Borrowings against property - Unitedworld School of Business

2. BORROWINGS
AGAINST
PROPERTY

3. CONTENTS :
 Loan against property
 Pledge
 Hypothecation
 Lien
 Mortgages
 Types of mortgages
 Reverse mortgages
 Registration charges
 Rights and liabilities of parties

4. LOAN AGAINST PROPERTY
A loan against property (LAP) is exactly what the name implies
– a loan given or disbursed against the mortgage of property.
The loan is given as a certain percentage of the property’s
market value, usually around 40% – 60%. Loan against Property
belongs to the secured loan category where the borrower gives a
guarantee by using his property as security.
Loan against Property can be taken for following purposes:
o Expanding your business
o Getting your son/daughter married
o Sending your son/daughter for higher studies abroad
o Funding your dream vacation
o Funding medical treatments

5. Kind of properties can be mortgage for a loan:
• Normally loan is taken against self-occupied or rented
residential property.
• This could be a house or even a piece of land.
The eligibility criteria to get a loan against property:
This criteria will vary from one bank to another. However, from
all the host of factors, the common factors that all banks look at
are:
• Your income, savings, debt obligations
• Cost/value of the property mortgaged
• Your repayment track record for other loans, credit cards etc.

6. The normal interest rates and tenure for
repayment offered for a loan against property are:
Interest rates on loan against property range from 12% -15.75%
and the loan tenure can be up to 15 years.
A loan against property is one of the best ways to raise money.
The only disadvantage of such a loan is that if the borrower is not
able to pay the loan fully, the bank or the financial institution
can take possession of the mortgaged property

7. Pledge
The bailment of goods as security for payment of a debt or
performance of a promise is called ‘pledge’.
The person delivering the goods is called ‘pledger’ or
‘pawnor’ and the person to whom they are delivered is called
the ‘pledgee’ or ‘pawnee’.
•A pledge is a bailment for security.
Example- A borrows Rs.200 from B and keeps his watch as
security for payment of the debt, the bailment of
watch is a pledge.
• Any kind of movable property , i.e., goods, documents, or
valuable may be pledged.

8. Rights of pawnee
1. Right of retainer (sec. 173)
2. Right to extraordinary expenses (sec.175)
3. Right against true owner, when the pawnor’s title is defective
(sec.178)
4. Pawnee’s rights where pawnor makes default (sec.176)
Rights of pawnor
1. Right to get back goods.
2. Right to redeem debt (sec.177)
3. Preservation and maintenance of the goods.
4. Rights of an ordinary debtor.

9. Duties of pawnee
1. To take reasonable care of the goods (sec.151)
2. Not to take any unauthorised use of goods (sec.154)
3. Not to mix the goods pledged with his own goods
(sec.156 and sec.156)
4. To return the goods (sec.161)
Duties of pawnor
1. To disclose known faults (sec.150)
2. To bear extraordinary expenses (sec.158)
3. To receive back the goods.
4. To indemnify the pawnee (sec.164)

10.  Hypothecation is the practice where a borrower
pledges collateral to secure a debt or a borrower, as
a condition precedent to a loan, has a third party
(usually an affiliate) pledge collateral for the
borrower. The borrower retains ownership of the
collateral, but it is "hypothetically" controlled by
the creditor in that he has the right to seize
possession if the borrower defaults. A common
example occurs when a consumer enters into a
mortgage agreement, in which the consumer's
house becomes collateral until the mortgage loan
is paid off.

11.  The detailed practice and rules
regulating hypothecation vary depending on context
and on the jurisdiction where it takes place. In the
US, the legal right for the creditor to take ownership of
the collateral if the debtor defaults is classified as
a lien.
 Rehypothecation is a practice that occurs principally
in the financial markets, where a bank or other broker-
dealer reuses the collateral pledged by its clients as
collateral for its own borrowing.

12. A legal claim against an asset which is used to secure
a loan and which must be paid when the property is sold.
Liens can be structured in many different ways. In some
cases, the creditor will have legal claim against an asset, but
not actually hold it in possession , while in other cases the
creditor will actually hold on to the asset until the debt is
paid off. The former is a more common arrangement when
the asset is productive, since the creditor would prefer that
the asset be used to produce a stream of income to pay
off debt rather than just held in possession and not used. A
claim can hold against an asset until all the obligations to the
creditor are cleared (a general lien), or just until the
obligations against that particular assets are cleared (a
particular lien).

14. Sec. 58 of the Transfer of Property
Act, 1882 defines mortgage as -
A mortgage is the transfer of an interest in specific
immoveable property for the purpose of securing the
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.
The transferor is called a mortgagor, the transferee a
mortgagee; the principal money and interest of which
payment is secured for the time being are called the
mortgage-money, and the instrument (if any) by which
the transfer is effected is called a mortgage-deed.

