While there are several ways to secure a loan one must be really careful before taking a loan. There are well established legal principles for advancing and taking loan. In this article, we will be discussing about foreclosure which is one of the rights available to the mortgagee for recovering the outstanding money under section 67 of the Transfer of the Property Act. A mortgage simply means the transfer of any interest in an immovable property to secure the payment of money advanced or to be advanced in future by way of loan. Section 58-104 of the Act deals with mortgage. In simple words, if one wants some money, he can get by giving a security. This security acts as an assurance which can be used in case of default of payment. The person who lends his property as security is called the ‘mortgagor’ and the person to whom the property is mortgaged is called as ‘mortgagee’ and the deed in which the terms and conditions are specified is called as ‘mortgage deed’. The registration of a mortgage deed is necessary to give a legal validity to such transfer.
The right to foreclosure as above stated is a right that is available to the mortgagee in case of default in payment of money advanced. Here, the mortgagee has to file a suit to obtain a decree barring the mortgager from redeeming his mortgaged property. This is a tool by which the mortgagee can deprive the rights of the mortgager in the property. However, this type of right is not available in all cases of mortgage. For example, in simple mortgage, usufructuary mortgage, English mortgage and in equitable mortgage, the right to foreclosure does not exist.1 Another essential element to claim the right to foreclosure is that, this right occurs only when the dept becomes due. When the mortgagor deposits the money, the mortgagee is not entitled to this right. In cases of conditional mortgage and certain other anomalous mortgage only this right is available.
The following conditions must be fulfilled in order to avail this right by the mortgagee-
The dept amount must become due.
There are no other conditions as to the date of payment of money etc.
When the amount has become due, the mortgagor has not filed any suit for redemption of the mortgaged property.
Mortgage money must not be paid- the repayment can be done by filing a suit for redemption and by depositing the money to court.
The mortgagee must not be a mortgagee of public works like canals, railways etc.
A trustee or a legal representative cannot file a suit for foreclosure, but can do so for sale.
In the case of Mhadagonda Ramgonda Patil v. Shripal Balwant Rainade2, it was held that just as when the mortgagor fails to repay the amount, the mortgagee does not become the owner of the property immediately. The mortgagee has to file a suit for recovery of money within 12 years. The court has to declare after the suit of foreclosure absolutely barring the right of mortgagor the right to redemption. Also, it may happen that there are more than one mortgaged property, then in such cases the mortgagee will have to file a suit for foreclosure for each of them. The mortgagee when files for one of the mortgagees, he is thereby bound to sue on all mortgages where the sum of amount has become due.3
As per section 67 of the Act, if there are several mortgagees, they cannot foreclose or sell in respect of his shares unless all of them with the consent of mortgagor severed their interests. This is to avoid the unnecessary harassment of the mortgagor by filing multiple suits against him. Thereby, all the mortgagees’ must join together and file a single suit for foreclosure.
In K. Vilasini v. Edwin Periera4, it was held that, when the mortgagor pays the redemption amount and the mortgagee accepts it and the right to redeem has been enforced, it cannot be interfered with. The right to foreclosure is lost when the mortgagee did not approbate, reprobate as he did not challenge the execution proceeding in the Supreme Court during pendency of appeals.
The mortgagor- mortgagee relationship is essentially that of a debtor and a creditor. The foreclosure right enables the mortgagee to recover his outstanding dept by keeping the mortgaged property and also as above stated, this right is not available in every kind of mortgage. In those cases, the mortgagee has different remedies. Such as in case of English mortgage, the mortgagee has the right to sale of property. Thereby, one needs to be especially careful while taking a loan. They might end up losing their property I defaulted.