Comprehensive report on mortgage and its rule in Pakistan

Final presentation report

Subject: Business law Submitted by: Najid Ali L1f11mbam2106 Submitted to: Prof.Husnain Javaid Syed

Mortgage:
Mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money in 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. A mortgage is a security interest in real property held by a lender as a security for a debt. A mortgage in itself is not a debt, it is the lender's security for a debt.

Parties involved:
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 mortgagedeed.

Essential of a Mortgage:
Transfer of Interest
The first requisite of a mortgage is that there should be a transfer of an interest in immovable property, so where there is no actual transfer of some interest there is no mortgage. A mere agreement to transfer cannot create a mortgage. A transfer of interest refers to the transfer of one partys ownership in a business. Thus, when the borrower agrees not to alienate a specified property till the loan is repaid, the condition only imposes a restriction on his power of disposal of the property and does not amount to the transfer of an interest in it so as to create a mortgage of the property. The mortgagee has an interest in the property as a security for his debt subject to the important limitation, that so long as that interest subsists, the mortgagor has the right to redeem the property.

The Deed of Trust

A document that represents the agreement between a lender and a borrower to transfer an interest in the borrower's land to a neutral third party, a trustee, to secure the payment of a debt by the borrower.

The deed of trust is a deed by the borrower to a trustee for the purposes of securing a debt. In most states, it also merely creates a lien on the title and not a title transfer, regardless of its terms. It differs from a mortgage in that, in many states, it can be foreclosed by a non-judicial sale held by the trustee. It is also possible to foreclose them through a judicial proceeding.

Kinds of mortgages
According to Transfer of Property Act, 1882 kinds are following:

Simple Mortgage
Where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be supplied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee. The essentials of a simple mortgage are: The mortgagor undertakes personal liability; No possession is delivered; There is no foreclosure; No power of sale out of Court, but a decree for the sale of mortgaged property must be obtained; and It must be effected by a registered document even if the consideration is below Rs. 100. In the Punjab, registration, where the value is below Rs. 100, is not necessary because the Transfer of Property Act does not apply to the Punjab and under the Registration Act if an interest of the value of Rs.100 or more in immovable property is transferred, registration under the Act is essential.

Mortgage by Conditional Sale

Where the mortgagor ostensibly sells the mortgaged property on following condition: On default of the payment of the mortgage-money on a certain date the sale shall become absolute, or On such payment being made the sale shall become void, or On such payment being made the buyer shall transfer the property to the seller. The transaction is called a mortgage by conditional sale and the mortgagee by conditional sale: Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale The document should be registered if the consideration is Rs. 100 or more. If less than Rs. 100 it can be effected by delivery of the property or by a registered instrument.

 Usufructuary Mortgage
Where the mortgagor delivers possession expressly or by implication 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 in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest or partly in Payment of the mortgage-money, the transaction is called a Usufructuary mortgage.

English Mortgage
Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a provision that he will re-transfer it to mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.

Registration of Mortgages.
Transfer of Property Act, 1882
According to the Section 59 of the Transfer of the Property Act, 1882, where the principal money secured is one hundred rupees or upwards, a mortgage other than a mortgage by deposit of title-deeds can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. Where the principal money secured is less than one hundred rupees, a mortgage may be effected either by a registered instrument signed and attested as aforesaid, or (except in the case of a simple mortgage) by delivery of the property. Registration must be in accordance with the provisions of the Registration Act, 1908 and a defective registration would vitiate the mortgage transaction. The document will be inadmissible in evidence for want of registration, though it can be received in evidence for a collateral purpose to prove the nature of the possession of the mortgagee, or the personal obligation of the mortgagor for the purpose of granting a simple money decree.

