The Mortgagee in Possession

In one line

A lender who takes possession must look after the property like a prudent owner, keep proper accounts, and give credit for everything he receives, because he is holding somebody else's land.

In exam wording: section 76 provides that when, during the continuance of the mortgage, the mortgagee takes possession, he must manage the property as a person of ordinary prudence would manage his own, collect the rents and profits, discharge public charges and rent out of the income, make necessary repairs, commit no destructive act, apply insurance money as directed, keep clear, full and accurate accounts, and credit his receipts against interest and then principal, paying any surplus to the mortgagor.

Why the duties are strict

A mortgagee in possession is in a peculiar position: he holds and enjoys land that is not his, under a title that exists only to secure money. He controls the income, the tenants and the repairs, and the owner can see none of it.

The law's answer is to treat him as accountable for everything. He is not a trustee in the full sense, but he is close enough to one that every rupee must be explained. That is why section 76(g) requires clear, full and accurate accounts, and why the closing words allow the Court, when accounts are taken, to debit him with the loss occasioned by any failure of duty.

Sections 70 and 71: what the security picks up

Section 70: accession. If, after the date of a mortgage, any accession is made to the property, the mortgagee is, absent contrary contract, entitled to it for the purposes of the security.

The Act's illustrations:

(a) A mortgages to B a field bordering a river. The field is increased by alluvion. For the purposes of his security, B is entitled to the increase.

(b) A mortgages a plot of building land to B and afterwards erects a house on it. For the purposes of his security, B is entitled to the house as well as the plot.

Section 71: renewal of a lease. Where the mortgaged property is a lease and the mortgagor obtains a renewal, the mortgagee is, absent contrary contract, entitled to the new lease for the purposes of the security.

The five words "for the purposes of the security" are the whole of it. The mortgagee does not own the accession or the new lease; they simply become part of what answers his debt. On redemption they go to the mortgagor under sections 63 and 64. So illustration (b) does not mean B gets a free house: it means A cannot mortgage bare land, build on it, and then argue that only the land is charged.