Rights and Liabilities of Mortgagor and Mortgagee

In the previous article, the definition of mortgage and the kinds of mortgage has been explained. In this article, the rights and liabilities of mortgagor and mortgagee have been explained. For the purpose of this article, a mortgagor has seven rights and five liabilities and a mortgagee has eight rights and two liabilities. These are the broad rights and liabilities which can further be narrowed down.

I. Mortgager

A. Rights

A mortgagor has the following six rights –

1. Right of redemption

at any time after the principal money has become due, the mortgagor has a right on payment of the mortgage money at a proper place and time, to require the mortgagee –

1. To deliver to the mortgagor the mortgage-deed and all documents relating to mortgaged property in possession or power of the mortgagee,
2. To deliver possession of the property to the mortgagor where the mortgagee is in possession of it,
3. To re-transfer the property to the mortgagor or any third person directed by him (at the cost of the mortgagor) it to register an acknowledgement in writing on the extinction of the mortgagee’s right.

These rights cannot be exercised if they have been extinguished by the act of the parties or by a decree of a court.

The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption.

This section does not render invalid any provision to the effect that –

1. If the time fixed for payment of the principal money has been allowed t pass, or
2. No such time has been fixed,

The mortgage shall be entitled to reasonable notice before payment to tender od such money.

The right of redemption is an incident of a subsisting mortgage and subsists so long as the mortgage itself subsists. It can be extinguished as provided in the section and when it is alleged to be extinguished by a decree, the decree should run strictly in accordance with the form prescribed for the purpose.[i]

Modes of Exercise of Right of Redemption (S. 60, 83 and 84)

The right of redemption can be exercised in three ways –

1. By paying or tendering the mortgage-money to the mortgagee outside court. The mortgage-money may be paid directly to the mortgagee or his agent. Tendering is the unconditional offer for the payment of debt in such manner that the mortgagee gets the money.[ii]
2. By depositing the mortgage-money in court.
3. By filing a suit for redemption. The suit can be filed only after the principal money has become due. It must be filed during the subsistence of mortgagor’s right of redemption.[iii]

Extinguishment of Right of redemption (S. 60)

The right of redemption is extinguished –

1. By the act of parties as when the mortgagor sells his equity of redemption and thereby extinguishes his right,[iv]
2. By an order of the court. Where a decree is passed in a foreclosure suit, or when a mortgaged property is sold by an order of the court, the mortgagor’s right is lost.[v]

Effect of redemption

The effects of redemption in short are as follows –

1. Return of documents and return of possession of the mortgaged property (S. 60 and 62)
2. The mortgagor may require that instead of re-transferring the mortgaged-property to the mortgagor, the mortgagee shall assign te mortgage-debt to a third person named by him. (S. 60A)
3. The mortgagor becomes entitled to –

1. Accessions to the mortgaged property (S. 63)
2. Improvements made thereon (S. 63A)
3. The renewed mortgage lease (S. 64)

2. Right to Transfer to the third party. (S. 60A)

According to this section, the mortgagor may require the mortgagor to assign the mortgage-debt and transfer the mortgaged property to a third person directed by him, instead of re-transferring the property to him. This section was intended to enable the mortgagor to pay off the debt of the mortgagee by taking loan from another person on the security of the same property.

The mortgagor may require the mortgagee to assign the mortgage-debt to a third person only when the debt has become payable and the mortgagor has paid the mortgage-money.

3. Right to inspection and production of documents (S.60B)

According to this section, the mortgagor, who has handed over the title-deeds or other documents relating to the mortgaged property to the mortgagee, is entitled to inspect those documents. He may require the mortgagee to produce those documents in his possession at a reasonable time and at the cost of mortgagor himself. The mortgagor may make copies or abstracts of or extracts from those documents.

4. Right to redeem separately or simultaneously

This section says that a mortgagor who has executed two or more mortgages in favour of the same mortgagee shall be entitled to redeem anyone such mortgage separately or any two or more of such mortgages together. However, this is subject to contrary contract, i.e the mortgagor and mortgagee may exclude this provision from their mortgage. It is possible only when the principal money of any two or more of the mortgages has become due.

