WHAT IS MORTGAGE BY CONDITIONAL SALE ?

Updated: Oct 11

Definition of Mortgage by conditional sale


As per Indian Transfer of Property Act, Mortgage by Conditional Sale is defined asWhere, the mortgagor ostensibly sells the mortgaged property— on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called mortgage by conditional sale and the mortgagee a mortgagee by conditional sale: 1[Provided that no such transaction shall be deemed to be a mortgage, unless the condition is embodied in the document which effects or purports to effect the sale.]

In Simple words, it is a transaction where borrower transfers the title of property in the name of lender with conditions, which can be either or a combination of the following:


· On default of payment of the borrower, the sale will be absolute and lender continues to be the owner of the property or,

· In case the borrower is able to make the payment by certain date then the sale is considered void and borrower retains the ownership of property or,

· Once the payment is made by borrower, the lender will transfer the property back to borrower by executing title deed in favour of borrower.

· The condition pertinent to the transaction, necessarily needs to be mentioned in the sale document.


Related read: Simple Mortgage




Background of Mortgage by Conditional Sale.


This kind of transactions became popular prior to British rule in India, during Mughal Era.


Features & Characteristics of Mortgage by Conditional Sale


a) The borrower ostensibly 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 specifically mentions the guiding condition for the mortgage.

d) On default of payment of the borrower, the sale will be absolute and no further action is required or,

e) In case the borrower is able to make the payment by certain date then the sale is considered void and no further action is required or,

f) Once the payment is made by borrower, the lender will transfer the property back to borrower by executing title deed in favour of borrower.

g) While the property is transferred in the name of lender, borrower can still either occupy the property or rent it out depending upon understanding between lender and borrower.

h) No personal security and right to sale is accorded to the lender, during the tenor of mortgage.

i) Borrower has the option to foreclose the loan before the expiry of the mortgage tenor.

Also read: Reverse Mortgage



Difference between English Mortgage and Mortgage by Conditional Sale


English Mortgage


o The borrower transfers the property in favour of lender and lender transfers it back in favour of lender on payment of loan on future date.

o The sale transaction is absolute from the beginning

o Stamp duty and registration charges are applicable at the time of availing the loan and at the time of repayment


Mortgage by Conditional Sale


o The borrower sells the property to lender with a built in condition, which nullifies sale in case of repayment by borrower on a future date.

o The sale transaction is not absolute from beginning and is dependent on a future event.

o Stamp duty and registration charges may or may not applicable.


Just like English Mortgage, Mortgage by Conditional Sale is also not popular in India.


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