Legal Status of Mortgage
Usually the term mortgage means that the borrower provides an asset he owns as security to the lender against the amount of loan provided by the lender. This is the layman’s version but legally speaking when we consider mortgage from the point of view of transfer of title to the property we find that there are two types of mortgages; namely the equitable mortgage and the legal mortgage. Legal mortgage is often referred to as the English mortgage also.
Legal or English mortgage is quite similar to sale and here the borrower transfers the title of the property in question to the lender by executing a deed of mortgage which involves the necessary legal charges in the form of stamp duty, registration fees etc as may be applicable. While under an equitable mortgage no such transfer of title takes place. The title deeds of the property are physically deposited with the lender and a simple document if executed creating an equitable interest of the mortgagee in the property. This document entitles the lender to force the borrower to execute a proper title transfer document in case the borrower fails to meet all the terms of the mortgage and defaults in repayment of the amount borrowed as per the schedule of payments agreed. In case of equitable mortgage, the expenses involved are the minimum and is usually the most preferred method of mortgage. For an equitable mortgage to become legally enforceable the lender has to prove before the court that there was a debt, the borrower had properly deposited the title deeds with the lender, and the deposit was done with the intention of providing the property as security to the finance transaction. Intention of the parties creating the equitable mortgage needs to be proved.
A mortgage can never be treated at par with an agreement for sale as an agreement for sale does not create any interest in the property but a mortgage does.