Types of Mortgages in Pakistan
The Law of mortgages refers to the creation of a security interest in real estate held by a lender as security for a debt, generally a loan. Mortgages are not debts in and of themselves; they are the security for a debt.
The mortgagor transfers the property, the mortgagee who receives it; the money and interest secured by the mortgage are known as the mortgage money, and the instrument (if any) by which the transfer happens is known as a mortgage-deed.
Types of mortgages
Mortgages come in many varieties, each with its own terms and conditions.
- Simple mortgage
- English mortgage
- Mortgage by conditional sale
- Deposit of title-deeds mortgage
- Usufructuary mortgage
- Anomalous mortgage
Characteristics of Mortgage
- Mortgages are only available on movable properties. The immovable property comprises land, trees, buildings, machinery, and other objects attached to the ground. The immovable property does not include machines that are not permanently fixed to the earth and can be moved from one place to another.
- The transfer of a mortgage involves an interest in movable property instead of the transfer of ownership in a real estate transaction. An interest in the property is transferred when the owner transfers some ownership rights to the mortgagee while keeping other ownership rights for himself. Whenever the mortgagor redeems the mortgaged property, the rights of redemption remain.
- In order to protect a loan or perform a contract, the interest in the property must be transferred in order to secure a monetary obligation. Mortgages cannot be applied to transfers for purposes other than those above. It does not constitute a mortgage if a property is transferred to pay off a prior debt.
- Mortgaged properties have to meet certain criteria, such as being identifiable by their size, location, boundaries, etc.
- It is not always necessary for the mortgagee to receive physical possession of the mortgaged property.
- When an interest-bearing loan is repaid, the mortgage is re-converted to a mortgage on the mortgaged property. If the mortgagee cannot collect the debt from the mortgager, he or she has the option of selling the underlying property for the repayment of the debt.
Simple mortgages are those in which:
In absence of delivery ownership of the mortgaged property, the mortgagee has the right to sell the property if the mortgagee fails to pay the mortgage money according to the contract. In order to pay off the mortgage, the proceeds of the sale may be necessary.
Mortgagees cannot, however, sell their properties directly. Only the court can intervene in a sale. According to the sentence, “cause the mortgaged property to be sold,” the mortgagee will need a court order before the sale of the mortgaged property can proceed.
Mortgage by Conditional Sale
Mortgages by conditional sale are mortgages by which the mortgagee is ostensibly selling the mortgaged property on the condition that – if the mortgage money is not paid by a certain date, the sale shall become absolute; otherwise, the sale shall become void, or upon such payment, the seller shall accept the property.
A usufructuary mortgage is one in which the mortgagee authorizes the mortgagee to take possession of the mortgaged property – and in return receives possession.
As long as the mortgage money has not been paid, such possession will be retained.
Rents and profits that accrue from the property may be received in whole or in part.
Rents or profits to be appropriated as either: (i) interest, or (ii) mortgage money, or (iii) half interest, and half mortgage money.
The following are the characteristics of an English mortgage:
In return for the mortgage money, the mortgagor promises to repay it on a certain day.
The mortgagee receives the property mortgaged. Mortgagees are therefore entitled to take possession of their properties immediately. The mortgaged property may be sold without the intervention of a court under certain circumstances.
Upon making payment of the mortgage money as agreed, the mortgagee is required to re-transfer the property to the mortgagor.
Mortgage by Deposit
Upon creating a security interest on immovable property, a person delivers title documents to a creditor or agent. Mortgages based on title deed deposits are called mortgages by deposit.
Registration is not required for this mortgage. Banks tend to prefer it the most.
An alternative to any of the mortgages previously described. This is an anomalous mortgage. Mortgages of this type include those formed by combining two or more mortgage types, as discussed above. Hence, it may take different forms according to local custom, usage, or contract.
Legal Mortgage and Equitable Mortgage
Houses are not just “structures” or “dwellings,” as your legal documents describe them. The mortgage on your home is an important legal transaction, even when sentiment is taken out. The legal mortgage describes the mortgagee’s responsibilities to you in detail and complies with the jurisdiction’s legal requirements. A mortgage becomes an equitable mortgage if any part of it is incorrect or missing, which makes it invalid as a legal document.
The importance of equitable mortgages for businessmen is obvious, and they have many benefits, but there can also be some disadvantages. Let us examine some of these advantages and disadvantages.
Advantages of Equitable Mortgage
The process is economical because it does not require registration, thus saving stamp duty. It is therefore cost-effective.
The mortgage is kept confidential because no witnesses are needed, and as such, all information about the mortgage remains between the bank and the customer.
No elaborate draft of the mortgage deed is needed, so there is no document charge. Title deeds can be deposited with the mortgage to create the charge.
Provides equal remedies to the mortgagee: As in the case of a legal mortgage, the mortgagee will be entitled to the same rights and remedies as if they were in a court of law.
Disadvantages of Equitable Mortgage
It is only through the court’s order that mortgaged property can be realized when necessary. The process can be time-consuming and costly.
Mortgagees need to be very careful: In no case should they surrender title deeds. The mortgagee has a right to a prior claim in the event that the mortgagor hands over possession of the documents to him or her. The banker needs to be very careful when dealing with these documents and should never part with them. When the mortgagor plans to examine or show such documents to someone else, it is advisable to allow him to do so either on bank premises or when the banker’s lawyer is present.
However, the equitable mortgage is popular due to its comparative superiority in terms of advantages and disadvantages.
By taking the necessary precautions against probable risks, a prudent banker can safeguard his interests.