Equitable Mortgage vs Registered Mortgage – Key Differences : When you apply for home loan to purchase a home, the bank or financial institution always ask for the original documents (title deeds) of the property as security/guarantee with an intent to create charge on the property for which the amount borrowed.
According to section 58 of transfer of property act, 1882, mortgage is the transfer of an interest in specific movable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may rise to a pecuniary liability.
Borrower avail loan from the bank or financial institution and make repayment in equated monthly installments (EMI). Lender keeps all the documents related to property until the loan is repaid. This type of transaction is known as Simple Mortgage. In case, borrower fails to repay the loan, bank or financial institution can exercise legal right on the property in order to recover outstanding debt along with interest.
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Equitable Mortgage vs Registered Mortgage
Here we will discuss what is the difference between Equitable Mortgage and Registered Mortgage.
There are two types of mortgage in practice –
- Equitable Mortgage or Mortgage by Deposit of Title Deeds
- Registered Mortgage or Registration of memorandum of deposit of title deeds
What is Equitable Mortgage?
Equitable mortgage is most common type of mortgage. It is also known as mortgage by deposit of title deed. In this type of mortgage, you avail loan from the lender by transferring title deed to the lender, thereby creating a charge on the property. You also confirm with the lender bank or financial institution the intent of creating a charge on the property. An equitable mortgage is also known as implied or constructive mortgage.
A memorandum of deposit of title deeds (MODT) need to be registered at borrower’s end with sub-registrar office. MODT is the record of all property documents or title submitted to the bank for loan and a stamp duty is also paid. If MODT is not registered, then borrower may simply apply for the property documents, indicating that he has lost it, and using these certified copies of property document, he can sell the property to third party.
In process of MODT, the encumbrance is endorsed and recorded in sub-registrar office against the property. Encumbrance means that the property has been pledged to avail the loan. So, bank asks for encumbrance certificate (EC), just to ensure that the property has not been pledged earlier.
MOD (memorandum of deposit) is also registered by lender with an organization called CERSAI (Central Registry of Securitization Asset Reconstruction and Security Asset). CERSAI is a central online security interest registry of India which is primarily used to check frauds in lending against equitable mortgage. People usually would take multiple loans on the same property from different bank. We will discuss in detail about CERSAI in our next articles.
What is Registered mortgage?
In case of registered mortgage, borrower has to create a charge on the property with sub-registrar office through a formal, written process as a proof of transfer of interest to the lender as security for the loan. Borrower transfers the title of the property to lender by registry. A registered mortgage meets all necessary legal requirements to create a mortgage or a charge. If borrower fails to make the repayment of loan, lender bank or financial institution will have full right to take possession of the property and recover the loan.
If borrower makes the repayment of loan, the title of the property and original title deed is given back to borrower by lender.
Key Differences between Equitable mortgage and Registered Mortgage
Before mortgaging your property to avail loan, it is important that you must understand the difference between Equitable Mortgage and Registered Mortgage.
|Feature||Equitable Mortgage||Registered Mortgage|
|Registration||In Equitable mortgage, there is no registration of transfer of the title deed by borrower to lender.||In case of Registered mortgage, transfer of title deed is registered.|
|Process||A memorandum of deposit of title deed (MODT) is created at borrower’s end and you need to buy stamp paper||In registered mortgage, borrower need to approach sub-registrar’s office to register the transfer of title deed in the name of lender.|
|Cost||Equitable mortgage is less costlier than registered mortgage.||Registered mortgage is more costlier over equitable mortgage.|
|Right of lender||If you fail to repay the debt, lender bank or financial institution have right over the property and recover the debt by selling the property.||If you fail to repay the debt, lender bank or financial institution can take over the possession of the property and recover the debt.|
|Risk factor||Equitable mortgage is more risky as there is no registration. But nowadays registration of transfer of interest with CERSAI and MODT with sub registrar office reduces the risk.||Registered mortgage is without risk because of creation of charge through a registration process.|