A mortgage loan can be obtained by pledging the property title deeds with the bank as security for repayment
Clear title to the property is essential in order to qualify for getting a mortgage loan from the bank. Adv. Aditya Pratap
Mortgage Loan is a form of debt which is raised by pledging an asset or property with the bank as security for repayment of the money. Under section 58 of Transfer of Property Act, a mortgage is transfer of interest in a specific immovable property done for the purpose of securing the repayment of a sum of money advanced by way of loan to the Borrower.
In simple language, a mortgage means that if a person wants a bank loan, he will get it provided that he keeps his house or flat with the bank as security. This implies that if the borrower fails to repair the money, the bank can take over possession of the said house or flat and auction it in order to recover pending dues.
Clear Title to the Property is a Sine-Qua-Non for Mortgage:
While application procedures may vary from bank to bank, having a clear title to the property is a mandatory requirement for any mortgage loan. This is because the bank does not want any encumbrances for claims which would come in the way of enforcing the security. This means that if the borrower deposits and the bank wants to sell the property and recover the money, it should avoid the hassles of third-party litigation that may the borrower’s title to the property.
Deposit Title Deeds and Furnish Relevant Documents:
Once the borrower has established a clear title to the property, the bank may require him to submit the original title deed for the purpose of creating the mortgage. Additional documents such as electricity and other utility bills will also have to be submitted as proof of ownership and usage of the premises by the borrower. Additionally the bank may also ask for a ‘No-Objection Certificate’ to be issued by the concerned housing society in which the mortgaged premises is situated.
Mortgage Deed To Be Compulsorily Registered:
Under section 17 of Registration Act any document which purpose to transfer any interest in immovable property should be registered. Since a Mortgage Loan creates a charge on the property in favour of the bank, it effectively amounts to a limited or conditional transfer of interest in the property. Therefore, a mortgage deed is executed between the bank and the borrower. The document will be registered in the office of Sub-Registrar of Assurances having jurisdiction over the area where the mortgaged property is situated.
Six Different Types of Mortgages are Possible in Law:
There are 6 different types of mortgage that can be created under law. However the most common form is “Simple Mortgage” and “Mortgage by Deposit of Title Deeds”, which aptly describe the type of mortgage discussed in this article.
How the Bank can Enforce the Mortgage in the Event of Default:
If the borrower defaults on the payment of the Mortgage Loan, then the bank can proceed to enforce the market under the SARFAESI Act of 2002. In such a case the bank would take over possession of the property, publish and auction notice for sale. After selling the property to the highest bidder and recovering expenses incurred in the process, the Bank can refund the balance money to the Borrower.
It may be noted that while a normal standard home loan Agreement does not require registration with the office of the sub registrar of assurances Under Registration Act, it will be mandatory in the case of a Mortgage Loan.
It may be noted that the amount of loan sanctioned by the bank may stretch up to 75 to 80% of the value of the mortgage property.If the property is worth 1 crore, then the sanction limited will be only 75 Lakh. This is done because the bank wants extra margin to cater to interest payments in the event of default. Furthermore, interest rates in mortgage loans may range up to 12 to 13 per cent, vis-a-vis 8 to 9 per cent for home loans.
Applicability of Penal Interest on Defaults:
Several Mortgage Loan agreements provide for penal interest in the event of default. Such penal interest may be up to 2% over and above the interest rate sanctioned for the loan.