Recognizing Usufructuary Mortgage: Essential Elements and Current Advancements

A usufructuary mortgage offers the lender possession and usage rights while retaining the borrower’s title to the property. The lender, often known as the mortgagee, is permitted to keep the income or produce generated by the property during the mortgage period. In India, a specific type of mortgage covered by the Transfer of Property Act, 1882, is referred to as a usufructuary mortgage. It allowed the lender access to and use of the mortgaged property, but allowed the borrower to maintain ownership of it.


Definition of Usufructuary Mortgage

In India, once the borrower, also known as the mortgagor, transfers title of the property to the lender, known as the mortgagee, a usufructuary mortgage grants the lender the right to keep and utilize the property’s produce or revenue. The mortgagee may use the property for their own benefit, or they may rent it out, lease it out, or use it for any other profitable venture in order to repay the mortgage loan. During the mortgage time, the mortgagee is allowed to keep ownership of the property and utilize its benefits. Unlike other types of mortgages, however, the mortgagee is not allowed to sell the property in order to recover the sum. After the mortgage is fully repaid, the mortgagor regains full ownership and possession of the property.

Usufructuary mortgages are commonly utilized in India when a borrower is in need of funds and is willing to provide the lender with the property’s income or produce in return for security.This type of mortgage allows the borrower to maintain ownership while providing a stream of income for the lender to cover the loan sum.

Definition of Usufructuary Mortgage

Usufructuary Mortgage is defined as follows in Section 58(d) of the Transfer of Property Act:

The agreement is known as a usufructuary mortgage and the mortgagee is the one who receives the rents and profits that accrue from the property,or any portion of them,and appropriates them in lieu of interest or mortgage funds.The mortgagor either explicitly or implicitly agrees to give the mortgagee possession of the mortgaged property,and he gives him permission to keep it until the mortgage funds are paid.

Essential Elements of Usufructuary Financing

Under Section 58(d) of the Transfer of Property Act, usufructuary mortgage is defined as follows:

Transfer of Ownership: The mortgagor is required to turn over ownership of the mortgaged property to the mortgagee,either explicitly or implicitly.

Holding onto Possession: The mortgagee is in possession of the property until the mortgage funds are paid in full or deducted from the profits and rentals of the properties indicated in the mortgage instrument.

Absence of Personal Liability: The mortgagee bears no personal responsibility to reimburse the outstanding loan amount.

No Foreclosure or Sale: The mortgagee is not allowed to file a lawsuit in order to foreclose on the mortgage or sell the property that is mortgaged.

Right of Redemption: In accordance with Section 62 of the Transfer of Property Act, the mortgagor may redeem the property by making the required payment or by paying off the debt with the rent and profits that the mortgagee receives.

No specified Time restriction: The payback period has no specified time restriction.

Registration: A usufructuary mortgage needs to be registered if the loan amount is Rs. 100 or more. If it is for less than Rs. 100, it can be fulfilled by delivery of the property or by a registered deed.

Case Studies of Past Usufructuary Mortgages

In the Prabhakaran v. M Azhagiri Pillai case, the Supreme Court first ruled that the mortgagor needed to file a redemption action within 30 years of the date of the mortgage deed.Later, the Full Bench of the Punjab and Haryana High Court reversed this decision, stating that there is no statute of limitations on a usufructuary mortgage.The Supreme Court upheld this correction in the case of Singh Ram (D) Tr. Lr v. Sheo Ram & Ors, ruling that the usufructuary mortgagor’s special power under Section 62 of the Transfer of Property Act triggers the limitation right away.

Due to the verdict in Ishwar Dass Jain v. Sohan Lal,a usufructuary mortgagee is unable to argue the mortgagor’s title. Please be aware of this.Since the mortgagee has already taken possession of the property as mortgagees, they are unable to challenge the mortgagor’s title.

How Mortgage Loans Function

With the help of mortgages, individuals and businesses can buy real estate without having to pay the entire asking amount up front. The borrower pays back the loan plus interest over a predetermined period of years until they acquire the property outright. Most traditional mortgages have a complete amortization period. This suggests that during the course of the loan, the distribution of principal and interest will fluctuate with each payment, even though the amount of the regular payments would remain constant. Typically, mortgage terms are 15 or 30 years.

Mortgages are sometimes known as claims on property or liens against property. In the event that the borrower defaults on the mortgage, the lender may foreclose on the property. One way a residential homebuyer may give their lender a claim over an asset is by pledging their home to them.This protects the lender’s interest in the property in the event that the buyer defaults on the loan.If a foreclosure occurs,the mortgage lender may seize the house, sell it, and use the sale proceeds to pay off the remaining debt.

The Mortgage Process

Prospective borrowers begin the process by submitting an application to one or more mortgage lenders. The lender will want proof of the borrower’s ability to return the loan. Included may be bank and investment statements, the most recent tax returns, and proof of current work. The lender will typically run a credit check as well.

If the application is approved, the lender will make a loan offer to the borrower up to a certain amount and at a certain interest rate. Buyers can apply for a mortgage even before deciding which property to buy or even while they are still browsing, thanks to a process known as pre-approval. A mortgage preapproval can help buyers stand out from the competitors in a competitive real estate market by demonstrating to sellers that they have the resources to back their offer. The gathering of the buyer and seller, or their representatives, following their agreement on the conditions of the deal is known as the closure. The borrower now makes a down payment to the lender. The seller will transfer ownership of the property and the agreed-upon sum of money to the buyer, who will also sign any final mortgage agreements. The lender may charge origination fees at closing, which could be in the form of points.

An adjustable rate mortgage (ARM)

An adjustable-rate mortgage (ARM) has a fixed interest rate for the first term, after which it may fluctuate on a regular basis in accordance with market rates. The mortgage may be more inexpensive in the short run if the initial interest rate is below market, but it may become less affordable in the long run if the rate increases significantly.

ARMs generally feature ceilings on the maximum amount that the interest rate can increase overall during the loan term as well as each time it adjusts.

In summary

Borrowers can get loans and retain ownership of their property with a usufructuary mortgage. This kind of mortgage is new. Insofar as the mortgage debt is not settled in full, the mortgagor grants the mortgagee permission to use the property and utilize its revenue-generating assets.

Delivering possession, allowing the mortgagee to keep possession, removing the mortgagor’s personal culpability, preventing foreclosure or sale of the mortgaged property, and granting the mortgagor the right of redemption are all necessary components of a usufructuary mortgage.Usufructuary mortgages are particularly prevalent and a crucial source of capital for the local economy in rural India. Despite legal arguments regarding the redemption term, prior rulings have made it apparent that the mortgagor does not have a defined amount of time in which to exercise their right to redemption.


What is an abnormal mortgage?

A mortgage that isn’t straightforward, such as a usufructuary mortgage or a mortgage by conditional sale.

What is an equitable mortgage?

A legal arrangement known as an equitable mortgage allows a borrower to pledge their assets as collateral for a loan without really giving the lender ownership.

What do you mean when you say “mortgage”?

A mortgage is an agreement between you and a lender that gives the lender the right to take your property.


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