BORROWINGS AGAINST PROPERTY

CONTENTS : Loan against property Pledge Hypothecation Lien Mortgages Types of mortgages Reverse mortgages Registration charges Rights and liabilities of

parties

LOAN AGAINST PROPERTY

A loan against property (LAP) is exactly what the name implies – a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property’s market value, usually around 40% – 60%. Loan against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.

Loan against Property can be taken for following purposes:o Expanding your businesso Getting your son/daughter marriedo Sending your son/daughter for higher studies

abroado Funding your dream vacationo Funding medical treatments

Kind of properties can be mortgage for a loan:• Normally loan is taken against self-occupied or

rented residential property. • This could be a house or even a piece of land.

The eligibility criteria to get a loan against property:This criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:• Your income, savings, debt obligations• Cost/value of the property mortgaged• Your repayment track record for other loans, credit cards etc.

The normal interest rates and tenure for repayment offered for a loan against property are:Interest rates on loan against property range from 12% -15.75% and the loan tenure can be up to 15 years.

A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property

PledgeThe bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’.

The person delivering the goods is called ‘pledger’ or ‘pawnor’ and the person to whom they are delivered is called the ‘pledgee’ or ‘pawnee’.

•A pledge is a bailment for security.

Example- A borrows Rs.200 from B and keeps his watch as security for payment of the debt, the bailment of watch is a pledge.• Any kind of movable property , i.e., goods, documents, or valuable may be pledged.

Rights of pawnee

1. Right of retainer (sec. 173)2. Right to extraordinary expenses (sec.175)3. Right against true owner, when the pawnor’s title

is defective (sec.178)4. Pawnee’s rights where pawnor makes default

(sec.176)

Rights of pawnor

1. Right to get back goods.2. Right to redeem debt (sec.177)3. Preservation and maintenance of the goods.4. Rights of an ordinary debtor.

Duties of pawnee

1. To take reasonable care of the goods (sec.151)

2. Not to take any unauthorised use of goods (sec.154)

3. Not to mix the goods pledged with his own goods (sec.156 and sec.156)

4. To return the goods (sec.161)

Duties of pawnor 1. To disclose known faults (sec.150)2. To bear extraordinary expenses (sec.158)3. To receive back the goods.4. To indemnify the pawnee (sec.164)

Hypothecation is the practice where a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, has a third party (usually an affiliate) pledge collateral for the borrower. The borrower retains ownership of the collateral, but it is "hypothetically" controlled by the creditor in that he has the right to seize possession if the borrower defaults. A common example occurs when a consumer enters into a mortgage agreement, in which the consumer's house becomes collateral until the mortgage loan is paid off.

Hypothecation:

The detailed practice and rules regulating hypothecation vary depending on context and on the jurisdiction where it takes place. In the US, the legal right for the creditor to take ownership of the collateral if the debtor defaults is classified as a lien.

Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.

A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold. Liens can be structured in many different ways. In some cases, the creditor will have legal claim against an asset, but not actually hold it in possession , while in other cases the creditor will actually hold on to the asset until the debt is paid off. The former is a more common arrangement when the asset is productive, since the creditor would prefer that the asset be used to produce a stream of income to pay off debt rather than just held in possession and not used. A claim can hold against an asset until all the obligations to the creditor are cleared (a general lien), or just until the obligations against that particular assets are cleared (a particular lien).

Lien:

MORTGAGES

Sec. 58 of the Transfer of Property Act, 1882 defines mortgage as -A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed.

Definition:

Simple MortgageMortgage by Conditional SaleUsufructuary MortgageEnglish MortgageMortgage by deposit of title of deedsAnomalous Mortgage

Types of mortgages

Simple Mortgage - 

In a Simple mortgage, the possession of the mortgaged property is not transferred from mortgagor to the mortgagee.

If the mortgagor fails to repay the loan, the mortgagee has the right to sell the property and recover the loan from the sale amount.

Mortgage by Conditional Sale - Under such Mortgage, the mortgagor apparently sells the property to the mortgagee on certain conditions -

1.On failure to repay the mortgage money before a certain date the sale shall become absolute,or2.On condition that on such repayment of mortgage money the sale shall become invalid,or3.On condition that on such repayment the mortgagee shall retransfer the property.

In such case, the mortgagee is a "mortgagee by conditional sale".

Usufructuary Mortgage - 

In a usufructuary Mortgage, the possession of the mortgaged property is transferred to the mortgagee. The mortgagee receives the income from the property (rent, profit, interest, etc) until the repayment of the loan. The title deeds remain with the owner.

English Mortgage - In an English Mortgage -

1.The mortgagor binds himself to repay the borrowed money on a certain date.2.The mortgagor transfers the property absolutely to the mortgagee.3.But such transfer is subject to the condition that the mortgagee will retransfer the property on repayment before the agreed date.

Mortgage by deposit of title of deeds - In such mortgage, the mortgagor delivers the title document of the property to the mortgagee with an intention to create a security thereon. Such mortgage is valid in towns of Kolkatta, Mumbai and any other town as the State Government may notify by publication in Official Gazatte

Anomalous mortgage - Anomalous mortgage is a combination of different types of mortgages.\In the US, concept of Reverse Mortgage is fast catching up - 

Meaning - A reverse mortgage loan is a loan where the lender pays the monthly installments to you instead of you making any payments to the lender. Hence the name reverse mortgage, as the payment stream is reversed. A Reverse mortgage enables senior citizens to convert their home equity into tax-free income. Reverse mortgages enable eligible homeowners to access the money they have built up as equity in their homes. They are primarily designed to strengthen seniors’ personal and financial independence by providing funds without a monthly payment burden during their lifetime in their home.

REGISTRATION CHARGES

The fees associated with getting the legal title registered in the name of owner. This legal process takes place in the sub-registrar’s office

Registration charges are paid under the section 860

Meaning

The register must contain short description of the property charged

The amount of the chargeThe name of the person entitled to the

charge, etc.The company must keep at its registered

office, a copy of every instrument creating any charge requiring the registration. 

The company should register the charges within 30 days of the creation of the charges.

Requirements

A charge for the purpose of securing any issue of any debentures

A floating chargeA charge on uncalled share capitalCharge on calls made but not paidA charge on any immovable propertyA charge on shipA charge on book debts of the companyA charge on goodwill or on patent or on license under

the patent or on trademark or copyright or on the license under the copyright

A charge other than a pledge on any movable property of the company.

List of charges requiring registration under Section 860

Once a charge is registered, it acts as a notice to the public at large that the charge holder has an interest in the charged property. No person can take a defence against the charge holder that he was not aware that a charge was created against the property. That person will be entitled to the property subject to the interest of the charge holder. Once certificate of charge is issued by the Registrar, it is conclusive evidence that the document creating the charge is properly registered.

Effects of Registration :

A charge which is compulsorily registrable but which is not registered is void.

Omission to registrar particulars of charge is required punishable with fine.

It damages the interest of creditor in whose favour the charge is created.

Consequences of Non-Registration

RIGHTS & LIABILITIES OF PARTIES

Rights and Liabilities of a Mortgagor

The rights and liabilities of a mortgagor under a mortgage are as under:

I. Right of mortgagor to redeemII. Obligation to transfer to third party

instead of re-transference to mortgagor.III. Rights to inspection and production

of documents

Rights And Liabilities Of The MortgageeThe rights and liabilities of a mortgagee are as under:

Right to foreclosure for sale. Right to sue for mortgage money Right of power of sale of mortgaged

property Right to appoint a receiver Right to accession to mortgaged

property Right to the benefit of the renewed

lease Right of mortgagee in possession

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