What is a mortgage cancellation deed?

Applying for a mortgage loan is beneficial when purchasing a house. Given the increasing property prices, it can otherwise become financially difficult for most people. Banks consider property as collaterals under mortgage deeds in case of payment defaults. Once the full loan amount is repaid, cancellation of the mortgage tag from the property to get complete ownership is a crucial process.

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What is a deed of cancellation of a mortgage in India?

Cancelling a mortgage deed is the process of releasing a mortgage lien from a property title once the mortgage loan has been fully repaid. In India, a mortgage cancellation deed is a legal document required to legally terminate a mortgage agreement between a borrower and a lender. The borrower regains complete ownership of the property after the mortgage deed is cancelled.

Reasons of cancellation of a mortgage deed

There could be various reasons for cancelling a mortgage deed, such as:

• Full repayment of loan
• Refinancing of the property
• Transferring the ownership to another party

One must note that cancelling a mortgage deed does not absolve the borrower from repaying the outstanding loan amount. The borrower is still liable to repay the loan according to the agreed terms and conditions.

Importance of cancelling mortgage

• Clarity on property ownership: Cancelling a mortgage deed is necessary as a property owner gets clear and unencumbered ownership of the property. This is crucial in selling the property, refinancing it, or transferring it to legal heirs.
• Creditworthiness: Cancelling a mortgage can positively impact the borrowers’ creditworthiness. It proves their financial ability to manage debt, resulting in improved credit scores.
• Financial freedom: Paying off a mortgage frees the individual from the financial obligation associated with it. It can also relieve them from the financial burden that comes with mortgage payments, enabling them to save and focus on other financial goals.
• Risk mitigation: Cancelling a mortgage reduces the risk of foreclosure due to default. They can remain stress-free about homeownership without losing the property to foreclosure.

Formalities involved in cancelling mortgage deed in India

• Getting a No Objection Certificate (NOC): The borrower must obtain an NOC from the lender before proceeding with mortgage cancellation. The NOC is proof of full repayment of loan and the absence of pending dues.
• Preparing mortgage cancellation deed: After obtaining the NOC, a cancellation deed must be drafted. The deed, which outlines the mutual agreement to cancel the mortgage, should specify details, such as the original deed number, date, and involved parties.
• Executing mortgage cancellation deed: The cancellation deed must be signed by the borrower and lender, along with two witnesses, to validate the cancellation legally.
• Registering cancellation deed: Registration of the cancellation deed with the sub-registrar of assurances is mandatory. This is necessary to ensure the cancellation is legally recognised and duly recorded.

Process of cancelling a mortgage deed in India

Once the mortgage has been repaid or if the person wants to remove the lien due to any other reason, there are various methods they can follow, as discussed below:

• Automatic cancellation: A mortgage deed renews automatically every 12 years. If payment is not made, the deed is automatically cancelled. However, the borrower must settle pending dues with the mortgagee to prevent any legal issues.
• Release deed: Another method to cancel a mortgage deed is to get a release deed. This applies if the individual has cleared the mortgage entirely and wants to cancel the existing deed. It proves that there are no pending dues and allows the release of the property to the rightful owner. If the mortgagee is deceased, the legal heirs can apply for a release deed by providing documents, such as a death certificate and NOC.
• Cancellation deed: The most secure way to terminate a mortgage is by issuing a cancellation deed. One can approach a lawyer to draft the deed and ensure details of the original mortgage deed, reasons for cancellation and the lender’s NOC are included. The document must be executed on a stamp paper of appropriate value for legality.

Documentation required for mortgage cancellation

• For automatic cancellation: No additional documents are required. If payments are withheld, contact the mortgagee to settle pending dues and prevent legal issues.
• Release deed: Proof of full payment and application for release.
• Cancellation deed: Details of the original mortgage deed, reasons for cancellation, and No Objection Certificate (NOC) from the lender. Execution on appropriate stamp paper.

How is mortgage deed cancellation registered in land registry in India?

Registration of the cancellation of the mortgage deed in the land registry is a vital step as it ensures the property’s ownership of the person is clear and free from any encumbrances. It protects the property owners legally and saves them from disputes.

Registering a cancellation deed in the property register is beneficial to the property owner in the following ways:

• Clarity in ownership: It helps property owners by establishing clear ownership of the property, thus preventing any disputes or conflicts, and ensuring a smooth transfer of ownership in the future.
• Legal protection: Registering a mortgage cancellation deed as proof of the cancellation of a previous agreement or transaction ensures that the owner’s rights are protected.
• Financial security: Registering a cancellation deed is important for preventing fraudulent activities or unauthorised property transactions.
• Legal compliance: Registering of mortgage cancellation ensures compliance with legal requirements and validates the cancellation of any previous agreement or transaction in accordance with Indian property ownership laws.
• Ease of property transfer: A registered deed simplifies the transfer of property from the owner to another person in future. It provides a legal framework for transaction.

What happens if one fails to cancel a mortgage property?

We will discuss some of the consequences of failure to cancel a mortgage.

• Continued financial liability: Failure to cancel a mortgage properly can mean continued liability for borrowers, even after they have repaid the loan. Borrowers may have to deal with legal complications and potential financial obligations.
• Risk of foreclosure: In extreme cases, even if the debt has been fully repaid, one may face the risk of foreclosure. They may lose the property and face financial impact.
• Clouded title: In the absence of mortgage cancellation, the title of the property will remain encumbered by the mortgage lien, leading to confusion over ownership rights and impacting future property transactions.
• Difficulty selling or transferring property: Failure to cancel the mortgage and an unclear mortgage status can make prospective buyers or transferees hesitant about proceeding with transactions. This could pose challenges when selling or transferring ownership and may impact the property’s value.

Things to consider before cancelling a mortgage

• Outstanding loan: Before starting the process of cancelling a mortgage, make sure to settle all outstanding dues, including principal, interest, and any applicable fees.
• Documentation: Ensure all requisite documents are in place, including NOC from the lender, to ensure legal compliance.
• Legal consultation: The loan borrower can seek advice from a lawyer who is an expert in property laws and mortgage cancellation to ensure smooth execution of the cancellation process.
• Future plans: One must assess how cancelling the mortgage could impact his future plans for the property, such as sale, transfer of ownership, or need for a new loan.

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To secure complete property ownership, loan borrowers should ensure they get a registered mortgage cancellation deed. One can consult a legal professional in case of any issues related to the mortgage.

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