Whenever you purchase a property or take out a loan on it, the bank can pay its debts by selling the property if you default on repayment. There are two kinds of mortgages. One is an equitable mortgage, and the other is a registered mortgage. Both mortgage types are legal in India.
See also: How is registered mortgage different from equitable mortgage?
What is a registered mortgage?
It is a legally binding agreement in which a borrower grants all rights to property, typically real estate, as a guarantee to secure a loan from the lender. In this case, the majority of the lenders are banks. Several banks, including HDFC Bank, ICICI Bank, and Axis Bank, do not offer registered mortgages. These are mostly commercial banks. However, all nationalised banks, such as SBI, Bank of Baroda, and Union Bank of India, provide this facility. Also known as a Deed of Trust, this involves a third party and allows the lender to take possession of or sell the property if the borrower defaults on the loan. A registered mortgage allows a lender to say, “If I can’t pay you back, you can take my house.” This promise has been written down and officially recorded with the government as proof. The property is recorded as a sub registrar office.Â
Importance of registered mortgage
Think of a scenario, where you want to borrow money to purchase a house for yourself. The bank or lender requires assurance that their money will not be wasted or that you will not cause a default on the money. Registered mortgages play an important role in creating this assurance. The registered mortgage legally protects their right to seize your home if things go wrong. It promotes transparency and accountability among all parties involved in the mortgage process, lowering the risk of disputes and legal challenges. When it comes to selling or buying a home, having a registered mortgage makes the process go smoothly. It’s like a seal of approval that everything is in order. It is considered a more secure process than an equitable mortgage loan. It provides clear instructions regarding claim priority. In situations where multiple creditors have claims on the same property, the registered mortgage establishes priority. The order of registration frequently determines who receives payment first if the property is sold to recover debts.Â
Registered mortgage and equitable mortgage
We are referring to the loan agreement, which you must sign each time you get a loan from a financial institution such as a bank. A loan agreement is signed by the lender and borrower in an Equitable Mortgage transaction. However, in the case of a registered mortgage, along with signing the agreement, registration is done at the sub-registrar’s office, and stamp duty is also payable. So, you register the sale deed at the sub registrar’s office. Similarly, if you register the mortgage deed in the sub-register office, we refer to it as a registered mortgage.Â
And this is the most important distinction between registered mortgages and equitable mortgages. Other than from that, another important difference is how title deeds and property documents are treated. In an Equitable Mortgage, it is essential to submit all of these documents to the lender. Only then will the mortgage be created. And in the case of a registered mortgage. It is not necessary to submit title or mortgage paperwork to banks. However, most banks insist on submitting property documents. Many older or agricultural properties don’t have title agreements. So, if you have a bank loan, you must register it. In such cases, the bank always considers the registered mortgage If for some reason the title documents of that property do not exist.
The stamp duty on Equitable Mortgage is very little. Because you do not need to register it. Equitable mortgages incur minimal stamp duty. Your loan agreement will be signed on stamped paper. And those charges are not that much. There are very few charges. However, stamp duty is significantly higher in the case of a registered mortgage. It varies by state.
Suitability for registered mortgage
Large loans
It is suitable for huge amounts of money. If an individual needs a loan to purchase property for commercial purposes, he should apply for a registered mortgage because it allows him to use the high value of his property to secure a large loan. This property can be used as security if the individual is unable to pay for any reason.
Long-term borrowing
If an individual is looking for long-term borrowing, such as a loan for education or a loan to start a new business, he or she can choose a registered mortgage. It is regarded as a suitable option due to its extended repayment period. This allows them to easily manage their loans.
Small business owners
For small business owners, this provides them with a secure and safe borrowing option compared to others. Say, if any individual uses its commercial property as a mortgage, then it will provide a sense of security for the lender. This can help that individual get better borrowing as it increases trust among lenders.
Process of registered mortgage
Step 1
First, you got the mortgage deed signed and registered in the sub-registrar office. The borrower must file a formal, written statement on the property with the sub-registrar as proof of interest transfer to the lender as loan security.
