Rights and liabilities of a Mortgagee
A mortgage involves the transfer of an interest in land as security for a loan or other
obligation. It is the most common method of financing real estate transactions.2 The
mortgagor is the party transferring the interest in land.3 The mortgagee, usually a financial
institution, is the provider of the loan or other interest given in exchange for the security
interest.
RIGHTS OF A MORTGAGEE
Sections 67 to 77 deal with the rights and liabilities of the mortgagee, just as Sections 60 to
66 have dealt with the rights and liabilities of the mortgagor. Sections 67, and 68 to 73 refer
to the mortgagee’s rights and ss 67A, 76 and 77 refer to the mortgagee’s liabilities.
1. Section 67. Right to foreclosure or sale.
Section 67 is the counterpart of s. 60, and essentially gives the mortgagee a right to
foreclosure or sale in default of redemption by the mortgagor.38 If the mortgagor has
paid or deposited the mortgage-money, there is no occasion for the exercise of the
right of foreclosure or sale.
Section 68. Right to sue for mortgage money.
This section refers to the personal remedy of the mortgagee, while s. 67 refers to the
remedy against the property mortgaged.
Section 69. Power of sale when valid.
The power of sale in clauses (b) and (c) must be expressed. A provision in mortgage
deed that the mortgagee should ‘have all the rights, powers, remedies and privileges
conferred upon a mortgagee by Act 4 of 1882’ does not confer an express power of
sale under this section.
Section 70. Accession to mortgaged property.
Section 70 refers to the mortgagee’s right to accessions to the mortgaged property and
is, therefore, the converse of s 63 which deals with the mortgagor’s rights to
accessions. As regards natural accessions, it is a corollary to s 63, for such accession
is incorporated in the mortgaged property, from part of the mortgagee’s security, and
reverts to the mortgagor upon redemption
Section 71. Renewal of mortgaged lease.
is based on the principle that the new lease is treated as engrafted on the stock of the
old lease, and forming part of the mortgage security.
Section 72. Rights of mortgagee in possession.
This section represents to a large extent the English rule that the mortgagee is entitled
to be indemnified against all expenses, so long as he acts reasonably as a mortgagee,
and is allowed all proper ‘costs, charges and expenses’ incurred by him in relation to
the mortgage security.65 The costs must be costs which the mortgagee has incurred as
mortgagee. Such costs form the entire decretal amount,66 and are the costs, charges
and expenses referred to in o 34, r 2(1)(a)(iii) of the Code of Civil Procedure.67 Costs
incurred by a mortgagee after a proper tender of the mortgage money have been
disallowed.
Section 73. Right to proceeds of revenue sale or compensation on
acquisition.
This section is an instance of the application of the doctrine of substituted security,
viz that the mortgagee is, for the purpose of his security, entitled not only to the
mortgaged property, but also to anything that is substituted for it.
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Liability
Section 67A. Mortgagee when bound to bring one suit on several
mortgages.
This section of the Transfer of Property Act, 1882 was inserted by the amending act
20 of 1929. This section is essentially the counterpart of s. 61, which deals with the
mortgagor’s right of redemption. The principle of consolidation is abolished by
section 61 as regards mortgagors, and a mortgagor who has given different mortgages
on different properties or successive mortgages of the same property is entitled to
redeem each mortgage separately.74 However, the principle of consolidation which is
abolished as regards the mortgagor is applied by this section to the mortgagee.75 If the
mortgagee holds different mortgages of different properties or successive mortgages
of the same property from the same mortgagor, he must enforce all or none, unless
there is a contract to the contrary.
Section 76. Liabilities of mortgagee in possession.
This section enacts the statutory duties of a usufructuary mortgagee, or of a mortgagee
in possession.82 Section 76 is not applicable unless the mortgagee is in possession qua
mortgagee. Even if a mortgage deed entitles a mortgagee to take possession, collect
rents and profits, his liability to account for such rents and profits will not arise,
unless and until he has taken such possession.83 A mortgagee is not in possession qua
mortgagee if he enters the property as lessee.84 In some cases, the mortgagee is both a
lessee and a mortgagee, and then it is a matter of construction whether the
transactions of mortgage and lease are separable. If they are separable, the mortgagee
is possession as lessee and is not liable to account under this section.
Section 77. Receipts in lieu of interest.
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Section 77 essentially enacts an exception to s 76. It omits reference to clause (c) of s
76, which makes it obligatory on the mortgagee to pay government revenue.90 There
is no account to be taken between the mortgagor and mortgagee when the rents and
profits are taken in lieu of interest, or in lieu of interest and defined portions of the
principal.91 In such cases, if the mortgagee does not realise the full value of the
ususfruct, it is the mortgagee and not the mortgagor who suffers
conclusion-
A mortgage is as valuable to a mortgagee as it is to a mortgagor. Obviously, the main benefit
is that a rate of interest can be charged for the money lent, and an income is generated for the
mortgagee on the security of what is, in all but the most severe economic conditions, an asset
that is going to appreciate in value. However, just as the property owner uses the mortgage to
liquidate his assets, the mortgagee uses the mortgage to capitalise his income. The inherent
characteristic of a mortgage is that it is security for money lent, and the ultimate goal of any
mortgagee will be to recover payment of the principal debt, plus interest and related costs.
This is why and where the rights and the liabilities of a mortgagee come into play, for the
benefit of all the parties in the long run
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