5. Right to accession (S. 63)

According to section 63 –

1. Where mortgaged property in possession of the mortgagee has,
2. During the continuance of the mortgage,
3. Received any accession,
4. The mortgagor shall upon redemption, be entitled to such accession as against mortgagee,
5. This is so in the absence of a contact to the contrary.

Types of accessions –

• Natural accessions – Section 70 gives the general rule that if after the date of a mortgage, any accession is made to the mortgaged property, the mortgagee shall for the purposes of the security be entitled to such accession in the absence to the contract to the contrary.

Section 63 provides that as a general rule, natural accessions which arise during the continuance of mortgage can be redeemed by the mortgagor together with the mortgaged property. The mortgagee has no right to retain or claim such accessions when mortgagor redeems the mortgage.

• Acquired accessions – there are of two types – separable acquired accessions and inseparable acquired accessions.

Where such accession has been acquired at the expense of the mortgagee, and is capable or separate possession or enjoyment without detriment to the principal property, the mortgagor desiring to take the accession must pay to the mortgagee the expense of acquiring it.

Where separate possession or enjoyment of property is not possible, the accession must be delivered with such property. When the accessions are inseparable, the mortgagor has no option but to take them on redemption.

Usufructuary mortgage – Where the mortgage is usufructuary, and the accession has been acquired at the expense of the mortgage, then the profits arising from the accession shall be set off against interest payable on the money so expended. However, this is in the absence of the contract to the contrary.

6. Right to grant a lease (S.65A)

A mortgagor, who is in lawful possession of the mortgaged property, shall have the power to make the lease the property which shall be binding on the mortgagee. However, this right is subject to the provisions of sub-section (2). The conditions given under sub-section (2) are –

1. Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage,
2. Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent shall be payable in advance,
3. No such lease shall contain a covenant for renewal,
4. Every such lease shall take effect from a date not later than six months from the date on which it is made,
5. In the case of a lease of buildings, whether leased with or without the land on which they stand, the duration of the lease shall in no case exceed three years, and the lease shall contain a covenant for payment of the rent and a condition of re-entry on the rent not being paid with a time therein specified.

When the lease (mortgage) is made without fulfilling any of the conditions, the mortgage is not bound by the lease. Parties may also contract to exclude altogether the mortgagor’s power to execute any lease under the mortgage-deed.[vi]

7. Right in case of waste (S.66)

According to this section, a mortgagor in possession of the mortgaged property is not liable to the mortgagee for allowing the property to deteriorate but he must not do any act which is destructive or permanently injurious to the property, if the security is insufficient or will be redder insufficient by such act.

The mortgagor’s duty is not to waste the mortgaged property deliberately. Some of the acts given below are regarded as active waste by the mortgagor –

1. Removal of valuable fixtures from the property.
2. Pulling down the mortgaged house and selling materials.

B. Liabilities

1. Covenant for the title (S. 65)

The mortgagor is deemed to contract with the mortgagee that the interest which the mortgagor professes to transfer to the mortgagee subsists and that the mortgagor has the power to transfer to the same. There is implied warranty of title by the mortgagor in the property mortgaged to him.

If the title of the mortgagor turns out to be defective the mortgagee can sue for the principal money as well as for damages even before the stipulated period.

2. Covenant for the defence of title (S. 65(b))

The mortgagor is deemed to contract with the mortgagee that he will defend, of if the mortgagee be in possession of the mortgaged property, enable him to defend, the mortgagor’s title thereto. The mortgagee has a right to protect the title of the mortgagor because he is entitled to the full benefit of the security.

3. Covenant for payment of public charges (S. 65(c))

The mortgagor is deemed to contract with the mortgagee that the mortgagor will so, long as the mortgagee is not in possession of the mortgaged property, pay all the public charges accruing due in respect of the property.