Step 2
Following that, you registered the release of the mortgage deed. The registration of the mortgage is required and more expensive than an equitable mortgage.
Step 3
When you see an encumbrance certificate, if there is any kind of charge on the property, it will be reflected in the certificate. In the encumbrances certificate, you get to know all the charges of the third party, such as if there is any kind of tax due, if a mortgage is signed, if a loan is taken, or if there is any kind of lease. You get all these encumbrances in the encumbrance certificate. But you will not know the case of an equitable mortgage.
Step 4
If the borrower fails to repay the loan, the property is transferred to the lender bank account, and he can do whatever he wants to do with it.
To follow the procedure in online mode one can visit the official website of CERSA https://www.cersai.org.in/CERSAI/home.prg
Document required for registered mortgage
The requirement of documents can differ from state to state in India and every region has their own rules and regulations related to it. This list will provide you with basic documentation required for a registered mortgage.
- Mortgage deed
- KYC documents
- Income statement proof
- Address proof
- Property title deed
- Passport size photo
- Encumbrance certificate
- Property tax receipts
- Revenue records
- No objection certificate (NOC)
Benefits of registered mortgage
A registered mortgage also has some advantages. It requires more time and money, but it also ensures that the risk is reduced. The risk is slightly higher in the case of an equitable mortgage. The advantage of Equitable Mortgage is that it is a very simple process. It doesn’t have any hassles. On the other hand, the advantage of a registered mortgage is that the risk is reduced significantly when you buy a property.
Read also: All about reverse mortgage loans
Potential for fraud
Duplicate documents
Some people also take another loan. They say that the documents on their property have been lost. Again, they take the loan with the duplicate document. It is a criminal offence. But some people may do this. Second, if the seller has taken a loan against the property so many times, he won’t tell the buyer that there is already a loan against the property. Sometimes builders also do this with Fly-by-night operators taking a loan from the bank even after they sell the property. And the buyers don’t get to know. So in such a situation, you must go with a reputed builder. And you should also complete the due diligence. This is very important before buying a property. This is especially important in the case of an equitable mortgage. In the case of a registered mortgage, the risk is greatly reduced. On the encumbrance certificate, you will know whether there is a loan or not.
False income
This fraud occurs when the borrower provides the wrong information about their income or assets to manipulate the interest or qualify for the loan with more ease.
Identity theft
It is one of the most common frauds one should be aware of. It can be explained as when an unknown person, without your knowledge, tries to pretend to be you and uses your sensitive credentials, such as social security numbers or addresses. This information is then used to make bogus financial decisions without your involvement and can cause serious legal troubles. This misuse of personal details can be very severe if these details are used for criminal purposes.
FAQs
The sub-registrar verifies the documents, ensures that if it matches with legal requirements, and legally registers the mortgage.
Yes, transfer is possible, but it requires enough time and is a complex process. It requires the input of the new borrower as well as the lender and borrower. In order to transfer the mortgage, the new borrower must also fulfil the requirements and finish the required paperwork.
It is possible to make payments ahead of schedule. However, there are penalties associated with early payment. It can vary from lender to lender and is typically expressed as a percentage of the outstanding loan balance. Verifying the prepayment penalty's terms and conditions is crucial.
Yes, registered mortgages can be used for residential as well as commercial properties.
State laws and local ordinances may cause minor variations in the procedure, so it is best to confirm the exact requirements with your state.
A registered mortgage may have different qualifying standards depending on the lender. Your chances of getting a registered mortgage may be diminished, and your interest rate may increase, if your credit score is low. You should confirm the eligibility requirements with your lender prior to submitting an application for a registered mortgage.
It usually takes 2-4 weeks to complete the entire process. What is the role of the sub-registrar in the whole mortgage registration process?
Can a registered mortgage be transferred to another person?
Can I pay off a registered mortgage before the agreed term?
Can I use a registered mortgage for a commercial property?
How does the registered mortgage process vary across different states and regions in India?
Can I register a mortgage if I have a low credit score?
How long does the mortgage registration process take?
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