Updated: Oct 22, 2020
Definition of English Mortgage
The Indian Transfer of Property Act defines, ENGLISH MORTGAGE as a mortgage— “Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.”
Simply put, English mortgage is a mortgage where the mortgagor transfers the title of property in the name of mortgagee with a condition that the title of the property will be transferred back in the name of mortgagor subject to payment of the loan/money by the borrower to lender by pre-fixed date.
Background of English Mortgage
The English mortgage has its origin to the transactions which were commonplace in England in the middle ages, whereby the borrower used to convey the ownership of land to the lender subject to condition of reconveyance of the title in favour of borrower, once payment was done within certain timeline. This form of transaction was known under different names throughout medieval Europe. The transaction allowed borrower to remain in possession of the land despite transferring the title in favour of lender.
Features & Characteristics of English Mortgage
a) The borrower transfers the property in favour of lender by executing title deed in his/her favour.
b) Applicable stamp duty and registration charges needs to be paid as per the market valuation of the property at the time of execution of title deed, just like a normal sale transaction
c) The sale deed mentions the condition mentioning the date by which borrower is required to payback the loan to lender
d) For English mortgage, loan agreement is executed between both the parties along with the sale deed.
e) The sale deed also specifies commitment on part of the lender to re-transfer the property to the borrower, on receipt of payment and interest (as per the agreed terms) by specified date
f) In case the borrower is unable to make the payment within specified timeline/date, the lender continues to be the absolute owner of the property and re-transfer of the property in the name of borrower is no longer required.
g) Once the repayment is done by borrower to lender, property is transferred back in the name of borrower with execution of title deed in his/her name and payment of applicable stamp duty & registration charges.
h) While the property is transferred in the name of lender, borrower can still either occupy the property or rent it out
Advantages of English Mortgage
The English Mortgage allows for enforcement without intervention from the court in case of default by borrower. This means that lender acquires right to possess the property basis the conditions specified in the transfer deed executed at the time of mortgage, eliminating the requirement of court order for taking possession of property in case of default by borrower
Mortgage of the property allows lender, right to acquire and sell the property.
Some of the states have allowed the exemption on payment of stamp duty on re-transfer/re-execution of deed in favour of borrower, once the repayment is done.
Disadvantages of English Mortgage
Cost involved in the process is high, since it involves the payment of stamp duty and registration charges twice-once when the property is transferred in the name of lender and again in the name of borrower, once the money is paid back by borrower to lender.
The lender needs to fulfil certain mandatory conditions in order to exercise the option of selling the property without permission from court.
It is applicable and confined to a select set of mortgagors and mortgagees in India.
Owing to high cost involved and the tedious process, English Mortgage is not popular in India.
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