What is Mortgage by Conditional Sale

There are 6 types of mortgages according to section 58 of the Transfer of Property Act 1882, one of them is mortgage by conditional sale. Here is what you need to know about mortgage by conditional sale. 

What is Mortgage by Conditional Sale?

In a mortgage by conditional sale, the mortgagor sells the mortgage property on a condition that states that on default of payment of mortgage by the set date, the sale will become absolute. If the borrower (who ostensibly sold his/her property) is able to repay the loan, the buyer of the mortgage property (the ostensible purchaser of borrower’s property) shall transfer it back to the original owner, i.e. the borrower. 

As per the Section 60 of Transfer of Property Act, the mortgagor can exercise their rights to reclaim the property upon complete repayment of the loan.

An example to explain this better is:

Suppose Anirudh mortgages his 1BHK house for a loan of Rs. 8 lakhs by signing the mortgage by conditional sale agreement with repayment tenure of 5 years. The lender acquires his 1BHK and sells it for residential purposes to Mr. Khan who enters into the agreement with the lender stating that he shall give the possession back to Anirudh if he repays the loan amount within the said time frame, i.e. 5 years.

Case 1: 

Anirudh repays the loan within 5 years’ tenure, Mr. Khan and the lender give the possession back to Anirudh in this case as per the agreement signed between lender and Anirudh.

Case 2:

Anirudh fails to repay the loan within 5 years’ time so this allows the lender to legally sell Anirudh’s 1 BHK property to Mr. Khan and cover his loan amount as per the mortgage by conditional sale agreement.

What should a mortgage by conditional sale agreement include?

There are certain particulars which must be mentioned in a mortgage by conditional sale agreement. These have been mentioned below:

1. Type of property
2. Repayment clauses and conditions
3. Interest payable on the loan
4. Details of parties involved in loan agreement
5. Property delivery details
6. Details of title transfer
7. Repossession clause

The mortgage with conditional sale is a mortgage that appears to be a sale with the requirement that, upon loan repayment, the original owner receives back the property that was sold. This kind of sale is actually a mortgage.

A transaction cannot be categorised as a conditional sale mortgage unless certain elements are present;

• As the name already implies, there must first be a sale. A mortgage of this kind requires an ostensible sale. 

• Second, there must be a condition attached to the transaction, as implied by the word itself. 

The criterion necessary for this specific class of transactions is quite straightforward. If the mortgagor is unable to pay the obligation by the deadline, the ostensible sale will become an absolute sale.

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The mortgagee is not allowed to include other of his properties in this transaction because there is no personal obligation on the part of the mortgagor to pay the loan in a mortgage by conditional sale. The rule of "No Debt, No Mortgage" is an exception in this case.

In a mortgage with conditional sale, it is necessary for the condition to be stated in the same document that seeks to accomplish the sale's objectives.

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Read More:

Usufructuary Mortgage: Meaning, Derivation and Conditions? English Mortgage: Meaning, Features, and Conditions? What is Simple Mortgage? Key Features of Simple Mortgage?

Mortgages have made it simpler for you to own real estate. In the middle ages, a person needed a sizable sum of money before they could possess any property. The procedure of owning a property has become simpler over time. A greater number of people began to choose their own residences after the loan system was introduced. I see Mr. Nimish has explained mortgage by conditional sale example quite well, but I will share a few more details on the matter with you here.

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What is conditional mortgage meaning?

The mortgage-by-conditional sale deed scenario appears to be a sale, but it is not. The loan amount is actually being secured even if it is designed to appear as a sale. The conditional sale mortgage's key factor is purpose. But, the courts have difficulty distinguishing between mortgage by conditional sale format and sales subject to repurchase. Due to the fact that the immovable property will be returned to the seller in both situations, it becomes a tough job.

What are the important components of mortgage by conditional sale?

The following constitute the crucial components of such a sale:

• The use shall become final upon the expiration of payment by a certain period.

• The sale is cancelled if the payment is received.

• The customer returns the item to the seller after making the payment if necessary.

• The mortgagee officially sells the home that is financed.

• A restriction applies to this sale.

• No personal responsibilities are owed by the mortgagor in this sale, instead, the property is completely responsible.

