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Understanding the English Mortgage Transfer of Property Act
Updated : November 7, 2022
Author :
kruthi
Table of Contents
A mortgage is a loan secured by an immovable asset, such as a home or a piece of real estate. A mortgage is used to obtain a house loan when you apply for one.
It assists the borrower in freeing up the frozen liquidity. A mortgage is defined in the Transfer of Property Act of 1882, which lists various forms of mortgages. It's extremely common to become lost in the complex world of loans and mortgages. However, your trip to obtain some liquidity might not be entirely easy if you don't have a thorough comprehension of these financial terminologies. You can encounter a variety of mortgage kinds when applying, with an English Mortgage being one of them. Let's examine the definition of a mortgage, the numerous sorts of mortgages, and the characteristics of an English mortgage transfer of property act.
What is an English Mortgage?
Section 58(e) of the Transfer of Property Act, 1882 defines "English mortgage" as a transaction in which the mortgagor commits to paying back the mortgage money by a specific date and transfers the mortgaged property unconditionally to the mortgagee with the stipulation that he will retransfer it to the mortgagor upon payment of the mortgage money as agreed.
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The English mortgage definition makes it clear that, in all actuality, the transaction is a legitimate sale, except that the borrower, the mortgagor, must make a legally binding pledge to the lender that he would repay the money on a specific date. Because the mortgagor is giving the mortgagee an absolute transfer of the immovable property, similar to a legal sale, the transaction will be subject to the stamp duty that is in effect as of the day the English mortgage transfer of property act documents were signed. According to the Indian Registration Act of 1908, this document must be registered as a purchase agreement and a sale deed.
Payment Receipts
A covenant in the selling agreement will state the day the mortgagor will be released from their financial obligation. In addition, the mortgagee must commit to returning the property to its original owner after receiving payment as part of the arrangement. The lender must return the property to the mortgagor after receiving payment of the outstanding balance plus interest on the designated future date.
The mortgagee is under no obligation to take any action if the mortgagor misses the deadlines for repayment. Without having to pass the property back to the borrower in the future, the mortgagee acquires total ownership. The property is up to him to manage whatever he sees fit.
The Documentation
For an English mortgage in India, you must additionally get an English mortgage deed in addition to a loan agreement. If there are many lenders, each one may, if necessary, assert its proportionate interest in the property. The mortgage deed is not a standalone document but a component of the financing procedure. The English mortgage deed format and terms and conditions can be tailored to the particular needs and demands of the parties to the agreement.
What is a Mortgage by Conditional Sale?
The transaction is known as a mortgage by conditional sale. The mortgagee is a mortgagee by conditional sale when the mortgagor supposedly sells the mortgaged property on the condition that upon default of payment of the mortgage money on a certain date, the deal shall become absolute, or upon such reimbursement being made, the deal shall become void, or upon such payment, the buyer shall handover the property to the seller:
With the caveat that no such transaction shall be regarded as a mortgage unless the condition is included in the instrument that affects or pretends to affect the sale.
Difference Between English Mortgage and Mortgage by Conditional Sale
Here are the differences between an English mortgage and an equitable mortgage:
| English mortgage | Mortgage by conditional sale |
| After the mortgagee receives payment for the mortgage debt, the mortgagor transfers the immovable property to the mortgagee, who then returns it to the mortgagor at a later period. | The mortgage includes a provision that renders the sale of the property to the lender invalid should the borrower fail to make the payment. |
| From the beginning, the selling transaction is final. | The selling transaction is initially not complete and is dependent on a future occurrence. |
| Depending on when you borrow the money and when you pay it back, there may be stamp duty and registration fees. | Possible lack of impact on the cost of stamp duty and registration |
What Conditions must an English Mortgage have in order to be Valid?
English mortgages often include the following four features:
- By taking out a mortgage, the borrower/mortgagor commits to paying back the debt on a particular date.
- To the lender or mortgagee, the mortgaged property is fully transferred.
- The lender agrees to give the borrower back the mortgaged property after receiving payment for the loan, which is a requirement of the absolute transfer.
- The mortgagor may live in the property themselves or rent it out if the mortgagee retains the right of ownership.
