Know about Usufructuary Mortgage
Dec 17, 2018 Home Loan
While many of us would not know, usufructuary mortgages are quite well known in India in the rural parts mostly right from the mid-19th century. It’s all about pledging land for cash at the time of needs. It is being practised as per the law under Section 58 (a) the Transfer of Property Act, 1882. Later, this has gained ground through non-banking institutions.
Understand about mortgage
A mortgage is when you borrow money from someone pledging you land to the lender as a security deposit. If it is a home loan, then your property will serve as the security, which is also considered under the mortgage.
Understand what constitutes a usufructuary mortgage
According to the Transfer of Property Act, there are about five types of the mortgage including the usufructuary mortgage. It means that the lender can enjoy certain rights over the security on the land.
According to the Act, the title of the deed remains with the borrower although lender has the authorisation to possess the mortgaged property till the repayment is made. For instance, if a farmer mortgages the agricultural land, then the lender will have rights on the produce till the land is in His possession. Same is the case with a rented property as the payments received through rent is part of the repayment as per the agreement. However, the lender has no rights to sell the property.
A stamp ditty applies to such a mortgage, which varies on each state.
According to the Act, the title of the deed remains with the borrower although lender has the authorisation to possess the mortgaged property till the repayment is made. For instance, if a farmer mortgages the agricultural land, then the lender will have rights on the produce till the land is in His possession. Same is the case with a rented property as the payments received through rent is part of the repayment as per the agreement. However, the lender has no rights to sell the property.
A stamp ditty applies to such a mortgage, which varies on each state.
Know when the borrower can claim property possession
The borrower may have several questions about getting the possession of the property back. Does the borrower have to wait for possession even after paying off the loan? According to the Supreme Court in 2014 rule, a usufructuary borrower has a right to recover the property possession will start as and when the mortgage money is paid out even though rents and profits or partly out of rents as well as profits and partly by payment. And it is not merely on the expiry of 30 years, a loan typically expires after this period, right from the date of the mortgage.
The reason for usufructuary mortgages being popular in rural India
According to Bell’s research paper, the usufruct mortgage provides some advantages over other forms of contracts in case of dangerous environments where insurance and credit markets are not perfect.
This provides an option to get a loan amount immediately with the flexibility to repay the amount with respect to timelines. However, there is no control over the action of lenders enjoying the benefits until the money is repaid completely. Eventually, there is a possibility when the borrower will decide that repayment will be painful and agree to a transfer of ownership.
This provides an option to get a loan amount immediately with the flexibility to repay the amount with respect to timelines. However, there is no control over the action of lenders enjoying the benefits until the money is repaid completely. Eventually, there is a possibility when the borrower will decide that repayment will be painful and agree to a transfer of ownership.
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