A mortgage is a transfer of an interest in some immovable property, as a security for advancement of some loan.[1] A person who gives security and takes the loan is called as mortgagor and person who advances the money is known as mortgagee.[2] The relationship between the mortgagor and mortgagee is that of a creditor and debtor. The law on mortgage in India is governed by Transfer of Property Act, 1882.
The right of foreclosure is a right available to a mortgagee to recover his outstanding money.[3] This right is available under Section 67 of the Transfer of Property Act, 1882. After the principal amount has become due, and before payment of mortgage money by mortgagor or before decree of redemption has been passed by Court, mortgagee has a right to obtain a decree of foreclosure from the Court. [4]A suit to obtain a decree that a mortgagor will be absolutely debarred from exercising his right to redeem the mortgaged property is called a suit for foreclosure.[5]
Conditions:
The right to foreclosure can be exercised by mortgagee only when:
However, when mortgagor fails to redeem the property, the mortgagee does not become the owner of the property, he has to file a suit for recovery of the amount due. The limitation period for instituting a suit is 12 years. The final decree in a suit for foreclosure on the failure of defendant to pay all amounts due extinguishes the right of redemption which has to be specifically declared.[8] A mortgagee may hold two or more mortgages executed by the same mortgagor. In respect of each of such mortgages, he may have a right to obtain a decree of foreclosure. In case he sues to obtain such a decree on any one of the mortgages, he will be bound to sue on all the mortgages in respect of which the mortgage money has become due.[9]
Right to foreclosure and right of redemption:
The right of foreclosure is counter-part of right of redemption. Mortgagor gets a right of redeeming his security after payment of debt amount; similarly mortgagee has a right of foreclosure or sale in default of redemption by the mortgagor. Section 67 protects interest of a mortgagee who has advanced a loan in pursuance of some interest in a security and mortgagor has defaulted in payment. The right of foreclosure of mortgagee is co-extensive to right of redemption of mortgagor.[10] Subject to the intention expressed in the contract, the mortgagee gets the right to enforce his security when the mortgagor’s right to redeem accrues. [11] But the rule may be limited by the terms of the mortgage and if the limitation is not oppressive or unreasonable, it will be given effect to.[12] Right to foreclosure can be limited in nature subject to the contract between parties, but right to redemption is an absolute right, which cannot be limited in any way.
It follows that when a mortgagee makes a statement about his right to recover the mortgage amount, such statement impliedly acknowledges the corresponding right of redemption of the mortgagor. Further, a statement admitting jural relationship, need not refer to or reiterate the rights and obligations flowing there from. Where a party to the mortgage, by his statement, admits the existence of the mortgage or his rights under the mortgage, he admits all legal incidents of the mortgage including rights and obligations of both parties that is mortgagee and mortgagor.[13]
Foreclosure and different kinds of mortgages:
The act contemplates six kinds of mortgage, namely simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title deeds and anomalous mortgage.[14]
Simple mortgage: The mortgagee in such scenario does not get possession of the mortgaged property and therefore cannot exercise right of foreclosure. The remedy is either to proceed against the mortgagor personally or for sale of the mortgaged property.
Mortgage by conditional sale: Mortgage by conditional sale provides in case of default of payment, mortgage will become a sale. The remedy in such a situation is not foreclosure but debarring mortgagor’s right of redemption.
Usufructuary mortgage: Under this mortgage, mortgagee retains possession until repayment of money and receives rents and profits or part thereof in lieu of interest, or in payment of mortgage money or partly in lieu of interest and partly in payment of mortgage money. There is redemption when the amount due is personally paid or is discharged by rents or profits received. He does not have a right to foreclose or sale.[15]
English mortgage: A mortgagor binds himself personally to pay the debt, and there is an absolute transfer of mortgaged property in favour of mortgagee. Therefore he does not have a right of foreclosure but a right to file a suit for sale of the mortgaged property.
Mortgage by deposit of title deeds: As per Section 96, the mortgagee of title deeds is on the same footing as a simple mortgagee, therefore remedy available is sale of the mortgaged property.
Anomalous mortgage: The remedy depends on the terms contained in the mortgage deed as anomalous mortgage is combination of two or more types of mortgages.[16]
Partial foreclosure:
Partial foreclosure is not a remedy under Section 67. The rule is that one of the several mortgagees cannot foreclose or sell in respect of his share unless several mortgagees have, with consent of the mortgagor, severed their interests under the mortgage.[17] The reason of this rule is to protect the mortgagor from being harassed by a multiplicity of suits where the severance of interest of the mortgagees has taken place without the consent of the mortgagor.[18] Accordingly all the co-mortgagees must join together and file one suit in respect of the whole mortgage money.
Subrogation:
Where redemption of mortgaged property is carried out by any person who has interest in the mortgaged property other than the mortgagee, like subsequent mortgagees, co- mortgagors, buyer of mortgaged property, surety of mortgaged debt or creditor of mortgagor,[19] such person enters into the shoes of mortgagee. He gets all the rights that the creditor (mortgagee) had against the principal debtor (mortgagor) including right to foreclosure, redemption or sale. This is known as subrogation.[20] However, the entire mortgage should be paid off by the person.
The person can enforce the security over the original debtor for reimbursement. A person pays a mortgage to protect his/her own interest in the property or because s/he is secondarily liable for the debt or for the discharge of the lien. However, if the borrower used the proceeds of the loan to discharge a prior encumbrance, it is not a sufficient reason to entitle the lender to subrogation. There should be ample proof that the loan was made for that purpose.[21]
A co- mortgagor in possession, of excess share redeemed by him can enforce his claim against non redeeming mortgagor by exercising rights if foreclosure or sale as exercised by mortgagee under Section 67 of the Transfer of property Act but that does not make him a mortgagee.[22] The remedy of redemption, foreclosure and sale available to such co-mortgagor are the rights as a subrogee not as a mortgagee reincarnate but by way of rights akin to those vesting in the mortgage.[23]
Estoppel of right of foreclosure:
Where mortgagee has accepted the redemption amount and revalued amount and right to redeem has been enforced, it cannot be interfered with. Mortgagee could not approbate and reprobate, since mortgagee didn’t challenge execution proceedings during pendency of appeal in Supreme Court, the right of foreclosure is lost by estoppel.[24]
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