Transfer of Interest
The first requisite of a mortgage is that there should be a transfer of an interest in immovable property, so where there is no actual transfer of some interest there is no mortgage. A mere agreement to transfer cannot create a mortgage.
Thus, when the borrower agrees not to alienate a specified property till the loan is repaid, the condition only imposes a restriction on his power of disposal of the property and does not amount to the transfer of an interest in it so as to create a mortgage of the property.
The mortgagee has an interest in the property as a security for his debt subject to the important limitation, that so long as that interest subsists, the mortgagor has the right to redeem the property.
The Deed of Trust
The deed of trust is a deed by the borrower to a trustee for the purposes of securing a debt. In most states, it also merely creates a lien on the title and not a title transfer, regardless of its terms. It differs from a mortgage in that, in many states, it can be foreclosed by a non-judicial sale held by the trustee. It is also possible to foreclose them through a judicial proceeding.
According to Transfer of Property Act, 1882 there are mainly six kinds of mortgages:
Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be supplied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee. The essentials of a simple mortgage are:
- The mortgagor undertakes personal liability;
- No possession is delivered;
- There is no foreclosure;
- No power of sale out of Court, but a decree for the sale of mortgaged property must be obtained; and
- It must be effected by a registered document even if the consideration is below Rs. 100.
In the Punjab, registration, where the value is below Rs. 100, is not necessary because the Transfer of Property Act does not apply to the Punjab and under the Registration Act if an interest of the value of Rs.100 or more in immovable property is transferred, registration under the Act is essential.
In a simple mortgage two remedies are open to a mortgagee:
A suit for money decree; or
A suit for the sale of the property mortgaged.
If there is a provision in a simple mortgage that if default is made in payment of interest, the mortgagee will take possession of the property mortgaged, then this is not a simple mortgage but an anomalous mortgage combining in itself the incidents of both a simple and a usufructuary mortgage.
Mortgage by Conditional Sale
Where the mortgagor ostensibly sells the mortgaged property-
On condition that on default of the payment of the mortgage-money on a certain date the sale shall become absolute, or
On condition that on such payment being made the sale shall become void, or
On condition that, on such payment being made the buyer shall transfer the property to the seller.
The transaction is called a mortgage by conditional sale and the mortgagee by conditional sale:
Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.
In this mortgage:
- The mortgagor ostensibly sells the mortgaged property;
- The ostensible sale ripens into absolute proprietorship on default;
- There is no covenant for the personal liability, unless expressly stipulated;
- The remedy of the mortgagee is foreclosure and not sale; and
- The document should be registered if the consideration is Rs. 100 or more. If less than Rs. 100 it can be effected by delivery of the property or by a registered instrument.
Where the mortgagor delivers possession or expressly or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorizes him to retain such possession until payment of the mortgage-money, and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest or partly in payment of the mortgage-money, the transaction is called an usufructuary mortgage and the mortgagee and usufructuary mortgagee.
Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
Mortgage by Deposit of Title-Deeds
A mortgage by deposit of title-deeds is commonly known as an equitable mortgage. The essentials of such a mortgage are:
- A debt;
- Deposit of Title-Deeds; and
- An intention that the title-deeds shall form security for the debt.
In a mortgage by deposit of title deeds, two questions are of importance: (1) What are title-deeds? (2) Where should they be deposited to create a valid mortgage?
When in a transaction of mortgage by deposit of title-deeds, such deeds are handed over accompanied by a document constituting a bargain between the parties, such document require registration but when it merely records an already completed transaction it does not require registration as law supposes that the scope of the security is the scope of the title.
Where a person in the town of Karachi, and in any other town which the Provincial Government concerned may, by notification in the official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.
Provided that, where a mortgage by deposit of title-deeds is to be created in favour of a banking company as defined in the Banking Tribunals Ordinance, 1984, the same may also be created by an entry in the record-of-right against the entry relating to such immovable property.
A mortgage which is not a simple mortgage, a mortgage by conditional sale, a usufructuary mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning of this section is called an anomalous mortgage.
Following are the kinds of sub-mortgage:
Pledge or Pawn
Pledge is a bailment to a creditor as security for some debt or engagement. A pledge, considered as a transaction, is bailment or delivery of goods or property by way of security for a debt or engagement, or as a transaction, is a bailment or delivery of goods or property by way of security for the performance of an act. Another definition is that a pledge is a security interest in a chattel or in an intangible represented by an indispensable instrument (such as formal, written evidence of an interest in an intangible so representing the intangible that the enjoyment, transfer, or enforcement of the intangible depends upon possession of the instrument), the interest being created by a bailment for the purpose of securing the payment of a debt or the performance of some other duty. A pledge is a promise or agreement by which one binds himself to do or forbear something.
Where immovable property of the debtor is used as security for the payment of money to the creditor, is said to have a charge on the property. It is different from the mortgage in that the charge does not involve the transfer of interest in the property, while the mortgage does.
Lien is a charge or security or encumbrance upon property. Lien is a charge against or interest in property to secure payment of a debt or performance of an obligation. Lien is a "right in one man to retain that which is in his possession, but belongs to another, till certain demands of the person in possession are satisfied." It can arise in one of three ways: (1) By Common Law. (2) By express or implied contract. (3) By the general course of dealing in the trade in which to retain the property is claimed for a general balance of accounts while particular lien is a right to retain property "for a charge on account of labour employed or expenses bestowed upon the identical property detained." It describes the right to retain property until some debt in claim is paid. Thus an inn-keeper has a lien on a lodger's property until the bill for board and lodging is paid.
Registration of Mortgages, Charges etc.
Transfer of Property Act, 1882
According to the Section 59 of the Transfer of the Property Act, 1882, where the principal money secured is one hundred rupees or upwards, a mortgage other than a mortgage by deposit of title-deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses.
Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid, or (except in the case of a simple mortgage) by delivery of the property.
Registration must be in accordance with the provisions of the Registration Act, 1908 and a defective registration would vitiate the mortgage transaction. The document will be inadmissible in evidence for want of registration, though it can be received in evidence for a collateral purpose to prove the nature of the possession of the mortgagee, or the personal obligation of the mortgagor for the purpose of granting a simple money decree.
Companies Ordinance, 1984
According to the Section 121 of the Companies Ordinance 1984, every mortgage, charge or other interest created by a company and being either:
- a mortgage or charge for the purpose of securing any issue of debentures; or
- a mortgage or charge on uncalled share capital of the company; or
- a mortgage or charge on any immovable property wherever situate or any interest therein; or
- a mortgage or charge on any book debts of the company; or
- a mortgage or charge, not being a pledge, on any movable property of the company; or
- a floating charge on the undertaking or property of the company, including stock-in-trade; or
- a mortgage or charge on a ship or any share in a ship; or
- a mortgage or charge on goodwill, on a patent or license under patent on, a trade mark, or on a copyright or licence under a copyright; or
- a mortgage or charge or other interest based on agreement for the issue of any instrument in the nature of redeemable capital; or
- a mortgage or charge or other interest based on a mushrika agreement; or
- a mortgage or charge or other interest based on hire-purchase or leasing agreement for acquisition of fixed assets;
shall, so far as any security on the company's property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the mortgage or charge, together with a copy of the instrument, if any, verified in the prescribed manner, by which the mortgage or charge is created or evidenced are filed with the registrar for registration in the manner required by Companies Ordinance within twenty-one days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a mortgage or charge becomes void under this section the money secured thereby shall immediately become payable.