Registered Mortgage in detail

A registered mortgage is a category of loan where the borrower voluntarily gives the bank full rights to the property in case of loan default. This means that the bank has the right to dispose off the property in any manner in case any default is made in repayment of loan by the borrower.

In this mortgage, the borrower has to make a statement on the property with the sub-registrar through a formal, written process as proof of transfer of interest to the lender as security for the loan. It is also known as a “Deed of Trust”.

This protects the bank in three situations:

  • If property comes under dispute – the bank will have rights over other parties
  • The borrower cannot dubiously sell the property under loan multiple times, since the loan is recorded in the records of sub registrar.
  • In case of default, the ownership of the property transfers to the bank. It can do what it wants with it.

HOW TO CREATE REGISTERED MORTGAGE ?

In order to create a registered mortgage, the borrower of a home loan ‘registers’ the mortgage in Book 1 of the SRO via a mortgage deed. The SRO registers it as an encumbrance against his property.

Over and above the stamp duty (ranging from 5-10%), a registration fee is applicable on all properties that cost more than Rs 30,000 for registered mortgages.

WHEN A REGISTERED MORTGAGE IS FORMED ?

A registered mortgage is required to create:

  1. When the original title deed is not available.
  2. When a mortgage is required to be made in a city that is not notified since equitable mortgage can only be made in notified towns .

 

However, banks usually prefer registered mortgage over equitable mortgage because it involves less risk since it provides security to both the parties i.e lender & borrower & is also registered in the sub registrar’s office , thereby reducing the chances of frauds.

Accounting & Finance for Banking

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