Companies Ordinance, 1984

According to the Section 121 of the Companies Ordinance 1984, every mortgage, charge or other interest created by a company and being either: a mortgage or charge for the purpose of securing any issue of debentures; or a mortgage or charge on uncalled share capital of the company; or a mortgage or charge on any immovable property wherever situate or any interest therein; or a mortgage or charge on any book debts of the company; or a mortgage or charge, not being a pledge, on any movable property of the company; or a floating charge on the undertaking or property of the company, including stock-intrade; or a mortgage or charge on a ship or any share in a ship; or a mortgage or charge on goodwill, on a patent or license under patent on, a trade mark, or on a copyright or license under a copyright; or

a mortgage or charge or other interest based on agreement for the issue of any instrument in the nature of redeemable capital; or a mortgage or charge or other interest based on a mushrika agreement; or a mortgage or charge or other interest based on hire-purchase or leasing agreement for acquisition of fixed assets;

shall, so far as any security on the companys property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the mortgage or charge, together with a copy of the instrument, if any, verified in the prescribed manner, by which the mortgage or charge is created or evidenced are filed with the registrar for registration in the manner required by Companies Ordinance within twenty-one days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a mortgage or charge becomes void under this section the money secured thereby shall immediately become payable.

The History of Mortgage Law

Mortgage Law originated in the English feudal system as early as the 12th century. At that time the effect of a mortgage was to legally convey both the title of the interest in land and possession of the land to the lender. This conveyance was absolute, that is subject only to the lenders promise to re-convey the property to the borrower if the specified sum was repaid by the specified date. If, on the other hand, the borrower failed to comply with the terms, then the interest in land automatically became the lenders and the borrower had no further claims or recourses at law. There were, back in feudal England, basically two kinds of mortgages: ad vivum vadium, Latin for a live pledge in which the income from the land was used by the borrower to repay the debt, and ad mortuum vadium, Latin for a dead pledge where the lender was entitled to the income from the land and the borrower had to raise funds elsewhere to repay the debt. Whereas at the beginning only live pledges were legal and dead pledges were considered an infringement of the laws of usury and of religious teachings, by the 14th century only dead pledges remained and were all very legal and very religious. And, apparently, they are still very religious in the 21st century.

Legal aspects:
Mortgages may be legal or equitable. Furthermore, a mortgage may take one of a number of different legal structures, the availability of which will depend on the jurisdiction under which the mortgage is made. Common law jurisdictions have evolved two main forms of mortgage: the mortgage by demise and the mortgage by legal charge.

Mortgage by demise
In a mortgage by demise, the mortgagee (the lender) becomes the owner of the mortgaged property until the loan is repaid or other mortgage obligation fulfilled in full, a process known as "redemption". This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption. Mortgages by demise were the original form of mortgage, and continue to be used in many jurisdictions, and in a small minority of states in the United States. Many other common law

jurisdictions have either abolished or minimized the use of the mortgage by demise. For example, in England and Wales this type of mortgage is no longer available in relation to registered interests in land, by virtue of section 23 of the Land Registration Act 2002 (though it continues to be available for unregistered interests).

Mortgage by legal charge

In a mortgage by legal charge or technically "a charge by deed expressed to be by way of legal mortgage", the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it. In Pakistan, the mortgage by legal charge is most common way used by banks to secure the financing. It is also known as registered mortgage. After registration of legal charge, the bank's lien is recorded in the land register stating that the property is under mortgage and cannot be sold without obtaining an NOC (No Objection Certificate) from the bank.

Equitable mortgage
A mortgage in which the lender is secured by taking possession of all the original title documents of the property that serves as security for the mortgage. It gives the mortgagee the right to foreclose on the property, sell it, or appoint a receiver in case of nonpayment Equitable mortgages don't fit the criteria for a legal mortgage, but are considered mortgages under equity (in the interests of justice) because money was lent and security was promised. This could arise because of procedural or paperwork issues. Based on this definition, there are numerous situations which could lead to an equitable mortgage. As of 1961, English law required the consent of the court before the equitable mortgagee was allowed to sell. When the borrower deposits a title deed with the lender, it has historically created an equitable mortgage in England, but the creation of an equitable mortgage by such a process has been less certain in the United States. In an equitable mortgage the lender is secured by taking possession of all the original title documents of the property and by borrowers signing a Memorandum of Deposit of Title Deed (MODTD). This document is an undertaking by the borrower that he/she has deposited the title documents with the bank with his own wish and will, in order to secure the financing obtained from the bank Certain transactions are recognized therefore as mortgages by equity, which are not so recognized by common law.