A usufructuary mortgage offers the lender possession and usage rights while retaining the borrower’s title to the property. The lender, often known as the mortgagee, is permitted to keep the income or produce generated by the property during the mortgage period.
In India, a specific type of mortgage covered by the Transfer of Property Act, 1882, is referred to as a usufructuary mortgage. It allowed the lender access to and use of the mortgaged property, but allowed the borrower to maintain ownership of it.
Definition of Usufructuary Mortgage
In India, once the borrower, also known as the mortgagor, transfers title of the property to the lender, known as the mortgagee, a usufructuary mortgage grants the lender the right to keep and utilize the property’s produce or revenue. The mortgagee may use the property for their own benefit, or they may rent it out, lease it out, or use it for any other profitable venture in order to repay the mortgage loan. During the mortgage time, the mortgagee is allowed to keep ownership of the property and utilize its benefits. Unlike other types of mortgages, however, the mortgagee is not allowed to sell the property in order to recover the sum. After the mortgage is fully repaid, the mortgagor regains full ownership and possession of the property. Usufructuary mortgages are commonly utilized in India when a borrower is in need of funds and is willing to provide the lender with the property’s income or produce in return for security. This type of mortgage allows the borrower to maintain ownership while providing a stream of income for the lender to cover the loan sum.
Definition of Usufructuary Mortgage
The Transfer of Property Act’s Section 58(d) describes a Usufructuary Mortgage as
“The transaction is called a usufructuary mortgage and the mortgagee a usufructuary mortgagee where the mortgagor delivers possession or expressly or implicitly binds himself to deliver possession of the mortgaged property to the mortgagee and authorizes him to retain such possession until payment of the mortgage money and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same, instead of interest or in payment of the mortgage money.
Essential Elements of Usufructuary Financing
The Transfer of Property Act’s Section 58(d) defines a usufructuary mortgage as follows:
Delivery of Possession:Â Either expressly or tacitly, the mortgagor must give the mortgagee possession of the property that is mortgaged.
Retention of Possession:Â Until the mortgage funds are paid in full or taken out of the earnings and rentals of the properties listed in the mortgage document, the mortgagee is in possession of the property.
No Personal Liability:Â The mortgagee is not personally obligated to pay back the loan balance.
No Sale or Foreclosure:Â The mortgagee is not permitted to sue to sell the mortgaged property or to foreclose on the mortgage.
Right of Redemption:Â In accordance with Section 62 of the Transfer of Property Act, the mortgagor may redeem the property by making the required payment or by paying off the debt with the rent and profits that the mortgagee receives.
No specified Time restriction:Â The payback period has no specified time restriction.
Registration:Â A usufructuary mortgage needs to be registered if the loan amount is Rs. 100 or more. If it is for less than Rs. 100, it can be fulfilled by delivery of the property or by a registered deed.
Case Studies of Past Usufructuary Mortgages
In the Prabhakaran v. M Azhagiri Pillai case, the Supreme Court first ruled that the mortgagor needed to file a redemption action within 30 years of the date of the mortgage deed. Later, the Full Bench of the Punjab and Haryana High Court reversed this decision, stating that there is no statute of limitations on a usufructuary mortgage. The Supreme Court upheld this correction in the case of Singh Ram (D) Tr. Lr v. Sheo Ram & Ors, ruling that the usufructuary mortgagor’s special power under Section 62 of the Transfer of Property Act triggers the limitation right away. Due to the verdict in Ishwar Dass Jain v. Sohan Lal, a usufructuary mortgagee is unable to argue the mortgagor’s title. Please be aware of this. Since the mortgagee has already taken possession of the property as mortgagees, they are unable to challenge the mortgagor’s title.
How Mortgage Loans Function
Mortgages allow people and companies to purchase real estate without having to pay the full asking price upfront. Over a certain number of years, the borrower repays the loan plus interest until they are the sole owners of the property. The majority of conventional mortgages amortize fully. This implies that although the amount of the regular payments will not change, the distribution of principal and interest will vary with each payment over the loan’s term. Mortgage lengths are typically 15 or 30 years long.
Liens against property or claims on property are other names for mortgages. The lender may foreclose on the property if the borrower defaults on the mortgage.
A residential homebuyer might, for instance, pledge their home to their lender, granting the lender a claim over the asset. In the event that the buyer defaults on their loan, this guarantees the lender’s interest in the property. In the event of a foreclosure, the mortgage lender may take possession of the home, sell it, and utilize the proceeds to settle the outstanding balance.
The Mortgage Process
Applying to one or more mortgage lenders is how prospective borrowers start the process. Evidence of the borrower’s ability to repay the loan will be requested by the lender. Statements from banks and investments, most recent tax returns, and documentation of current employment may be included. Usually, the lender will also perform a credit check.
The lender will offer the borrower a loan up to a specific amount and at a specific interest rate if the application is accepted. Thanks to a procedure called pre-approval, purchasers can apply for a mortgage even before they have decided which property to purchase or even while they are still looking. In a competitive real estate market, having a mortgage preapproval can help buyers stand out from the competition since it lets sellers know that they have the funds to support their offer.
A closing is the meeting where the buyer and seller, or their agents, convene after reaching an agreement on the terms of the transaction. At this point, the borrower pays the lender a down payment. The buyer will sign any final mortgage documents, and the seller will give the buyer possession of the property and the agreed-upon amount of money. At the closing, the lender may impose origination costs, which may take the form of points.
An adjustable rate mortgage (ARM)
An adjustable-rate mortgage (ARM) has a fixed interest rate for the first term, after which it may fluctuate on a regular basis in accordance with market rates. The mortgage may be more inexpensive in the short run if the initial interest rate is below market, but it may become less affordable in the long run if the rate increases significantly.
ARMs generally feature ceilings on the maximum amount that the interest rate can increase overall during the loan term as well as each time it adjusts.
Conclusion
With a usufructuary mortgage, borrowers can obtain loans while keeping ownership of their property. This is a novel type of mortgage. By doing this, the mortgagor permits the mortgagee to take control of the property and use its producing assets as long as the mortgage debt is not paid in full.
Delivering possession, allowing the mortgagee to keep possession, removing the mortgagor’s personal culpability, preventing foreclosure or sale of the mortgaged property, and granting the mortgagor the right of redemption are all necessary components of a usufructuary mortgage.
In India’s rural areas, usufructuary mortgages are especially common and a vital source of funding for the local economy. It has been made clear by previous rulings that there is no set length of time within which the mortgagor can exercise their right to redemption, despite legal disputes concerning the redemption term.
FAQS;
What is an abnormal mortgage?
A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary mortgage.
What is an equitable mortgage?
An equitable mortgage is a legal arrangement where a borrower offers their property as security for a loan without transferring ownership to the lender.
What do you mean when you say “mortgage”?
A mortgage is an agreement between you and a lender that gives the lender the right to take your property.
