English Mortgage in detail | LATEST JAIIB MAY 2023 SYLLABUS
Types of mortgages: English mortgage defined U/ Transfer of Property Act
The term 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.
From the definition, it becomes apparent that a mortgage is done only when it comes to an immovable property so that the repayment can be secured, as well as future liability.
Second 58 of the Act further states the 6 types of mortgages listed under:
- Simple mortgage.
- Mortgage by conditional sale.
- Usufructuary mortgage.
- English mortgage.
- Mortgage by depositing title deed (This type of mortgage is most prevalent in case of transactions related to home loans and is also known as equitable mortgage).
- Anomalous mortgage.
From the above types, only 2 types of mortgages, namely, simple mortgage and mortgage by deposit of title deed, are prevalent in India while the other types are of academic interest only in India.
Essential requisites of English mortgage:
English mortgage has 4 basic characteristics:
The lender/the mortgagee is obligated to repay the loan on a certain date. The absolute transfer of the mortgaged property takes place subject to the lender re-transferring the property to the borrower upon repayment of the loan.
Mortgagors have the right to occupy or rent out the property even though the mortgagee retains possession rights.
In order to obtain an English mortgage, you must have a copy of the loan agreement as well as the mortgage deed.
Multiple mortgagees or lenders have the right to claim their respective shares in the event that there are more than one.
FEATURES OF THE 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 the 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 the 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 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 the mortgager and mortgagee in these documents.
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Why is English mortgage popular?
If a payment default occurs, an English mortgage can be enforced without court intervention. In addition, despite the fact that the transfer is done twice, most state stamp laws exempt mortgage transfers from re-transfer taxes. Therefore, it is not necessary to stamp the transaction twice.
But why is the English Mortgage not popular in India?
There are various explanations for the English mortgage not becoming popular in India:
Not only at the time of taking the loan but also at the time of repaying of the loan amount, the parties involved have to pay relevant stamp duty and registration charges.
If we look at the rates of stamp duty, there has been an upward of 5% and 1% in registration charges, having an English mortgage will increase the cost of transactions of borrowing by an average of 12%.
Against this, the transaction of equitable mortgages (mortgages by deposit of the title deed, which are permitted in a few cities in India) is rather easy, with almost the same result while maintaining the cost to a minimum. Under the – mortgage by deposit of title deed, the borrower is only required to deposit his/her title deeds with the lender.
Well, except in Maharashtra, transfers do not have stamp duty and registration cost implications when done by recording transactions in the register of equitable mortgages maintained by the lenders.
In addition to being very expensive, the English mortgage is also unsuitable for the parties involved, because both, the lender and borrower, have to assemble at the same time to execute, as well as register the deal of sale with the registrar.
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