I hope mortgage by conditional sale example is clear to you and you have much more information now on the matter.

Read More: What is a mortgage loan? What is a non-qualified mortgage? Is a reverse mortgage good?

I came across the term mortgage by conditional sale. Since we are discussing the definition of mortgage by conditional sale, let me share the difference between mortgage by conditional sale and English mortgage. So, there are six types of mortgages including

 

1. Simple mortgage 

2. Mortgage by conditional sale

3. Usufructuary mortgage

4. English mortgage

5. Mortgage by deposit of title deeds

6. Anomalous mortgage

  Get a free consultation with experty lawyers at NoBroker   Mortgage by conditional sale:

As mentioned by Nimish, a mortgage by conditional sale is when the mortgagor sells the property mortgaged, but after repaying the money borrowed, the property is transferred back to the original owner. This is the mortgage sales meaning.

 

Now let us take a look at the difference between English mortgage and mortgage by conditional sale:

 

English mortgage	Mortgage by conditional sale
The mortgagor transfers the immovable property to the lender and the lender transfers the asset after the mortgagor repays the mortgage money on a future date.	The mortgagor sells the property to the lender with a condition stating the sale is void if the borrower makes the payment.
The sake transaction is absolute from the start.	The sale transaction is not final and is dependent on the future event.
The English mortgage is subject to stamp duty and registration charges at the time of securing the loan and at the time of repaying the loan.	May or may not be subjected to stamp duty and registration charges.

 

I will attach a PDF below about the deed of mortgage by conditional sale. You may take a look for a better understanding.

 

https://www.icsi.edu/media/portals/126/pdf/Deed%20of%20Mortgage%20by%20Conditional%20Sale.pdf

 

To know more about the definition of mortgage by conditional sale you can check what Mr Nimish and Mr Aadar have mentioned. I stated the difference between mortgage by conditional sale and the English mortgage to help you understand the concept better. I hope you like it.

 

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The concept "sale" is defined under section 54 of the Transfer of Property Act of 1882 as "the transfer of ownership in return for an amount paid or expected, or an amount charged in half and agreed in half." If you want to transfer tangible immovable assets worth one hundred rupees or more, or residual or other intangible things, you need to utilise registered paperwork. Let’s see the meaning of an anomalous mortgage.

Anomalous mortgage meaning:

An anomalous mortgage is not really a simple mortgage, a conditional sale mortgage, a usufructuary mortgage, an English mortgage, or a mortgage by deposit of title deeds as defined in this section. Clause (g) was introduced by the legislation in order to protect diverse customary mortgages that exist throughout the country. A set of two or more mortgages is described as anomalous mortgages.

Mortgage by conditional sale meaning:

When I read Nimish’s answer, I understood the concept in a better way. It's a mortgage that seems to be a sale with the provision that the property sold be returned to the original owner upon debt repayment. This type of transaction is actually a mortgage. The idea of a mortgage by conditional sale was developed by Muslims in response to their religion's restriction on taking interest on money given by means of a loan. This form of mortgage allowed them to pay off their principal and interest while maintaining their hands clean.

Basic components of a conditional mortgage:

• The mortgagee is required to buy the property from the mortgagor.
• There must be a provision on such a sale that the sale becomes invalid or the buyer transfers the property to the seller if the debt is paid on a particular day, or that the sale becomes absolute if the debt is not paid on the agreed date.
• The requirement must be included in the original document as the condition.

Furthermore, when you as a mortgagor claim to sell the mortgaged property to the mortgagee on the condition that:

• If the mortgagee fails to repay the payment (the loan is not repaid), the transaction becomes final and binding.
• If the mortgagee does not fail on payments (the loan has been paid), the transaction is nullified.
• A mortgage by conditional sale occurs when the buyer transfers the mortgaged property to the seller (and you a mortgagor transfer the property back to the mortgagee) if the mortgagee pays the bill.

I hope you understood the anomalous mortgage meaning. Whenever you want to take a home loan, NoBroker is the right choice to go with. Draft your sale agreement with the help of expert guidance from NoBroker here. Read More: What is a usufructuary mortgage? What is English mortgage? What do you mean by mortgagor and mortgagee? What is a simple mortgage?