LIEN:

A lien is the right of a person to retain property belonging to another until a certain debt due from the owner of the property to the possessor of the property, is paid. The ownership remains with the borrower but the lender has the possession. A PARTICULAR LIEN confers a right to retain the property in connection with which a particular debt arose, while a GENERAL LIEN confers a right to retain the property not only in respect of the debt incurred in connection with that property but also in respect of general balance due by the owner of the property to the person exercising the lien. U/s 171 of Indian Contracts act, banks can exercise right of general lien unless there is a contract to the contrary.

NEGATIVE LIEN:

At times a borrower has immovable or other assets with him which he does not want to offer as collateral security to secure his loans for various reasons. Bank however, wants that it should be enabled to have access to such assets and desire that the borrower should not dispose-of these assets without permission of the bank. When the borrower give an undertaking to the bank stating that he is owners of a particular asset which he shall either not disposed off or will not create charge on the assets in favour of someone else, without concurrence of the bank, this undertaking is known as a Negative Lien undertaking.

PLEDGE:

Pledge is bailment or delivery of goods as security for payment of a debt or performance of a promise. The pledgee gets possession of the property but ownership remains with the debtor. Delivery of goods pledged by the pledger to the pledgee is essential for creating a pledge, which may be actual or constructive. As evidence of the intention of the pledger to create a pledge, an instrument in writing, is taken from the pledger, which is known as agreement of pledge. As per Indian Contracts Act, a pledgee is entitled to the possession of the goods pledged till the debt is repaid and in the event of default, the pledgee can sue and also sell the goods after giving a reasonable notice to the pledger of his intention to sell.

HYPOTHECATION:

When the possession of the property in the goods and other movables offered as security, remains with the borrower and only an equitable charge is created in favour of the lender, the transaction is called a Hypothecation. But neither transfer of property act nor the Indian Contract Act deals with hypothecation. The charge is created by an instrument in writing i.e; Agreement of Hypothecation or Hypothecation Deed.

ASSIGNMENT:

The transfer of the right, title and interest in contract by a party to the contract to another person is called an Assignment of the contract. Assignment may also be made by operation of law like insolvency or death of a party to the contract. A contract for future performance can also be assigned. In terms of Transfer of Property Act, the transfer of actionable claim can be effected only by the execution of an instrument in writing signed by the transferor. No particular form of words is necessary for effecting an assignment if the intention is clear from the language used.

SET-OFF:

If a customer has two or more accounts in the same right at the same bank, one loan account and others deposit accounts, the banker can appropriate the credit balances in the deposit accounts to the debit balance in the loan account provided the customer has failed to pay off the loan account on the due date. The loan should be due for repayment and the deposit (if fixed deposit) should also be matured. If it is a current or savings bank account, the banker can immediately transfer the credit balances from these accounts to the loan account when it is due for repayment. This right of the banker to combine the accounts of the customer in credit and debit balances is the Right of Set - off. General Lien is the right of the banker to retain the goods of the customer until a debt of the customer is paid, whereas Set - off is the right of the banker to adjust cash balance in the deposit account of the customer to the loan account of the customer. In short, lien indicates goods; set - off is in relation to money.

MORTGAGE:

As per transfer of property act, mortgage is transfer of interest in specific immovable 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 pecuniary liability. The mortgagor only parts with the interest in the property and not the ownership. Mortgage is not merely a contract but it is conveyance of interest in the mortgaged property. The transferor is called a mortgagor and the transferee a mortgagee. The principle money and the interest of which payment is secured are called the mortgage money and instrument if any by which the transfer is affected , is called the Mortgage Deed.

These are six forms/kinds of mortgages:-

a)      Simple Mortgage:- When mortgagor undertakes personal liability and agrees that in the event of his failure to pay the mortgage money, the mortgagor shall have the right to exercise his rights  by means of a decree for sale of property.

b)      Mortgage of Conditional sale:- Where mortgagor ostensibly sells the mortgaged property on conditions that;

i)                    On default of payment of mortgage money, the sale shall become absolute

ii)                  On such payment being made, the sale shall become void.

iii)                On such payment being made, the buyer shall transfer the property to the seller.

c)      Usufructuary mortgage:- Where the mortgagor delivers the possession and authorises the mortgagee to retain possession until payment of the mortgage money and to receive the rents and profits accruing from property or any part of such property to appropriate the same in lieu of interest.

d)      English Mortgage:- Where the mortgagor binds himself to repay the mortgage money on a certain date. Thus, he transfers the mortgage property absolutely to the mortgagee, but subject to the condition that he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed.

e)      Equitable Mortgage:- (the most common form of mortgage)-: where the mortgagor delivers to the mortgagee, the documents of title to the immovable property with the intention to create a security thereon to secure a loan. The transaction need not be reduced to writing. In case of non payment, the mortgagee can sue for sale but he cannot foreclose the mortgaged property. According to Transfer of Property Act, where a person delivers to a creditor, documents of title to immovable property, with the intent to create a security thereon, the transaction is called a Mortgage by Deposit of Title Deed. However the act makes the provisions of this section applicable only to Mumbai, Kolkata, Chennai or some other state capitals/towns/cities as notified by State Govts. in the official gazette.

f)       Anomalous Mortgage:- A mortgage which is not of any of the above five kinds, is called an anomalous mortgage.

