Section defines the receiver as the agent of the mortgagor. Withal, he will be made liable for all the acts and defaults of the receiver, unless and until it is the resultant of the Mortgagee’s intervention. But, how the appointment of the receiver has been considered as the right of the Mortgagee?

Primarily, the mortgaged property belongs to the Mortgagor. Therefore, he has the right to look after that mortgaged property through the appointment of a receiver. In the first instance, the Mortgagor has to appoint a receiver, and his name must be mentioned in the mortgage deed. But, this Section vests Mortgagee with the right of appointment a receiver upon the dead or refusal of receiver nominated by the Mortgagor.

If the Mortgagor does not give his consent on the names nominated by the Mortgagee, he can request the court to appoint a receiver.

5. Right to accession

Section 70 of the Act provides that the mortgagee is entitled to avail the accession made to the mortgaged property after the mortgage date. Again, this right will be shunned following the prevalence of a contract to the contrary.

6. Right to a renewed lease

As per Section 71, if the Mortgagor obtains a renewal of the lease since the mortgaged property is a leasehold property. The Mortgagee has entitled to take benefits of the new lease as the property is still in his possession, and the Mortgagor has not redeemed it yet.

7. Right of the Mortgagee to spend money on mortgage-Property

If ever, Mortgagee happened to spent on the mortgaged property so as to preserve it from destruction or for other reasons given under Section 72 of the Act, he may add such expenses to the principal money at the same rate of interest. In the absence of a fixed rate of interest, it is payable at the rate of 9% per annum.

8. Right to proceeds of revenue sale or compensation on acquisition

The Mortgagee has the right to claim for the mortgage money, wholly or partly, if the Mortgagor had failed to settle the payment backlogs viz. Revenue arrears, rent due, or other charges attached to the mortgaged property.

Liabilities of Mortgagee

Since the Mortgagee is the person, who loans Mortgagor against the security of the mortgaged property, during the continuance of the mortgage he takes possession of the property, he must look after the same till then the right of redemption is exercised by the Mortgagor. Thus, besides the rights, the Mortgagee is bound to discharge certain duties until he relinquishes the possession of the mortgaged property upon the settlement of the outstanding money.

Section 76 elucidates the liabilities of Mortgagee in possession, and lists the following duties,

1. Duty to maintain the mortgaged property.
2. Duty to collect the profits associated with the property.
3. Duty to pay government dues with the generated income from the property unless there is a contract to the contrary.
4. Duty to take necessary measures with his entire endeavour to keep the property undamaged.
5. Duty to keep records of the revenue and expenditure of the property.
6. Duty to carry out urgent and necessary repairs of the property.

If the Mortgagee fails to perform any of the aforementioned duties, he will be charged for the losses incurred.

Conclusion

The Transfer of the Property Act is one collective and codified law that espoused the concept of conveyance of property. By the virtue of this Act, the transfer of immovable property from one person to another has made more righteous and just devoid of deception. Thereby, the parties taking part in the transaction have been provided with certain rights and liabilities, specifically in a mortgage, both the parties i.e. Mortgagor and Mortgagee have to abide by the provisions of mortgage deed and Transfer of Property Act as well. The legislative intent of this Act is to proscribe the commission of fraud on transactions.

Reference

• https://www.lawcolumn.in/rights-and-liabilities-of-a-mortgagee/
• in/rights-liabilities-mortgagor-and-mortgagee/#_ednref9
• https://lawbhoomi.com/rights-and-liabilities-of-mortagagee/

[1] (1865) 2 Mad HCR 51

[2] AIR 2009 SC 1041