Difference Between Registered Mortgage Equitable Mortgage - Meaning, Differences, Process & Characteristics
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The mortgagor pledges their property's title deeds or ownership documents as collateral security for the equitable mortgage and registered mortgage to the mortgagee or their agents while availing a loan. While equitable mortgage stamp duty may not always be required, increasing instances of housing loan fraud have led several states to make registration mandatory to ensure excellent protection for both parties involved.
What is the meaning of equitable mortgage? Also known as Mortgage by deposit of title deeds, it is a process where a borrower deposits their property's title deed with the lender as security for a loan until it is repaid. Equitable mortgage charges create a charge on the property without the need for legal procedures. Although no written documentation is required, an agreement signed by both parties and notarized is necessary.
The Limitation Act sets the time frame for an equitable mortgage at 12 years under Article 62. This means the lender has up to 12 years to take legal action against the borrower in case of default.
To create a home loan mortgage registration, the borrower provides the lender with the title deed of immovable property as security until the loan is fully repaid. This does not involve any legal process, but a memorandum of deposit of title deeds is usually executed between both parties to formalise the arrangement.
Although an equitable mortgage registration lacks a statutory power of sale, you may have a contractual right or ability to seek court permission to sell the land in case of default by the mortgagor. Courts have an inherent power to order the sale and disposal of proceeds, also known as the "judicial sale" of a property, after determining the existence of a charge over the land.
Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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30 NOVEMBER, 2021
When you pledge your property to avail a loan against it, it is called a mortgage. In a mortgage, the lenders lend you money and retain the original documents of the property until you repay the entire loan amount. If you default on the loan repayment, the lender has the right to auction off your property and recover the loan amount. Therefore, typically, secured loans or mortgages have long repayment tenure and low-interest rates. Also, called a loan against property, not many know the various types of mortgages.
What Is an Equitable Mortgage?
‘Equitable’ is derived from the word equity, which means the interest of justice. This mortgage is a simple contract between a mortgagor and mortgagee (here, lender and borrower). In this mortgage type, you borrow money from the lender and furnish the documents of the property to them. The ownership documents remain with the lender until you repay the loan. These mortgages are usually for a time frame of 15-20, and during this tenure, your property documents remain with the lender.
Importance Of Understanding Equitable Mortgages In Real Estate Transactions
What Is a Registered Mortgage?
In registered mortgage a third party is involved apart from you and the lender. In this mortgage type, you are required to voluntarily give the full right of the property to the lender. The lender has the ownership of your property, and they can use or dispose of the property in case of default. In this mortgage, you need to record the property mortgage at the sub-registrar office. When you repay the loan in full, the ownership of the property is transferred back to you.
Difference Between Equitable Mortgage vs Registered Mortgage
Registration
Equitable mortgages are not registered, and the two party is bound only by the agreement
A registered mortgage is registered with the sub-registrar and has legal provisions
Process Requirement
You need to pay stamp duty
You need to approach the sub-registrar for the mortgage
Cost
It is less time-consuming and cheaper
It is expensive and more time consuming.
Risk
It is a riskier form of mortgage as it is bound only by the agreement. The borrower can sell the property to a third party without the knowledge of the lender.
It is no risk-free mortgage. It provides security to both parties. The property mortgaged is registered and so the borrower cannot dispose of the property without repaying the loan amount.
Stamp duty
Understanding the difference between the two would help you opt for the suitable mortgage type as per your requirement. Usually, banks prefer a registered mortgage as it is safe and risk-free. However, if you are an old customer, and have a good relationship with the lender, you can also opt for an equitable mortgage. Keep these details in mind while applying for a loan against property for a hassle-free loan availing process.
Conclusion
While equitable mortgage vs registered mortgage involves pledging a property to avail of a loan, they differ in registration, legal provisions, process requirements, cost, and risk. It is essential to understand the difference between simple mortgage and equitable mortgage and opt for the suitable mortgage type as per your requirements. For a hassle-free loan availing process, we recommend keeping these details in mind while applying for a loan against property. We hope you fully understand the simple and registered mortgage meaning to make a wise decision.
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