Mortgage : Home Loans : Refinance : Home Equity Loans

By Kristy Annely

It is very important to understand the difference between a conventional mortgage and equitable mortgage. From the point of view of transfer of title to the mortgaged property, mortgages are divided into two categories: legal mortgage and equitable mortgage.

In case of a legal mortgage, the mortgagor transfers legal title to the mortgaged property in favor of the mortgagee by a deed. In a legal mortgage, the transfer of a legal title to the mortgage involves expenses in the form of stamp duty and registration charges. On the other hand, in case of an equitable mortgage, the mortgagor transfers the documents of title to the mortgagee for the purpose of creating an equitable interest of the mortgagee in the property.

This means that legal title to the property is not passed on to the mortgagee, but the mortgagor undertakes, through a Memorandum of Deposit, to execute a legal mortgage in case he fails to pay the mortgage money. The mortgagee is thus empowered to apply to the court to convert the equitable mortgage into a legal mortgage if the mortgagor fails to pay the mortgage money on the specified date.

It is worth mentioning that a mortgage by deposit of title deeds requires three ingredients, which are very pivotal. Firstly, it includes the existence of a debt in the present or future. Secondly, the deposit of the title deeds. And finally, an intention that the title deed should be the security for the debt. The intention is indeed the essence of the transaction. An agreement of sale by itself does not create any interest in the property. Hence, such an agreement is not deemed as Document of Title to property. For equitable mortgages, the deeds deposited must relate to the property or as material evidence of the title, and must have been deposited with the intention of creating a security thereof.

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