Rights and Liabilities of Mortgagee

Introduction

The mortgagee (lender) has certain rights to recover the loan and protect his interest in the mortgaged property. At the same time, the law imposes duties on him, especially when he is in possession of the property.

Meaning / Definition

A mortgagee is the person who lends money and receives an interest (limited right) in immovable property as security.

Under Section 67 of the Transfer of Property Act, the mortgagee has the right to foreclosure (ending the mortgagor’s right to redeem) or sale of the property, in case the mortgagor fails to repay.

Modes or Types

Right of Foreclosure or Sale

• The mortgagee can approach the court if the mortgagor fails to repay
• Depending on the type of mortgage:
  • Simple mortgage and usufructuary mortgage: no foreclosure allowed
  • English mortgage and mortgage by deposit of title deeds: sale allowed

This right may be modified by agreement between the parties.

Rights of Mortgagee in Possession

When the mortgagee has possession of the property, he has the following rights:

• To spend money for preservation (protection) of the property
• To protect the mortgagor’s title (ownership rights)
• To defend legal cases related to the property
• To claim money from surplus if the property is acquired or sold by the government
• To add insurance premium paid to the mortgage debt

Liabilities of Mortgagee

When the mortgagee is in possession, he must follow these duties under Section 76:

• Manage the property carefully and reasonably
• Try to collect rents and profits from the property
• Pay government taxes and public charges (unless agreed otherwise)
• Carry out necessary repairs using income from the property
• Not damage or misuse the property
• Maintain clear and proper accounts
• Account for any money received from the mortgagor

If the mortgagee fails in these duties, he is responsible for the loss caused to the mortgagor.

Practical Example

A mortgages his house to B. B takes possession of the house.

• B must maintain the property and collect rent properly
• B must pay property tax from the rent collected
• If B damages the house or fails to maintain accounts, he becomes liable to A

Summary

• Mortgagee has right to foreclosure or sale under Section 67
• Rights depend on the type of mortgage
• Mortgagee in possession can protect and manage property
• He can spend money for preservation and add it to debt
• He must act carefully and maintain accounts
• He is liable for any loss caused by negligence