Right to Foreclosure under Transfer of Property Act

Introduction:

This Act is usually known as the Transfer of Property Act, 1882. It commenced on 1^st July 1882. Mortgage is considered as transfer of Interest of an immovable property, advancement to a loan. Mortgagee carries the right to claim the property that is kept as security by the borrower or the mortgager. This article talks about the Right of Foreclosure in detail and Partial foreclosure, how it is claimed also it discusses the Conditions on which it can be claimed by the mortgagee, it also talks about the interesting topic that is subrogation and finally we will discuss, can foreclosure be avoided.

Meaning of Foreclosure

Foreclosure can be considered as a process in which the party who lends money has the right to recover their owed money from the other party in the contract. The foreclosure process obtains its legality through a mortgage deed or can also be called a trust contract^[1]. The mortgage deed provides the lender with the right to use the property as collateral if in any case other party fails to uphold the terms and conditions of the Mortgage deed.

Although the method varies by state, the foreclosure process generally begins when a borrower defaults or misses a minimum of one mortgage payment. The lender then sends a missed payment notice that indicates they have not received that month’s payment.

If the borrower misses two payments, the lender sends a requirement letter. While this is more serious than missed payment notice, the lender may still be willing to decide for the borrower to catch up on the missed payments.

The lender sends a notice of default after 90 days (about 3 months) of missed payments. The loan is handed over to the lender’s foreclosure department, and therefore the borrower typically has another 90 days (about 3 months) to settle the payments and reinstate the loan (this is named the reinstatement period).

At the top of the reinstatement period, the lender will begin to foreclose if the homeowner has not made up the missed payments.

Partial Foreclosure

Partial foreclosure cannot be considered as an exception to Section 67 of the Transfer of Property Act,1882. The rule is that few of these mortgages cannot be foreclosed or sell in respect of his share unless have, consent of mortgager is required to serve their interests under the mortgage. The basic need for this rule is to protect the mortgager from unnecessary harassment by a multiplicity where the severance of interest of the mortgagees has taken place without the consent of the mortgagor.

Accordingly, all the co-mortgagees must join and file one suit in respect of the whole mortgage money.

Essentials of Mortgage

1. Transfer of Interest

To make a mortgage effective there should be a transfer of immovable property to mortgage until all the dues the returned by the mortgager.

2. Specific Immovable Property

The property which is to be transferred is to be mentioned in the mortgage deed. for example, if the mortgager mentions ‘All the property’ that does not include in the mortgage as the property is not mentioned clearly.

3. Securing the Payment of Loan

The most important essential of a mortgage is that transfer of property must secure repayment of loan amount so, mortgager and mortgagee share a relation of debtor and creditor

Rights of Foreclosure

Right to foreclosure is available to mortgagee recover the moneylender. The mortgage is the transfer of an interest in a property to secure payment of money advanced. A mortgagee is the one who lends the money and a mortgager is the one who borrows the money. In return for that mortgager keeps property as a security to the mortgagee.

To make this transaction effective Mortgage deed is required, also known as the legal document for mortgage. All the basic and relevant conditions for mortgage are mentioned under Section 67 of the Transfer of Property Act, 1882. Right ^[2]to foreclosure can be enforced when the borrower/mortgagor fails to repay the due amount to the mortgagee.

The mortgagee gains a right to obtain from a court a decree that the mortgager should be debarred of his right to redeem the property or a decree that the property be sold.

Claiming the Right to Foreclosure

It can be claimed by the mortgagee only if these conditions are met:

1. Due amount is not paid by the mortgagor
2. Contrary conditions are not there in a mortgage deed
3. Mortgage money has become yet to be paid but the mortgagor has not deposited the amount. After the mortgage money has become due, the mortgagor can pay off his debt in three ways:
   • By tendering of the borrowed money directly to the mortgagee.
   • Can file a suit of redemption.
   • Deposition of amount in the court.

Subrogation

It is redemption of mortgaged property id done by any other person in the interest of the mortgaged property other than the mortgagee. It can be done by co- mortgagors, buyer of mortgaged property and surety of mortgaged debt can also be called as creditor of the mortgagor, such person takes place of the mortgagee. This person gains all rights that a mortgagee or creditor carries towards mortgagor or principal debtor which also includes the Right to foreclosure, sale, and redemption. This concept is known as subrogation. The whole mortgage is to be paid by the person.

However, the person can impose security on the principal debtor for repayment. A Person pays the debt because of his/her interest or is secondarily liable for payment of debt However, if the mortgagor used the proceeds of the loan to discharge a prior interest, it is not a sufficient reason to entitle the lender to subrogation. There should be enough proof that the loan was made for that purpose.

A co-mortgagor in possession, of excess share claimed by him, can enforce his claim against non-redeeming mortgagor by applying rights if foreclosure or sale as exercised by mortgagee under Section 67 of the Transfer of Property Act but that does not make him a mortgagee.

Can Foreclosure be neglected?

Even if the mortgager has missed 2-3 payments there can be other alternatives to avoid the foreclosure, they are listed below:

1. Reinstatement: During this period, the mortgager can pay the mortgagee with the amount he/she owes including the amount he/she missed at a specific time provided, and can get back on track with the mortgage.
2. Short Refinance: It is like providing the mortgagor with a new loan amount that is lesser than the outstanding balance. And then a lender can forgive the balance mortgage can be back on track.
3. Special Forbearance: This can be considered as the emergency conditions for mortgagor in which he/she has financial hardship because of medical bills or decrease in income- mortgagee can agree and reduce the amount for a specific span of time.

Consequences of Foreclosure

If in any case mortgage property fails to sell in auction or never goes through one, Lender usually banks take the ownership of the mortgaged property and it to a section of Foreclosed Properties, also known as real estate, owned (REO).

Foreclosed are usually advertised on bank websites which are visible the Real estate investors and bank sell these properties at a discounted price or can be said in a market value so indirectly it is a loss for the lender

If we talk about the mortgagor, foreclosure appears in his/her credit report for seven years, from the date of dues to the next seven-year after that it is removed.

Smt. Savitri Devi vs Smt. Beni Devi And Ors. on 24 August, 1967

It is Section 67 of the Transfer of Property Act which, in general, confers a right on the mortgagees to obtain from the court a decree that the mortgaged property be sold. It was contended by Mr. Kanhaiyaji that as there is no express covenant in the mortgage deed that the mortgagee shall have a right to realize his amount by the sale of the property mortgaged, in case it had been held to be a transaction of anomalous mortgage, the mortgagee couldn’t call to his aid the overall provisions of Section 67. Before discussing this argument further, it’s going to be stated that there are four clauses in Section 67 of the Transfer of Property Act handling what this section shall not be deemed to possess authorized any mortgagee, a mortgagor who holds the mortgagee’s right as a trustee or personal representative and an individual curious about part only of the mortgage money.

Conclusion

As we discussed about the Right to foreclosure under the Transfer of Property Act,1882 this article says about Section 67 here in this article we can see that laws made for Foreclosure provide rights to the mortgagee as per the requirement which makes it more transparent for the mortgagee to recover debts from the principal debtor or Mortgagor.

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References:

[1] Section 58 (a), Transfer of Property Act, 1882.

[2] Section 67, Transfer of Property Act, 1882.