How a Mortgage Is Made

There is a caution worth carrying. If the parties choose to record the transaction in a document that itself creates the security, that document requires registration, and an unregistered one will not be admissible to prove it. What is safe is a memorandum that merely records a deposit already made; what is fatal is a document that is the bargain. That distinction is where most litigation on clause (f) happens.

Section 59A: the words reach successors

Section 59A provides that, unless otherwise expressly provided, references in this Chapter to mortgagors and mortgagees include persons deriving title from them respectively.

Without it, every right and duty in Chapter IV would have to be rewritten each time the property or the debt changed hands. With it, a person who buys the equity of redemption steps into the mortgagor's shoes for the whole chapter, and a person to whom the mortgage is assigned steps into the mortgagee's. It is a small section that saves the rest of the chapter from being twice its length, and it is worth citing whenever a problem involves a successor rather than an original party.

A worked example

Chandan borrows Rs. 15 lakh from Deepa and mortgages his house at Chiplun.

Version one. They write out a mortgage deed. Chandan signs it. Deepa's brother and the man who typed the document sign at the foot. The deed is registered.

Is it a good mortgage? The sum is above a hundred rupees, so registration, signature and attestation by at least two witnesses are all required. Registration and signature are present. But the typist signed to say he wrote the document, not to witness the execution, so he lacks animus attestandi and is not an attesting witness. Only one qualifying witness remains, and section 59 requires two. The mortgage fails for want of attestation.

Version two. Same document, but two neighbours who watched Chandan sign also sign in his presence. Valid.

Version three. In Mumbai, Chandan simply hands Deepa the original title deeds of the house and says they are security for the loan. Nothing is written and nothing registered. Valid, as a mortgage by deposit of title-deeds, because section 59 excepts it.

Version four. Same as version three, but they also execute a document which states that "the borrower hereby creates a security over the property by depositing the title deeds", and do not register it. This document purports to create the security rather than record a completed deposit, so it requires registration, and unregistered it cannot be used to prove the mortgage.

Version five. The loan is Rs. 80 and Chandan hands over possession of a small plot instead of executing any document. Valid, because below a hundred rupees a mortgage may be made by delivery of the property, and this is not a simple mortgage.

Version six. The loan is Rs. 80, Chandan keeps possession and binds himself personally to pay with a right of sale on default. That is a simple mortgage, and delivery is not available for it, so an instrument signed and attested is required.

And a successor. Suppose Chandan later sells the house, subject to the mortgage, to Esha, and Deepa assigns the mortgage to a bank. Section 59A makes every reference to the mortgagor and mortgagee in Chapter IV apply to Esha and the bank, so the redemption and foreclosure provisions work between them without anything more.

What it does NOT mean

Registration alone is not enough. Signature and attestation by two witnesses are separate requirements at a hundred rupees and above.

Any two signatures will not do. They must be attesting witnesses within section 3.

The mortgagee need not sign. Section 59 requires the mortgagor's signature.

Delivery is not available for a simple mortgage, even below a hundred rupees.

A mortgage by deposit of title-deeds needs no formality, but a document that creates rather than records it must be registered.

Section 59A is not confined to buyers. It covers anyone deriving title from either party, and applies throughout Chapter IV unless a provision expressly says otherwise.

Distinctions

Quick revision

• Rs. 100 and upwards: registered instrument, signed by the mortgagor, attested by at least two witnesses.
• Exception: a mortgage by deposit of title-deeds needs none of these.
• Below Rs. 100: that instrument, or delivery of the property, but never delivery for a simple mortgage.
• Attestation carries the section 3 meaning; a scribe or identifying witness does not count.
• A document that creates an equitable mortgage needs registration; one that merely records a completed deposit does not.
• Section 59A: in Chapter IV, mortgagor and mortgagee include persons deriving title from them, unless otherwise expressly provided.

Test yourself

1. State the requirements for a mortgage securing Rs. 5 lakh. A registered instrument, signed by the mortgagor and attested by at least two witnesses, unless it is a mortgage by deposit of title-deeds.

2. A mortgage deed is registered and signed by the mortgagor, and bears the signatures of the mortgagee and the scribe. Is it valid? No. Neither the mortgagee nor the scribe signed with the intention of witnessing the execution, so there are not two attesting witnesses within section 3, and section 59 is not satisfied.

3. Can a mortgage of Rs. 90 be made by handing over possession? Yes, unless it is a simple mortgage. Below one hundred rupees a mortgage may be made by delivery of the property, but delivery is excepted for a simple mortgage, which by definition involves no delivery of possession.

4. Why does a mortgage by deposit of title-deeds escape section 59? Because section 59 expressly excepts it. The security is created by the deposit of the documents with intent to secure, so no instrument exists that could be registered or attested.

5. Does the mortgagee have to sign the mortgage deed? No. Section 59 requires the instrument to be signed by the mortgagor.

6. What does section 59A do? It provides that, unless otherwise expressly provided, references in Chapter IV to mortgagors and mortgagees include persons deriving title from them, so successors and assignees take the rights and liabilities of the original parties.