Rights and Liabilities of Mortgagee
Rights and Liabilities of Mortgagee
What is a Mortgagee?
A Mortgagee is the lender or creditor who advances money or value on the security of immovable property.
The mortgagee holds the property or interest in it as security for the repayment of a debt or loan.
Legal Framework
The Transfer of Property Act, 1882, particularly Sections 58 to 104, governs mortgages and the rights and liabilities of mortgagees in India.
Rights of Mortgagee
The mortgagee’s rights depend on the type of mortgage (simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, or equitable mortgage), but generally include:
1. Right to Recover Debt
The fundamental right of the mortgagee is to recover the loan amount secured by the mortgage.
The mortgagee can sue the mortgagor personally for repayment of the debt if the mortgagor fails to repay (Section 60).
2. Right to Possession
Depending on the type of mortgage, the mortgagee may be entitled to possession of the mortgaged property:
In a usufructuary mortgage (Section 58), the mortgagee is entitled to retain possession and receive profits from the property until the debt is repaid.
In an English mortgage (Section 62), possession is generally with the mortgagor until the mortgagee exercises the right of sale.
3. Right to Sale of the Property
Under an English mortgage or mortgage by conditional sale, if the mortgagor defaults, the mortgagee has the right to sell the property after due notice to recover the debt (Section 67).
The sale proceeds are applied first to pay off the mortgage debt and related costs.
4. Right to Foreclosure
Under certain mortgages (especially simple mortgages), the mortgagee can file a suit for foreclosure, which extinguishes the mortgagor’s right to redeem the property, transferring absolute ownership to the mortgagee (Section 69).
5. Right to Possession and Management
The mortgagee can enter the property to protect the interest and manage the property to preserve its value.
6. Right to Receive Rents and Profits
If the mortgagee is in possession, they may be entitled to collect rents and profits from the property as part of the security until repayment.
Liabilities of Mortgagee
While mortgagees have rights, they also have duties and liabilities to protect the interests of the mortgagor and third parties:
1. Duty to Account for Profits
If the mortgagee is in possession, they must account for the rents and profits received and apply them to the mortgage debt.
Any surplus must be returned to the mortgagor.
2. Liability to Exercise Reasonable Care
The mortgagee is liable to take reasonable care of the property.
Failure to preserve the property or negligent management can lead to liability for losses.
3. Liability for Wrongful Sale
A mortgagee must follow the correct procedure and give proper notice before selling the property.
A wrongful sale or sale without authority can render the mortgagee liable for damages.
4. Liability to Refund Surplus
After sale and repayment of debt and costs, the mortgagee must refund any surplus amount to the mortgagor.
5. Cannot Unlawfully Evict Mortgagor
The mortgagee cannot forcibly evict the mortgagor without due process of law.
Relevant Case Law
1. K.K Verma v. Punjab National Bank, AIR 1969 SC 388
The Supreme Court held that the mortgagee must exercise his power of sale in a fair and reasonable manner and not arbitrarily.
2. Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
Highlighted the nature of mortgage as a charge on property with personal liability of mortgagor.
3. United India Insurance Co. Ltd. v. Union of India, AIR 2005 SC 1118
Emphasized mortgagee’s duty to preserve the property and exercise care.
4. Radha Bai v. Ram Kumar, AIR 1967 SC 276
The court reiterated that the mortgagee cannot sell the property without giving due notice and opportunity to the mortgagor.
5. Sham Sunder v. Union of India, AIR 1961 SC 231
Sale without due process or wrongful sale is liable to be set aside.
Summary
| Rights of Mortgagee | Liabilities of Mortgagee |
|---|---|
| Right to recover the debt | Duty to account for rents and profits |
| Right to take possession (depending on type) | Duty to take reasonable care of the property |
| Right to sell the mortgaged property | Liability for wrongful sale without due process |
| Right to foreclosure (in some mortgages) | Must refund surplus amount after sale |
| Right to receive rents and profits (if in possession) | Cannot unlawfully evict mortgagor without legal process |
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