Are you looking for a way to borrow money by using your property as collateral without registering the mortgage? If yes, then consider an equitable mortgage.
In an equitable mortgage, you deposit the title deeds of your property with the lender instead of transferring legal ownership. This allows you to create a mortgage without paying stamp duty, registration fees, or involving third parties.
But is an equitable mortgage a good option for you? What are the benefits and drawbacks of an equitable mortgage for you and the lender? How can you create and manage an equitable mortgage effectively and safely?
Let’s find out.
How to Create an Equitable Mortgage
Now, that you know what is equitable mortgage, let’s understand how it is created.
Creating an equitable mortgage is relatively simple. All you need to do is deposit your property’s original title deeds with the lender, either in person or by registered post. The title deeds are the documents that prove your ownership and possession of the property.
You create an implied contract with the lender by depositing the title deeds. In this contract, you agree to repay the loan with interest after utilising the mortgage loan EMI calculator, and the lender agrees to return the title deeds to you once the loan is repaid. The lender can also sell the property to recover the loan amount in case of default.
However, there are some legal requirements and formalities that you need to follow while creating an equitable mortgage. These include:
- The property must be situated in a notified area where the Transfer of Property Act of 1882 applies. Notified areas are those where the state government has notified that equitable mortgages are valid and enforceable.
- The title deeds must be deposited to create a mortgage. That means you must communicate to the lender that you are depositing them as security for the loan and not for any other purpose.
- The title deeds must be deposited at the same place where the property is situated, where the lender carries on business, or where the borrower resides. This is to ensure that the mortgage is made in good faith and not to defraud any third parties.
- Both parties need to sign a written agreement. The agreement should mention the details of the loan amount, interest rate, repayment terms, property description, etc. The agreement should also be witnessed or authorised by a third party, such as a lawyer, a notary, or a bank official.
Advantages of an Equitable Mortgage
An equitable mortgage has several advantages for both the borrower and the lender. Some benefits are:
- Lower cost: An equitable mortgage does not require stamp duty or registration fees, which can save the borrower a lot of money. The lender also saves on the cost of transferring the legal ownership of the property.
- Less documentation: An equitable mortgage does not require complex or lengthy documentation, which can save time and hassle for both parties. The borrower only needs to deposit the title deeds and sign a written agreement with the lender.
- Easy return of title deeds: An equitable mortgage allows the borrower to get back the title deeds of the property as soon as the loan is repaid without any delay or dispute. The lender does not have to go through the process of re-conveying the property to the borrower.
- Higher security: An equitable mortgage provides a higher security for the lender, as the lender has the physical possession of the property’s title deeds. The lender can also sell the property to recover the loan amount in case of default without legal intervention or obstruction.
Conclusion
An equitable mortgage is a type of mortgage that is recognised and regulated by the law. However, the legal aspects of an equitable mortgage may vary depending on the jurisdiction and country where the mortgage is created and enforced.
In India, an equitable mortgage is regulated by the Transfer of Property Act of 1882, which defines it as “a mortgage by deposit of title deeds.” The Act also lays down the conditions and requirements for creating a valid and enforceable equitable mortgage, such as the notified area, the intention, the place, and the documentation.
