Mortgage

How Shivraj bought a house in his village through ‘MORTGAGE’?

“Namasthe! Shivraji...welcome. I was expecting your visit. You are the talk of our village.” Arun kumar Yadav, first time, stood up and gave a respectful welcome.

Shivraj was in all smiles. Now, he was the proud owner of one of the largest cattle farms in the villages nearby. He had also kept his word and paid in advance all his dues to Yadav. So, there was no reason why Yadav should not stand up and welcome.

“Yadvji ... Namasthe! Because of God’s will and your blessings I am here. You might have known that I am planning to purchase a land and build a house. The agreement is over. I have already paid 1/2 of the price. I need only 500 gold coins to pay the balance. I need your help. You can have my land and house as the security. Within three years I’ll pay the entire money with interest. Till that time, you can be in possession of my land and house. I will live in my present hut”

“I whole heartedly appreciate your talk and promise. We respect your sincerity, hard work and above all your promise. So, you need not give your house to me.

 1.  You need to give only the title deeds and parental deeds which you got from the seller. That is more than enough.

2.   In case of your failure, I may approach the King’s court for establishing my right as mortgagee. I’ll get court’s nod for selling or auctioning of your property to adjust my loan.

But, I know as usual, you will foreclose the loan with your hard earned money.”

“Thank  you....Yadavji! Then, I can live in my home on my own land, if I pay the dues without fail every month! Am I right?”

Within a week of this discussion, Shivraj started building a house. The house had the same mango tree which was a witness in his case in Birbal’s court.”

There were rumors among people that Birbal might visit the house during warming ceremony.

A Recap:

Bailment: Delivery a goods for a certain purpose. If it is over, the goods should be returned safely.

(Read previous post on BAILMENT)

Pledge:  is delivery of goods as security for a loan. Possession is with the creditor (bank- ex: jewels-jewel loan)

(Read previous post on PLEDGE.)

Mortgage: Mortgage – Banks in India, usually, encourage Equitable Mortgage.

  It is cost effective. No registration charges.

  1 The debtor has to deliver the documents to title deeds to a banker in a notified area for having secured a debt or to get a new loan.

The purpose of deposit of title deeds is to create a security against the debt.

(State governments notify what are these towns. His property can be in any place- even in a village or in a not notified area)

2. He can have his loan in a nearby village branch of the same bank.

3. The legal ownership passes to the creditor (bank).

4. But creditor has to go to a court of law for remedy- that is sale in case of failure and adjust the loan

Law that deals with Mortgage is ‘Transfer of property act-1882.

Hypothecation

Hypothecation

A small recap:

Bailment –delivery of goods for a specific purpose and getting it back after the purpose or period is over.

Pledge: This is also bailment of goods as security for obtaining a loan.

              Pledge is defined in sec 172 of Indian contract act 1872.

Now let us see what hypothecation is.

Shivraj got back his jewel and really wanted to expand his cattle farm. He visited the same old good wealthy man and offered him his jewels and land for a debt with which he planned to purchase some more cows and sheep.

“Shivrajji, thank you.... You have come to me. I know that you are growing rich. Now you are one of the respectable members of our village. So I don’t need any security. But please sign this document which says,

1. I have a right on your cattle (moveable asset) existing and to be purchased.
2. I can use this right in case you fail to pay. I can sell them and appropriate the proceeds to the adjustment of the loan.

This is enough. I have faith in you that you will pay in advance.”

Shivraj felt very happy. He also knew well that he would pay in advance and come for a bigger amount for purchase of a house.

pledge: Delivery of goods is essential and possession is with creditor.

Hypothecation: No delivery of goods; possession is with debtor. When debtor fails to pay the debt, the charge crystallizes from a floating charge into fixed charge.

When banks give vehicle loan, they don’t take any security.

When banks give loan on stock, they don’t take them into possession.

They get an agreement of hypothecation signed by borrower. That is the charge.

Hypothecation is defined by law very lately in SARFAESI Act 2002.

We will see how Shivraj got a loan under ‘Mortgage’. OK?

What is pledge?

What is a pledge?

 Advocate Shyam did not expect this sudden and forced entry of the couple. He looked at them for a minute and asked them to take their seat. Both the faces showed various feelings mixed with anger and fear. The lady might have been crying and was in a mood to burst out.

“Tell me ...what happened?” asked, Lawyer Mony in soothing tone.

“Sir, we got a loan from the ‘Triple one Finance’. We gave our Gold Ornaments as security. This happened a year ago. Yesterday they called us and told that all the jewels were auctioned to adjust the loan. The jewels are worth nine lac rupees. That was given to me as a gift-sridhan- by my father. I want my jewels back” As you guessed this was from our lady.

 Mony further enquired “Have you got your notice from the finance?”

“No. They told me that they had issued a notice and it was in the news paper. But, I searched my name. It was not there too. I got inside information that mine was wrongly sold”. The man replied in all his suppressed anger.

Mony in a confident and assured tone explained “Don’t worry. You will get back everything. When we give something...that is physically deliver the security to the Pawnee (one who takes the article and gives money as loan), the contract is called PLEDGE. The Financier has to take care of it with utmost care as if it is his own article. If you don’t pay, he can sell or auction only after due notice with reasonable time to pay back the money due. Here, there is failure on the part of the company. We can sue (go to court) them.”

So, Remember bailment is just delivering some thing for safe keeping or any other purpose. Pledge is also a type of bailment; but, the purpose is security and getting a loan.

Both bailee and Pawnee (the takers of the goods) have to take care of the articles given to them and return them after the purpose is over.

The pawnor (who gives the gold or any goods) cannot suppress facts about damages in the goods and cheat them- for example, if he cheats them with covering gold or spurious gold, he has to face the law and then compensate the financier for cheating.