English Mortgage is defined under Section 58(e) of Transfer of Property Act, 1882. In this mortgage, the mortgagor transfers the property absolutely to the mortgagee and binds himself that he will repay the mortgage money on the specified date and lays down a condition that on repayment of money mortgagee shall re-transfer the property. Such a transaction is called an English mortgage transaction.
In an english mortgage system, the mortgagee has the right to sell the property to recover the loan amount given to the mortgagor.
FEATURES OF ENGLISH MORTGAGE SYSTEM
The following are the main features of this mortgage system :-
- The mortgagor should bind himself to repay the mortgage money/loan on a certain day.
- The mortgaged property is absolutely transferred to the lender/the mortgagee
- The lender has to re-transfer the mortgaged property to the borrower on payment of the loan amount.
- There is a proper transfer of property from the borrower to the lender, hence the stamp duty and registration charges are applicable as is the case in any other transfer of property
- While the possession rights remain with the mortgagee, the mortgagor is allowed to either occupy the property himself or rent it out.
DRAWBACKS OF ENGLISH MORTGAGE
The english mortgage system is least preferred among other forms of mortgage because of the following reasons :-
- Only a few mortgagors and mortgagees in India can engage in English Mortgage scheme
- As compared to all the other types of mortgages, the costs involved in an English mortgage are higher.
- The stamp duty & registration charges are paid twice since the property is first transferred in the name of the lender , and then in the name of the borrower, when he repays the loan amount.
- The mortgagee’s right to sell the property without court intervention in the case of inability of mortgagor is one of the major drawbacks, hence borrowers don’t opt for this form of mortgage
However, the English mortgage is valid when both the parties have signed the loan agreement as well as the mortgage deed. It is very important to clearly define all the terms and conditions for mortgager and mortgagee in these documents.