You must have a copy of the loan agreement and the mortgage deed to execute an English mortgage transfer of property act. If there are many mortgages/lenders, each may assert their separate interest in the property if necessary. All mortgage deeds must be included in the financing procedure in these circumstances. However, the terms and circumstances of the deeds may vary depending on the parties' particular needs.
Simple Mortgage vs English Mortgage
Here is the difference between an English mortgage and a simple mortgage
| Simple mortgage | English mortgage |
| In a simple mortgage, the borrower agrees to directly pay the debt. | For the sole purpose of securing the debt, the mortgagor transfers the mortgaged property. |
| There is no transfer of ownership of the mortgaged property with a simple mortgage. | This transfer is contingent upon the mortgagee transferring the property again upon early repayment of the mortgage debt. |
| The mortgagee has the right to sell the mortgaged property through a court to recoup his loss in the event that the mortgagor fails to make the required mortgage payments. (Principal amount+interest) | The mortgagee may sell the property extra-judicially to recoup his debt if the mortgagor fails to repay the mortgage money by the due date. |
Difference Between a Usufructuary Mortgage and an English Mortgage
In a usufructuary mortgage, the mortgagor, or borrower, transfers ownership of the mortgaged property to the mortgagee with the understanding that the mortgagee may keep the property until the mortgage debt is fully repaid. Up until the loan is paid off, the mortgagee is the one who receives the revenue from the property, such as rent and profits. They cannot file a foreclosure action or demand the mortgagee's sale in court. Since this mortgage is advantageous to the borrower, bankers do not like it.
In the case of an English mortgage, the ownership rights belong to the mortgagee; nevertheless, the mortgagor is free to live in or rent out the property.
Which English Mortgage Disadvantages are there?
The expense of the mortgage application procedure is arguably its largest disadvantage. The costs associated with a mortgage in England are greater than all other forms of mortgages. Additionally, since the property is transferred first into the lender's name and subsequently into the borrower, the stamp duty and registration fees must be paid twice. The mortgagee's borrowing costs gradually rise as a result of this.
According to Aradhana Bhansali, Partner at Rajani Associates, under an English mortgage, the Act permits the creditor to sell the mortgaged property without seeking a judge's permission if the power to sell is expressly included in the mortgage deed. This is typically advantageous to the mortgagee in business and financial transactions. Due to this benefit, businesses and governmental organizations often use English mortgages to provide loans or working capital using real estate as security. However, this prerogative of the mortgagee to sell the asset without judicial interference is subject to several strict requirements that must be met before the sale. A further disadvantage of English mortgages is that they can only be used by a limited number of Indian mortgagees and mortgagors.
Why are English mortgages so well-liked?
Following Section 69 of the Transfer of Property Act, an English mortgage section permits enforcement without the need for judicial action in case of a payment default. The vast majority of state stamp laws have also permitted an exclusion for re-transfer in case of a mortgage, even though the transfer is performed twice. This indicates that the transaction does not require to be stamped at the same rate twice.
If the borrower fails to make timely payments on the loan balance or other obligations, the mortgage gives the lender the right to purchase and sell the property. Consequently, the mortgage documentation is signed simultaneously with the loan documentation. If there are many mortgagees, a pari passu charge is established in favor of each lender, giving them the right to a portion of the borrower's specified assets.
Understanding real estate laws and acts can be a tough thing if you are not up-to-date with everything. Hence, it is always a great idea to consult NoBroker tax and legal experts to solve any hurdles that you may be facing. If interested, please leave a comment below this article, our executive will be in touch with you soon.
FAQ's
Ans. An English mortgage transaction is a lawful sale in which the mortgagor conveys the property to the lender with the legally enforceable promise that, upon the lender's receipt of the money on a specific date, the lender would re-transfer the property to the mortgagor.
Ans. Yes, the English mortgage transfer of property act is still followed in India.
Ans. Mortgage of Immovable Property and Charges are covered in Chapter IV of The Transfer of Property Act, 1882, although English Mortgage is defined in Section 58(e) of the Act.
Ans. In an English mortgage, the mortgagor conveys the immovable property to the mortgagee after paying the mortgage obligation, and the mortgagee returns it to the mortgagor later. As opposed to the mortgage by conditional sale, which contains a clause making the sale of the property to the lender void if the borrower misses the payment.
Ans. Yes, English mortgages are very popular in India but they also have their drawbacks which are listed above.
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