[ecis2016.org] In this article, we explain the meaning of mortgagor and the various rights and liabilities of a mortgagor.
Applying for a loan is an easy way to finance a house purchase. Terms like ‘mortgage’ and ‘mortgagor’ are quite often used in the context of home loans. Mortgage is a common way to secure loans. It is an agreement, in which a person uses his or her immovable assets, like a house, as collateral to get a loan from the lender. A mortgage involves two parties, namely the mortgagor and mortgagee. In this article, we will discuss what a mortgagor means and the rights and liabilities of a mortgagor.
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Mortgagor meaning: Difference between a mortgagor and a mortgagee
According to the Transfer of Property Act, 1882, a mortgage refers to the transfer of an interest in specific immovable property, for securing the payment of money advanced through a loan, an existing or future debt, or the performance of an engagement that may give rise to a pecuniary liability. As per the Act, the transferor is referred to as a mortgagor and the transferee is called a mortgagee.
In simple words, a mortgagor is a person who avails a loan from a lender by using his property as security, while the mortgagee is the transferee who has rights over the asset until the full repayment of the loan has been made.
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Mortgagor and borrower
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Loans are classified as secured and unsecured loans. In case of a mortgage, the creditor or lending institution, such as a bank, takes security from the debtor, or borrower, also called the mortgagor, for repayment of the loan. This loan is called a secured loan. A home loan is also a secured loan as the property purchased by the borrower is held as collateral by the lender during the loan tenure.
A borrower mainly refers to an individual availing of a loan and is responsible for servicing the loan. In a mortgage, the mortgagor is the borrower who uses his ownership in land or any of his immovable property to get a loan.
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Significance of a mortgage deed
A mortgage deed is one of the essential requirements in a mortgage, which is basically an instrument by which the transfer of interest comes into effect. It is a legal document that binds the mortgagor and the mortgagee.
The registration of a mortgage deed is important to ensure the document has legal validity. Moreover, certain conditions should be met as mentioned below:
- The document must be duly signed by the mortgagor.
- It should be attested by a minimum of two witnesses.
- Payment of stamp duty must be made.
However, registration is not required in case of mortgage by delivery of title deed.
Mortgagor: Rights and liabilities
The Transfer of Property Act, 1882 specifies the rights and liabilities of a mortgagor.
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- Right to redeem: As per Section 60 of the Transfer of Property Act, the right to redeem grants the mortgagor the right to end a mortgage deal, transfer mortgaged property to his name and get back the possession of his property in case of delivery of possession.
- Right to transfer mortgaged property to a third party instead of retransferring: It entitles the mortgagor to request the mortgagee to assign the mortgage debt and transfer the property to a third person directed by him.
- Right to inspection and production of documents: The mortgagor can ask the mortgagee to produce copies of documents of the mortgaged property for inspection on notice.
- Right to accession: Accession refers to any addition to a property. The mortgagor is entitled to such accession to his property that is in possession of the mortgagee. If an accession has been acquired at the mortgagee’s expense and is inseparable, the mortgagor is entitled to such accession by paying the mortgagee the expense of acquiring such accession.
- Right to improvements: If the mortgaged property in possession of the mortgagee has been improved, the mortgagor has a right over such improvement, upon redemption, in absence of a contract to the contrary. He is not required to pay the mortgagee unless these improvements made by the mortgagee were to safeguard the property or with prior permission of the mortgagor, and with permission of a public authority.
- Right to a renewed lease: If the mortgagee gets a renewal of the lease for the mortgaged property during the mortgage, the mortgagor, on redemption, is entitled to have benefit of the new lease. The mortgagor is entitled to this right unless he enters any contract to the contrary with the mortgagee.
- Right to grant a lease: This right was introduced after an amendment to the Act, before which a mortgagor was not entitled to lease out the mortgaged property without the mortgagee’s permission. After the amendment, the mortgagor is entitled to lease out the mortgaged property, subject to certain conditions specified in the Act.
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Various liabilities also arise from the rights entitled to a mortgagor under the Transfer of Property Act. The mortgagor has the liability to avoid waste. As per the Act, a mortgagor who is in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate. Also, he must avoid any act that is destructive and may reduce the value of the mortgaged property.
If the property is in possession of the mortgagor, he will be responsible for paying taxes and public charges levied on the property. Moreover, the mortgagor must compensate the mortgagee if the property title is found defective. This can happen in cases where any third-party claims interfere with the mortgaged property. As stated earlier, the mortgagor is liable to pay the mortgagee if accession is acquired at the mortgagee’s cost. Further, the mortgagor is liable to pay the amount and is entitled to profits in cases where accession is required to safeguard the property from destruction.
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