Buying a house is the dream of every person and family in India, and home loans are typically the most common way of making this happen. Although taking a home loan is simple on paper, the intricacies involved puzzle borrowers most of the time. Amongst the most important of them is registered mortgages, and the query here is whether registration of a mortgage is required while taking a home loan in India. In this article, we will learn the meaning of registered mortgages, their legal status, and how they are part of the process of mortgage loans.
What Is a Registered Mortgage?
Before proceeding further and answering whether it is mandatory to register a mortgage, the definition of what is a registered mortgage has to be provided. The expression “registered mortgage” is used for the official registration of an agreement of property loan with the local government registry or sub-registrar’s office. A mortgage registration makes formal and legal proof that property has been mortgaged for securing a housing loan.
The moment when a borrower takes a home loan, the lender or bank releasing the money seeks a lawful agreement from the borrower to repay the amount. A registered mortgage is nothing but that, and it serves as security for both the bank and the borrower. It ensures there is certainty in ownership and it also protects the lender’s interest in case of default in repayment of the loan by the borrower or future litigation regarding the property.
Why Mortgage Registration is Important
Mortgage registration has two basic functions:
- Legal Safeguard for Lenders: A registered mortgage provides the interest of the lender in the property with legal safeguard. In the event of default by the borrower to pay the house loan, lenders can resort to law for recovery of their claim under the registered mortgage as evidence.
- Clear Title of Ownership: Registration of the mortgage ensures absolute certainty that there is no ambiguity regarding who the owner of the property is. A registered mortgage is made known on government records, hence signaling to would-be buyers or stakeholders that the property is subject to lien or security for a mortgage loan.
Is Registration of a Mortgage Compulsory in India?
Requirement of registration of a mortgage depends on the nature of mortgage and the regulations of a banking or lending organization.
Types of Mortgages in India
Indian law recognizes two types of mortgages that are eligible to take loans against property on general terms:
1. Simple Mortgage
Under a simple mortgage, the lender demands the hypothecation of the property of the borrower as security but not transfer of title to or possession of the property to the lender. A simple mortgage is not required to be registered and whether or not it requires registration generally depends on the lender and the terms of the loan.
2. Registered Mortgage (or English Mortgage)
When the loan agreement on property is registered at the government sub-registrar, term itself inform us that, it is a registered mortgage. It is compulsorily required by law in India in certain circumstances. In this type of mortgage, the borrower conveys conditional rights of title to the lender. The property can be sold at auction by the lender upon default by the borrower in payment to recover the unpaid amount.
Statutory Provisions for Registered Mortgages
The Indian Registration Act, 1908 has laid down that some transactions in property have to be registered formally so that they would acquire legal validity. For them are mortgages taken in immovable property. It is just, the Act requires registration if there is a transfer or conditional transfer of title in ownership of property. Legal binding is given by registered mortgage and it prevents any confusion regarding rights of the lender against mortgaged property.
Indian lending institutions require most of the registered mortgages in which the nature of the property or the loan amount falls under categories needed to be registered by law. In other cases, the borrower and the lender may take a contractual mortgage but fail to register it formally, where this provides minimal protection to the lender.
Advantages of Registering a Mortgage
Though mortgage registration does entail some extra expense, like stamp duty and charges for registration, the benefits are well worth it in most cases:
1. Enhanced Legal Security
The borrower and lender are safeguarded from litigation by dispute by a registered mortgage. It makes formal entries in the government register with no scope for forgery or misinterpretation.
2. Clarity of Ownership
A registered mortgage informs future purchasers of the status of encumbrance on property. It is beneficial in case the borrower wants to sell the property while there is still an unpaid outstanding loan.
3. Facility of Legal Enforcement
Where defaults on loans occur, lenders can have recourse to claiming and proceedings for sale of property by auction under the registered mortgage. In the absence of access to registered documents, lenders are forced to endure lengthy legal recovery periods of dues.
4. Public Record Recognition
Each time a mortgage is registered, it is entered in the public records maintained at the sub-registrar’s office for the local area. This makes the borrower ineligible to mortgage the same property as security for future loans and thus protects the interest of the lenders.
Costs Involved in Registering a Mortgage
One of the registered mortgage fears of the borrower is additional charges. Registration charges and stamp duty are usually paid together with mortgage registration, depending on Indian states. The fees are calculated as loan value percentage or property value percentage and vary under state law.
Breakdown of cost illustrated in an example:
- Stamp Duty: 0.1% to 0.5% of the loan, depending on the state.
- Registration Fees: Low expense (e.g., Rs. 1,000 to Rs. 10,000), also state-level regulations hold good.
Although an added expense for the home loan receivers, these are for long-term protection and peace of mind throughout the period of the home loan.
When Is Registration Not Needed:
There are some exceptions to the need for registration of mortgages, i.e.,
1. Equitable Mortgage
Equitable mortgage is not registered in a formal way. Title deeds or property documents, however, are provided as security by the borrower to the lender. It is a less formal method of mortgage and is very prevalent in India for housing loans against residential property since it does not entail additional registration fees.
2. Lender Policies
Some of the banks or financial institutions might accept the unregistered mortgage, depending on the character of the loan and their internal risk assessment parameters. But this is not followed in commercial property or big loans.
Registration of a Mortgage in India
Step 1: Preparing the Mortgage Deed
The borrower and lender sign together to enter into a mortgage deed. The lender’s conditional interest, the duration of repayment, and the loan amount are explained in the deed.
Step 2: Payment of Stamp Duty
The borrower makes a payment of stamp duty on the deed as mandated under state law and the size of the loan.
Step 3: Sub-Registrar and Submission
The mortgage deed is presented at the sub-registrar’s office of the location for its registration. The borrower and lender are required to be present for the same.
Step 4: Documentation and Verification
Upon registration of the mortgage, identity and property documents related to the issue are verified.
Step 5: Payment of Registration Fees
The borrower is demanded a registration fee by the lender, as per the state, in order to legalize it.
Conclusion
Mortgage registration is not required in India but is compulsorily provided by law in specific cases. Registered mortgages are drawn to give legal security, certainty, and enforceability and are included in the mortgage loan process. The decision regarding a registered mortgage or an equitable mortgage relies upon the value of the property, loan, policy of the lender, and state laws.
Although registered mortgages are more expensive in terms of stamp duty and charges for registration, they are secure and legally protected, which is invaluable. The borrowers have to think twice about their financial conditions, negotiate with their financier, and follow legal stipulations while mortgaging property against home loans.
Lastly, the role of registered mortgages in India would be realized by borrowers who would take the appropriate decision so that transactions are a cakewalk and dream homes are bought intelligently.
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