ESSENTIAL FEATURES OF MORTGAGE:

a) It can be created to cover general balance, existing dues or future loans and advances.

b) There must be a creditor and debtor relationship (or contract of guarantee) between the bank and the mortgagor at the time of deposit.

c) Actual existence of the debt is not necessary but even an application for debt and its acceptance establishes this relationship.

d) A partner cannot mortgage the property of the firm without other partners joining him in doing so.

e) The deposit in case of equitable mortgage should be made by the depositor/s or his agent with the bank. The documents should be deposited with the intention to create mortgage of the property covered by it.

f) Where an original title deed in Equitable  Mortgage is not available, a true copy certified by the sub-registrar can be deposited where it is proved that original is either not in existence or has been lost. A public notice of creation of mortgage is also desirable in such circumstances.

PRECAUTIONS IN CREATION OF MORTGAGE:

While accepting mortgage of immovable property, the mortgagee should take following steps/precautions;-

a) Estimate the value of property realistically by personal inspection, comparison of value with recent sales of properties in the neighbourhood, inquiry from parties having a good knowledge of local land values and wherever necessary, valuation from an empanelled valuer or expert or assessor.

b) A report on the title should ordinarily be obtained from a local /empanelled lawyer of good repute and standing, based on a search of revenue records by him for last 12 years at least ( Commonly known as 12 years non –encumbrance search certificate). The opinion of the lawyer should take care that the documents produced for deposits/mortgage are complete and sufficient to convey a clear and marketable title and the owner of the property are legally capable of creating charge thereon in favour of the bank and the property are unencumbered with regard to tenancy of laws.

c) Up to date Receipt for payment of house tax for building located in Municipal limits and khajna/revenue receipts for other areas. Certified copies of revenue records in case of agricuture land should also be obtained.

PROCEDURE TO BE FOLLOWED IN EQUITABLE MORTGAGE CREATION:

a) The mortgagor (all parties) personally or through the agent, deposit the title deeds with the bank branch (in the presence of bank officials) at a notified centre, along with search certificate and report from the lawyer. Branch manager has to ensure that prima facie the title deeds are genuine and in order.

b) In case the branch of the bank is different from the one at which loan is granted, after mortgage, photocopies of the title deeds and other papers is retained at that branch as well.

c) The deposit should take place at least in the presence of two witnesses.

d) Particulars of title deeds and property named therein and also the details of the credit facility (and their major conditions) to be secured should be recorded in the relative registrar maintained for this purpose.

e) A recital should be recorded that the mortgagors called at the branch and deposit has been made with an intention to secure the credit facilities granted. Entries in the registrar must be made very carefully and in chronological order as these afford admissible evidence of the transaction.

f) In order to prove the intention with which the documents of titles are deposited, a memorandum should be taken which should bear a date later than that on which the title deeds are actually deposited and should be signed by all the owners of the property mortgaged.

g) Such memorandum being in the nature of request for acknowledgement the receipt of title deeds, should be responded by the branch by issuing a receipt and confirmation of creation of mortgage.

h) Subsequently in no case, the title deeds or any other papers be handed over to the depositors/ mortgagors by the branch unless the loan is fully paid.

i) The delivery of the title deeds should be made to the original owners or their duly constituted attorney only, who had deposited the deeds.

j) Nothing in writing is to be taken from the mortgagor at the time of deposit.

k) In case of owner of a property is being a company, necessary resolution authorizing the person to create mortgage should be obtained.

REGISTRATION:

A mortgage, other than a mortgage by deposit of title deeds, can be affected only by a registered instrument signed by the mortgagor and attested by at least two witnesses. In case the instrument is not duly attested and registered, the mortgage will be void. As per Registration act, such documents are to be presented within 4 months from date of execution, for registration to sub-registrar of Assurances.

INCOME TAX CLEARANCE:

As per Income Tax act, documents requiring registration under the Indian Registration Act relating to property valued at more than certain value (Please check the latest – its vary from state to state) cannot be registered unless Income tax officer gives a certificate that all existing liabilities of the transferor in respect of Income tax, Wealth tax etc. have been paid. In Equitable Mortgage no such clearance is needed, as no registration is required.

SECOND MORTGAGE:

A mortgagor after giving first mortgage can thereafter create 2nd and even subsequent mortgage on the same property. The mortgage will rank in priority according to dates of their creation.