Loans may be secured or unsecured. Where money is given simply on the basis of debtor’s promise to pay that is on promissory note, the creditor (who gives the money) can file suit for recovery of his money. But, if such debtor has no money to repay the loan or becomes insolvent, the creditor’s money is lost because he cannot recover it from debtor’s property. Such loans are, therefore, called unsecured loans. But what is the meaning of mortgage ?
Meaning of Mortgage
On the other hand, before giving the loan, the creditor may take security from the debtor for the repayment of his money. Where the loan is secured against any movable property, it is called a pledge and where the loan is secured against some immovable property of the debtor, it is called Mortgage.
In both the cases, whether the property is movable or immovable, the loan is secured because in default of repayment, the creditor can recover his money from the property which has been specified as security.
Where a person takes loan and specifies certain immovable property as security, it is said that he has taken loan by mortgaging his property. The transaction of mortgage has been a very common method of taking loan and was known to the oldest systems of law.
In Roman Law, meaning of mortgage was known as fiducia under which the property secured used to belong to creditor in case of non payment of loan. Similar provisions were available in ancient Hindu law and Muslim law.
At common law, in England the mortgage created a legal estate in favour of the creditor. If the money was not repaid within the stipulated period, the land belonged absolutely to the creditor and debtor lost his rights in the property for ever. Such situation was regarded as unjust by equity. Some modifications were, therefore, made by equity.
It was provided by the courts of equity that where a person takes loan only in great need of money and for which he has to put his land in security, his intention is not to transfer the land in consideration of the money taken on loan. It is a borrowing transaction rather than transaction of sale. So, his interest must be protected in case of non-payment on due date.
Once A Mortgage, Always A Mortgage
Equity thus provided that, once a mortgage, always a mortgage; it should not become sale on non-payment of loan on the due date. In other words, the strict common law rule of transfer of legal estate in favour of creditor in default of repayment of loan was modified by equity to do justice with the debtor. Accordingly, mortgage was regarded as essentially a transaction for taking a loan not a transaction for the transfer of title of property. Further, any condition which used to take away the mortgagor’s (debtor’s) right in his property was void as being penalty for him. Law of mortgages has developed in India on similar lines.
Definition of Mortgage
To understand the meaning of mortgage, Section 58 (a) of Transfer of Property Act 1882, defines Mortgage in the following words : “Mortgage is the transfer of an interest in specific immovable property for the purpose of securing 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”.