If the mortgagor fails to pay and the property is sold for arrears and revenue, and he again purchases that property, the property will remain under the mortgage, for he cannot take advantage of his own wrong in order to better his position.[vii]

4. Covenant for payment of rents (S. 65(d)) –

Where the mortgaged property is a lease, the mortgagor is deemed to contract with the mortgagee that the rent payable under the lease, the conditions contained therein, and the contracts binding on the lease, have been paid, performed and observed, down to the commencement fo the mortgage; and will pay the rent reserved by the lease and perform the conditions contained therein, and observe the contracts binding on the lesee, and indemnifying the mortgagee agasint all claims, sustained by reason of the non-payment of the said rent or the non-performance or non-observance of the said conditions and contracts.

5. Covenant for the discharge of prior mortgage (S. 65(e)) –

Where the mortgage is a second or subsequent encumbrance on the property, the mortgagor is deemed to have contract that the mortgagor will pay the interest from time to time accruing due on each prior encumbrances as and when it becomes due, and will at the proper time discharge the principal money due on such prior encumbrances.

II. Mortgagee

A. Rights

1. Right to foreclosure of sale (S. 67)

According to this section, at any time after the mortgage money has become due and before a decree has been made for the redemption of mortgaged-property or the mortgage money has been paid or deposited, the mortgagee has a right to redeem the property or a decree that the ptoperty be sold.

An order permitting foreclosure can only be passed upon ascertaining the nature of te mortgage and the parties right under it.[viii]

The right of foreclosure implies that when the time fixed for the repayment of mortgage-money has expired and the mortgagor’s right to redeem the mortgaged-money has become complete but he has failed to avail that right, the mortgagee gets a right to institute a suit of decree that mortgagor should be absolutely debarred of his right to redeem the property.

The right to redeem and right foreclosure are co-extensive. In the absence of any stipulation (express or implied) to the contrary, the two-rights are co-extensive.

2. Right to sue for mortgage-money (S. 68)

In the following four cases the mortgagee has a right to sue for the mortgage-money –

1. Where the mortgagor binds himself to repay the same,
2. Where the mortgaged property is destroyed, wholly or partially without the fault of any party.
3. Where the mortgagee is deprived of the whole or part of his security by wrongful act or default of the mortgagor.
4. Where the mortgagee being entitled to possession, the mortgagor fails to deliver the same.

The court may, at its discretion, stay all the suit and proceedings therein, notwithstanding the contract to the contrary, until the mortgagee has exhausted all his available remedies against the mortgaged property, unless the mortgagee abandons his security, and wherever necessary, re-transfers the property mortgaged.

3. Right to sell (S. 69)

This section gives the mortgagee a right to sell without the intervention of the court. When the mortgage-money is not repaid by the mortgagor, he becomes entitled to sell the property to recover his debt.

Section 67 and 68 provide for the recovery of debt by the sale of the mortgaged property by intervention of court. But in this section, a mortgagee (or any other person acting on his behalf) has a power to sell or concur in selling the mortgaged property default of the payment of the mortgaged-money without the intervention of the court in the following cases only –

1. Where the mortgage is an English mortgage and neither the mortgagor nor the mortgagee is a – Hindu, Muhammadan, Buddhist, or A member of any other race, sect, tribe or class from time to time specified in this behalf by the state government in the official gazette.
2. Where the power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage deed and the mortgagee is the government.
3. Where the power of sale without the intervention of the court is expressly conferred on the mortgagee and the mortgaged property is situated within specified towns. These towns included Calcutta, Madras and Bombay originally.

A power sale without the intervention of the court does not affect the ordinary right of realization of suit of the mortgagee. The right provided by this section is independent of the right to have a receiver appointed under section 69A and may even be exercised after a receiver has been appointed under section 69A.[ix]

4. Right to appoint Receiver

A mortgagee having the right to exercise a power of sale under section 69 is entitled to appoint, in writing, a receiver of the income of the mortgaged property.

Any person who has been named in the mortgage-deed and is willing and is able to act as a receiver may be appointed by the mortgagee. In case no person has been so named, or all the named persons are dead or unable or unwilling to act, the mortgagee may appoint any person with the consent of the mortgagor.

However, if the mortgagor does not give his consent to the appointment, he is entitled apply to court for the appointment of a receiver.

