Mortgage Deeds: Meaning, Types, and Key Elements

17 APRIL, 2023

Mortgage deeds are official documents that prove the terms of a loan between a borrower and lender. Mortgages guarantee that loans will be repaid and give the lender the legal power to repossess the mortgaged property if the borrower defaults. The mortgage deed grants the lender the legal authority to foreclose on the property in the event of default on the debt.

The mortgage deed is an integral aspect of the loan agreement since it is a legally binding contract between the borrower and the lender. The deed spells out every facet of the loan, from the principal to the interest rate to the repayment plan and any extra fees or penalties. This document includes the lender's right to foreclose on the property if the loan is not repaid and the borrower's obligations and rights.

Now you know what a mortgage deed is, it's time to discuss the types of mortgage deeds.

Types of Mortgage Deeds

1. Simple Mortgage Deed

According to Section 58(b) of the Transfer of Property Act, a simple mortgage deed in which the mortgagor promises to pay the mortgagee a certain quantity of money is considered either a simple mortgage or a registered mortgage. It is accomplished by the execution and recording of a mortgage deed, in which the mortgagor grants the mortgagee the right to sell the mortgaged property in the case of the mortgagor's inability to pay the debt. This deed is recorded with the relevant authorities so the mortgagee can sell the property if the mortgagor defaults on the loan.

2. Mortgage By Deposit [Section 58(f)]

A mortgage by deposit of title deeds is an equitable mortgage, which does not require any writing or legal formalities and is not affected by the law of registration. According to Section 58(f) of the Act, this type of mortgage applies to the notified towns specified by the State Government in the official gazette. In such towns, any person can deliver their title deeds of immovable property to the bank with the intent to secure it as a mortgage. It is a convenient form of mortgage and a secure and cost-effective way of protecting an individual's property.

Key Elements of a Mortgage Deed

A mortgage deed contains several important elements necessary to be legally binding. The key elements of a mortgage deed are:

1. Parties: The lender and the borrower must be named parties to the deed. All parties to the loan transaction, including intermediaries and guarantors, shall be named in the deed.

2. Deed Description: The deed itself should be described, including the date it was signed, the date it was recorded, and any other relevant details.

3. Property Details: The deed should identify the mortgaged property by address and legal description.

4. Recital: The deed's recital explains the document's purpose and why the parties are entering into the agreement.

5. Covenant for Repayment: The covenant for repayment outlines the loan terms, including the loan amount, interest rate, repayment schedule, and any other fees and penalties that may be due.

6. Mortgage Clause: The mortgage clause outlines the lender's rights and remedies in the event of a default on a loan. It includes the right to foreclose on the property and other legal remedies.

7. Possession: Possession terms should also be mentioned in the deed. Who will have access to the property and who will be accountable for its upkeep will be determined here. Before you apply for a mortgage, you should use a home loan eligibility calculator to determine if you qualify for a loan. Eligibility requirements for a house loan might vary between financial institutions. Hence, before applying, ensure you've verified that you meet the requirements of the lender of your choice. Using a home loan eligibility calculator is a quick and easy way to determine if you qualify for a mortgage and where you stand regarding interest rates and monthly payments.

Why is a Mortgage Deed necessary?

The Mortgage Deed is critical since it establishes who the Borrower/Mortgagor and the Lender/Mortgagee are in the loan arrangement. This document helps to provide legal protection to the lender in the case of default or delay in loan repayment. It also gives the lender the right to foreclose on the property if the mortgagor breaches the terms of the Contract. The mortgage deed further helps ascertain the loan amount, interest rate and the rightful owner of the mortgaged property. It also gives the mortgagee the right to take possession of the property if specified in the Contract. Furthermore, it indicates that the property is transferred to the lender.

All these factors make the Mortgage Deed essential for any mortgage agreement.

When do you need a Mortgage Deed?

For borrowers, the mortgage deed is an important document as it must be provided to the lender to show that you are the legal owner of the property. It gives lenders legal authority to repossess the property in case of non-repayment of the loan. Also, it assures the lender that their loan is secured.

The mortgage deed is crucial for the lender and borrower regarding mortgage loan transactions. It is generally required when you are loaning money from another person or business and want to transfer the interest of the property to another person. It is a document that establishes the lender's legal right to the borrower's real estate property, should the borrower default on their loan. The mortgage deed is an important legal instrument that helps to protect both the lender and borrower in the case of non-repayment of the loan. It also helps to ensure that the lender has a secure source of repayment if the borrower fails to make payments as per the loan terms.

Conclusion

Mortgage deeds are important legal documents that guarantee the repayment of loans by providing the lender with the legal power to foreclose on the property if the borrower defaults on the loan. There are two common types of mortgage deeds, simple mortgage and mortgage by deposit. The mortgage deed contains several key elements, including the parties, deed description, property details, recital, a covenant for repayment, mortgage clause, and possession. Before applying for a loan, you should use a home loan eligibility calculator to determine your eligibility.