Sunday, 16 September 2012

Define mortgage and what are the various types or kinds of mortgage and why the mortgage is not popular for the commercial banks

It means the transfer of interest of specific immoveable property for securing the payment of loan is called mortgage. It is a legal assurance. Which is given to the lender. After the repayment of debt the property will return to the borrower.

1. It is a written contract between borrower (mortgagor) and lender (mortgagee).

2. It is a transfer of an interest in a specific mortgage property.

3. Its main purpose is to secure debt.

4. Its documents must be registered.

5. A minor borrower can not do this contract.

6. The mortgage contract is signed by the mortgager and attested by the witness.

7. The possession of the property remains with the borrower.


Following are the important kinds of mortgage :
1. Simple Mortgage :-
In this case the borrower keeps the possession of the property in his hand. He is personally responsible for the payment of debt. If he fails to repay the debt then lender has the right to obtain the decree for the sale of property. It is called simple mortgage.

2.Usufructuary Mortgage :-
In this mortgage the borrower (mortgagor) actually delivers the possession of the property to the lender (mortgagee). He can use it or rent out but after repayment of loan, the possession is transferred back to the mortgagor.

3. English Mortgage :-

In this case, ownership and possession both are transferred to the mortgagee on the condition that loan will be repaid on a certain fixed date. After the repayment of loan it is returned.

4. Equitable Mortgage :-
The mortgagor (borrower) deposits the title deed of property as a security to the lender. From the banker point of view it is not popular.

5. Anomalous Mortgage :-
In this mortgage rights and liabilities of both the parties are strictly determined according the contract of mortgage deed.

6. Mortgage By Conditional Sale :-
The borrowed sells the property on this condition that if he fails to repay the loan then lender (mortgagee) will obtain the absolute proprietorship of the property. On other side if he returns the loan then property will be restored.

The loan of immoveable property lack liquidity. In case of default it is very difficult for the bank to sell the property to recover the loan. Following are the important causes of unpopularity of mortgage.

1. It is very difficult to assess the value of immoveable property like land.

2. The value of property fluctuates.

3. In some cases there is a legal problem involved in the transfer of land.

4. The borrower has to bear heavy expenses to complete the documents of mortgage.

5. The advance on land reduces the liquidity power of the bank.

6. If the customer does not return the loan the bank has to go to the court and has to face many problems.

7. Some times a land is in possession of tender and it can be rented. In this case it is very difficult to find suitable tenant.

8. It is also very difficult to maintain the property in good condition.

9. In case of mortgage there are large number of legal formalities which are being completed. It is also a difficult process.

Keeping in view the above problems a banker hesitates to advance the loan against the security of immoveable property.

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