5. Right to accession (S. 70)

Accession are addition to the property. Section 70 says that if after the date of the mortgage any accession is made to the mortgaged property, the mortgagee shall be entitled to such accession for the purposes of security of his mortgage-debt. This section is a converse of section 63 which provides for the mortgagor’s rights of accessions. The mortgagee is entitled to treat the acquired accession as part if his security and to enforce his lien upon them.

However, this right is available only in the absence of a contract to the contrary i.e, the parties to the mortgage may also otherwise contract.

6. Right of renewal of mortgaged lease (S. 71)

According to this section, when the mortgaged property is a lease and the mortgagor obtains a renewal of the lease, the mortgagee shall be entitled to the new lease for the purpose of security in the absence of the contract to the contrary.

7. Right of mortgagee to spend money

Section 72 dealing with the right of mortgagee in possession provides for the circumstances under which the mortgagee may spend money.

A mortgagee may spend such money as is necessary in the absence of the contract to the contrary-

1. For the preservation of the mortgaged property from destruction, forefeiture or sale.
2. For supporting the mortgagor’s title to the property.
3. For making his own title thereto good against the mortgagor i.e, for defending his own title against the mortgagor.
4. When the mortgaged property is a renewable lease-hold, for the renewal of the lease.
5. Insuring the property where it is of insurable nature.

8. Right to proceeds of revenue sale or compensation on acquisition (S. 73)

According to this section, where the mortgaged property or any interest in it is sold, Owing to failure to pay –

1. Arrears of revenue, or
2. Other charges of a public nature, or
3. Rent due in respect of such property.

Such a failure did not arise from any default of the mortgagee, The mortgagee shall be entitled to claim payment of the mortgage money, out of any surplus od sale-proceeds remaining after the payment of –

1. The arrears, and
2. All charges and deductions directed by law.

B. Liabilities

1. Mortgagee bound to bring one suit on several mortgages (S. 67A) –

Section 67A provides that if a mortgage holds two or more mortgages of the same property or of different properties from the same mortgagor, he must enforce all or more, in the absence of a contract to the contrary. It provides that –

1. A mortgagee who holds 2 or more mortgages executed by the same mortgagor, and
2. In respect of each mortgagee he has a right to obtain the same kind of decree under section 67, and
3. He sues to obtain such decree on anyone of the mortgages,
4. He shall be bound to sue on all the mortgages in respect of which the mortgage-money has become due.

However, this liability is subject to a contract to the contrary that may be made between the mortgagor and the mortgagee.

2. Liabilities of mortgagee in possession (S. 76)

The mortgagee is the person who gives a loan to the mortgagor on the security of some property. This section says that when during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property he is bound by the following duties –

1. Duty to manage the property as a person of ordinary prudence.
2. Duty to collect rents and profits of the property to this best endeavour.
3. Duty to pay government dues unless there is a contract to the contrary.
4. Duty to make necessary repairs of the mortgaged property unless there is a contract to the contrary.
5. Duty not to commit any act which may destroy or injure the property permanently.
6. Duty to apply insurance money in reinstating the property or in reduction of the mortgage-money if he receives such money in respect of the mortgaged-property.
7. Duty to keep proper accounts of all sums received and spent by him as a mortgagee.
8. Duty to apply rents and profits in discharge of interest of making certain deductions.
9. Duty to account for gross receipts.

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[i] Thota China Subba Rao v. Matapalli Raju, AIR 1950 FC 1

[ii] Dipak Digambar Naik v. Bank of Maharashtra, AIR 2016 Bom. 1

[iii] Allokam Peddabhayya v. Allahabad Bank, AIR 2006 AP 236

[iv] Harbans v. Om Prakash, AIR 2006 SC 686

[v] Madurambigal Ammal v. D Somasundaram, 2005 10 SCC 166

[vi] Sree Lakshmi Products v. SBI, AIR 2007 Mad. 148

[vii] Sangapalli Lekshmayya v. Intoory Bolla Reddi, 1903 26 Mad. 385

[viii] K. Vilasini v. Edwin Periera, AIR 2009 SC 1041

[ix] Saraswati Bai v. Vardarajalu N Dicker, 1955 Mad. 1310

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