Mortgage is a debt instrument by way of which an encumbrance or
claim can be created on an immovable property like land or building, etc. It delivers the conditional right of ownership over a property (real estate) by its Mortgagor (Owner) to a Mortgagee (Lender) as collateral for a loan. In this transaction, the owner of the property becomes the debtor and the person providing the loan is regarded as the creditor. The debtor, over a fixed period of time and predetermined set of payments, has to repay the loan, with interest. In cases of default in payment of mortgage by the borrower, the creditor may seize the mortgaged property in place of the loan. This is know as foreclosure. Example: An apartment buyer pledges his house to the bank. This gives the bank a claim over the house and it may, in case of default of payment, evict the tenants of the house and sell it to clear the debt. DEFINITION
Section 58 of the Transfer of Property Act, 1882 defines mortgage as follows
A mortgage is the transfer of an interest in specific
immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.
The transferor is called a mortgagor, the transferee a
mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed. ESSENTIALS
Following are the essentials of mortgage that can be inferred from the aforementioned definition provided in the Transfer of Property Act
1. Transfer of Interest: As the owner of the property, the mortgagor
possesses all interests in it, however, this interest is reduced by the interest transferred to the mortgagee when securing a loan. The mortgagees interest is terminated at once on fulfilment of his obligations by mortgager. 2. Specific Immovable Property: Mortgage can only be made of an immovable property, which includes land and things attached to land. This specific immovable property must be distinctly mentioned in the mortgage deed so that in case of failure of payment, the court can grant a decree for sale of the mentioned property for repayment of loan. The property must be specific in the sense that it can be identified by its size, location, boundaries, etc. ESSENTIALS
3. To Secure Payment of Loan: The basic aim of mortgage is to secure payment of loan or performance of contract resulting in pecuniary obligation. Transfer of property for any other purpose will not amount to mortgage. Mortgager has a right to restore or regain the mortgaged property on repayment of the loan or performance of the obligation. 4. Distinguished from Sale: In sale, all rights vested in the mortgagor are transferred to the purchaser, whereas in mortgage, only some specific interest is parted with by the mortgager, which can be reclaimed on fulfilment of his obligations. 5. Distinguished from Charge: Mortgage is created by a act of parties, for a fixed term and requires registration as provided under the Transfer of Property Act. A Charge, on the other hand, may also be created by operation of law and in such cases does not require registration. It may also be in perpetuity. As against mortgage, a charge doesnt include transfer of interest, it only gives a right to receive payment out of a particular property.