Mort­gage by de­posit of ti­tle deeds

Bor­row­ers de­posit­ing the ti­tle doc­u­ments with the lender will not be able to sell or mort­gage the prop­erty till the loan is paid

HT Estates - - Front Page - Su­nil Tyagi

Amort­gage by de­posit of orig­i­nal ti­tle doc­u­ments of a prop­erty is quite com­mon in In­dia. Such a mort­gage is also known as an eq­ui­table mort­gage. To cre­ate a valid eq­ui­table mort­gage, it is suf­fi­cient if the bor­rower de­posits orig­i­nal ti­tle deeds of the mort­gaged prop­erty with the lender. How­ever, there is no pre­sump­tion in law that by the mere act of de­posit­ing ti­tle deeds with another, the trans­ac­tion will amount to a mort­gage. The act of de­posit­ing ti­tle deeds with another will amount to a mort­gage only if the par­ties in­tended to cre­ate a mort­gage. Thus in dis­putes over such trans­ac­tions, the courts first as­cer­tain the in­ten­tion of the par­ties.

The doc­u­ments de­posited serve as se­cu­rity on the loan amount ad­vanced by the lender. When the bor­rower hands over the orig­i­nal ti­tle doc­u­ments of his prop­erty, he or she lit­er­ally pledges it to the lender. Dur­ing the sub­sis­tence of the mort­gage, he or she will be un­able to en­ter into trans­ac­tions (such as fur­ther sale or mort­gage) that may po­ten­tially jeop­ar­dise the in­ter­est or de­feat the rights of the lender.

When the lender has pos­ses­sion of the orig­i­nal ti­tle doc­u­ments, it also be­comes eas­ier for him to lay claim of charge on the mort­gaged prop­erty. If the bor­rower de­faults on re-pay­ment of the loan, the lender has the right to cause the mort­gaged prop­erty to be sold through le­gal process. Af­ter sale of the prop­erty, the lender can then re­cover the bor­rower’s un­paid debts from the sale pro­ceeds.

Be­fore en­ter­ing into an eq­ui­table mort­gage trans­ac­tion, the lender must con­duct a thor­ough due dili­gence of the prop­erty. This is im­por­tant to as­cer­tain the prospec­tive bor­rower’s na­ture and ex­tent of own­er­ship in the prop­erty and whether or not he is legally en­ti­tled to cre­ate mort­gage on it. It also helps to check whether or not the prospec­tive bor­rower has cre­ated any prior charge or en­cum­brance on the prop­erty.

One should un­der­stand that no writ­ing is nec­es­sary to cre­ate a mort­gage by de­posit of ti­tle deeds.

Such a mort­gage is com­plete by de­liv­ery of ti­tle doc­u­ments with an in­ten­tion to cre­ate se­cu­rity thereon. When the debtor de­posits the ti­tle deeds with the cred­i­tor, with the in­tent to cre­ate a se­cu­rity, the law im­plies a con­tract be­tween the par­ties to cre­ate a mort­gage.


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