Real Estate Mortgages

 

A mortgage is a creation of charge against a property for obtaining loan against the same. People prefer real estate to liquid assets because of this peculiar advantage of getting a loan on the strength of the said property. Now that there is a boom in the real estate values , people are able to recover their investment and profit out of real estate but earlier on, the yield on real estate was very low and people did not go in for investment in real estate unless one could really afford. People preferred real estate more for the security it offered than for its profits.

However poor one might be, if he possessed a small site with a hut in it, he could live with the security that at any point of time he could raise a loan by mortgaging the hut with the site. Banks had never said no to a loan against the security of a real estate.

Mortgages have made finance very easy and affordable to the common man also. Particularly in the home finance area, mortgage has proved to be a boon to the investor. Now housing development institutions and banks are offering loans to buyers on mortgage of the proposed asset.

Mortgage assures the lender of the repayment of the loan as per schedule. If the debtor defaults on payment of loan the creditor has the option and authority to dispose off the asset, adjust its loan and pay the balance, if any, to the debtor.

Mortgage is possible only if the seller has a clear title in the property. A person can acquire property in various methods like purchase, gift, inheritance, allotment by government authority etc. It is a bit difficult to establish title in case of transactions like inheritance, gift. So the financial institutions are extra careful in accepting mortgage over properties acquired in such manner.

In case of properties acquired on long term lease basis also, the title of ownership lies with the lessor while the lessee enjoys possession. In places like Delhi these long term leasehold assets do change hands on the basis of a power of attorney executed in favour of the buyer. Strictly speaking such transaction does not confer title on the owner and hence lending money on the strength of such properties is risky. However in view of the peculiar circumstances involved, the financial institutions are lending on the first power of attorney transaction by doing a bit more of paperwork by making the property freehold, converting it in the buyer’s name and then getting a mortgage recorded on the property. The property would be mortgaged to the financial institution until the loan is repaid. All the costs involved are on the account of the debtor but still the mortgage will be done and funds would be released.

Mortgage can be a simple mortgage by deposit of title deeds or by a registered mortgage. Any mortgage on immovable property should be registered. Simple deposit of title deeds can be taken when there is a collateral security covering the loan amount. Term loans or commercial loans granted for the purposes of expansion of business or loans for running capital requirement can also be obtained on the mortgage of immovable properties. In all these cases the lending institutions go for clear title and registration of charge against the property. The lending organizations charge interest on fixed or floating methods. Whatever may be the method of interest charged, the mortgage on the property will not be affected.

The lending institutions insist on solid security to back a financial requirement and they also insist that the mortgage be registered to protect its interests. This practice results in delay and some times a very viable project may not get the required funds because of some technical snag. However even the lending institutions cannot be blamed for this hitch because safety of their shareholders’ funds is paramount for them.

Mortgage of the property intended to be purchased has increased the scope of home finance in the country and many common people are now in a position to afford an own house. The increasing demand for housing in urban areas is thus met by the various development authorities through this home mortgage system. Otherwise it would be very difficult for a common man to provide for a solid security to back his loan requirement. Home mortgage is the answer for the common man’s need for housing.