15.  Simple Mortgage
 Mortgage by Conditional Sale
 Usufructuary Mortgage
 English Mortgage
 Mortgage by deposit of title of deeds
 Anomalous Mortgage

16. Simple Mortgage -
In a Simple mortgage, the possession of the mortgaged property is not
transferred from mortgagor to the mortgagee.
If the mortgagor fails to repay the loan, the mortgagee has the right to sell
the property and recover the loan from the sale amount.
Mortgage by Conditional Sale -
Under such Mortgage, the mortgagor apparently sells the property to the
mortgagee on certain conditions -
1.On failure to repay the mortgage money before a certain date the sale
shall become absolute,or
2.On condition that on such repayment of mortgage money the sale shall
become invalid,or
3.On condition that on such repayment the mortgagee shall retransfer the
property.
In such case, the mortgagee is a "mortgagee by conditional sale".

17. Usufructuary Mortgage -
In a usufructuary Mortgage, the possession of the mortgaged property is transferred
to the mortgagee. The mortgagee receives the income from the property
(rent, profit, interest, etc) until the repayment of the loan. The title deeds remain
with the owner.
English Mortgage -
In an English Mortgage -
1.The mortgagor binds himself to repay the borrowed money on a certain
date.
2.The mortgagor transfers the property absolutely to the mortgagee.
3.But such transfer is subject to the condition that the mortgagee will
retransfer the property on repayment before the agreed date.
Mortgage by deposit of title of deeds -
In such mortgage, the mortgagor delivers the title document of the property
to the mortgagee with an intention to create a security thereon. Such
mortgage is valid in towns of Kolkatta, Mumbai and any other town as the
State Government may notify by publication in Official Gazatte

18. Anomalous mortgage -
Anomalous mortgage is a combination of different types of
mortgages.
In the US, concept of Reverse Mortgage is fast catching up
-
Meaning - A reverse mortgage loan is a loan where the
lender pays the monthly installments to you instead of you
making any payments to the lender. Hence the name reverse
mortgage, as the payment stream is reversed. A Reverse
mortgage enables senior citizens to convert their home equity
into tax-free income. Reverse mortgages enable eligible
homeowners to access the money they have built up as equity in
their homes. They are primarily designed to strengthen seniors’
personal and financial independence by providing funds without
a monthly payment burden during their lifetime in their home.

20.  The fees associated with getting the legal title
registered in the name of owner. This legal process
takes place in the sub-registrar’s office
 Registration charges are paid under the section 860

21.  The register must contain short description of the
property charged
 The amount of the charge
 The name of the person entitled to the charge, etc.
 The company must keep at its registered office, a copy
of every instrument creating any charge requiring the
registration.
 The company should register the charges within 30
days of the creation of the charges.

22.  A charge for the purpose of securing any issue of any
debentures
 A floating charge
 A charge on uncalled share capital
 Charge on calls made but not paid
 A charge on any immovable property
 A charge on ship
 A charge on book debts of the company
 A charge on goodwill or on patent or on license under the
patent or on trademark or copyright or on the license under
the copyright
 A charge other than a pledge on any movable property of
the company.

23.  Once a charge is registered, it acts as a notice to the
public at large that the charge holder has an interest in
the charged property. No person can take a defence
against the charge holder that he was not aware that a
charge was created against the property. That person
will be entitled to the property subject to the interest
of the charge holder. Once certificate of charge is
issued by the Registrar, it is conclusive evidence that
the document creating the charge is properly
registered.

24.  A charge which is compulsorily registrable but which is
not registered is void.
 Omission to registrar particulars of charge is required
punishable with fine.
 It damages the interest of creditor in whose favour the
charge is created.

26. Rights and Liabilities of a Mortgagor
The rights and liabilities of a mortgagor under a
mortgage are as under:
 I. Right of mortgagor to redeem
 II. Obligation to transfer to third party instead of
re-transference to mortgagor.
 III. Rights to inspection and production of
documents

27. Rights And Liabilities Of The Mortgagee
The rights and liabilities of a mortgagee are as
under:
 Right to foreclosure for sale.
 Right to sue for mortgage money
 Right of power of sale of mortgaged property
 Right to appoint a receiver
 Right to accession to mortgaged property
 Right to the benefit of the renewed lease
 Right of mortgagee in possession

28. 907/A
Uvarshad, Gandhinag
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Highway, Ahmedabad
– 382422.
Ahmedabad Kolkata
Infinity Benchmark, 10th
Floor, Plot G1,
Block EP & GP,
Sector V, Salt-Lake,
Kolkata – 700091.
Mumbai
Goldline Business Centre
Linkway Estate,
Next to Chincholi Fire
Brigade, Malad
(West), Mumbai – 400
064.

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