Here is how this form of mortgage works for lenders and borrowers.
In case of a simple mortgage,without delivering possession of the mortgaged property,a mortgagor binds himself personally to pay the mortgage money.He agrees,expressly or impliedly,that in the event of his failing to pay according to his contract,the mortgagee will have a right to sell the mortgaged property and the proceeds of sale go towards the mortgage money.This transaction is called a simple mortgage.
A mortgage by conditional sale is different.In case of a mortgage by conditional sale,a mortgagor ostensibly sells the mortgaged property on the condition that on default of repayment of the mortgage money by a certain date the sale will become absolute.On the payment being made,the sale will become void.And on the payment being made the buyer will have to transfer the property back to the seller.
Section 58(C) of the Transfer of the Property Act defines a mortgage by conditional sale.It is defined as an ostensible sale on the condition that on repayment,the buyer will transfer the property back to the seller.The mortgagor states in the deed that he sells the property for the mortgage money as a consideration subject to conditions.
So,a mortgage by conditional sale is where the mortgagor sells the property to the mortgagee on the condition that in case of default of repayment of the mortgage money,the sale will become absolute,and on repayment of the money the sale will become void and the mortgagee will transfer the property back to the mortgagor.
Essential features of a mortgage by conditional sale:
If the mortgagor fails to repay the mortgage money by a certain date,the sale becomes absolute
If the mortgagor repays the mortgage money by a certain date,the sale becomes void and the mortgagor becomes the owner of the property
The transaction resembles that of sale,though it is only a mortgage
The ostensible sale becomes an absolute sale if the mortgagor fails to repay the debt by the specified date.This can be enforced through proceedings for foreclose of the mortgage.The order of foreclosure by a court converts the mortgage by conditional sale into an absolute sale.
Advantages of this mortgage:
There are many advantages with this type of mortgage.In a simple mortgage,if there is a default in the repayment of the money,the property has to be brought to sale for recovery of the debt and there is no question of the mortgagee becoming the absolute owner of the property.The mortgagee has to resort to lengthy legal steps.However,in the case of mortgage by conditional sale,the mortgagor becomes a legal owner absolutely when a default in payment occurs on the specified due date.
Ostensible sale in case of mortgage by conditional sale is in reality a mortgage,subject to the conditions set out in the document.A mortgagee cannot claim a right of ownership on the date of execution of the mortgage by conditional sale.It is only if and when the conditions embodied in the document are not complied with by the mortgagor that the mortgagee can lay claim to the ownership of the property ostensibly sold under that document.Till then,the property continues to remain the property of the mortgagor.The right of redemption of the mortgage vests with the mortgagor and the mortgagee remains under an obligation to discharge the mortgage on the conditions embodied in the document regarding repayment within the stipulated time being fulfilled.
Mortgage by conditional sale is a mortgage and not a sale.It is liable to be cancelled at the option of the mortgagor at a subsequent date.A mortgage once created remains a mortgage unless it is foreclosed or redeemed.
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