Legal Opinion Regarding Tagging of Property Already Mortgaged , A/C MR. X, Proprietorof Company 1.

Mr. Z

Address….

Dear Sir,

RE:     LEGAL OPINION REGARDING TAGGING OF PROPERTY ALREADY MORTGAGED, A/C MR. X, PROPRIETOR OF Company 1.

We refer to your letter dated 08.10.2007 on the above subject.

From perusal of your letter and the documents provided, it appears that, Bank 1 (“the Bank”) has approved a Term Loan Facility of Taka 300.00 (three hundred) lac vide sanction letter dated 01.10.2007 (“the Loan”) in favour of Mr. X, proprietor of M/s. Company 1 (“the Borrower”) to build a multi-storeyed residential building over land measuring 11 (eleven) Katha at Plot No. …………………

But the Land is already mortgaged with the Bank vide the Deed of Mortgage dated 08.05.2001 (“Deed of Mortgage”) to secure an overdraft facility of Tk. 75,00,000.00 sanctioned in favour of the Borrower.

Now the Bank wants to tag the same Land as security of the Loan.

In these circumstances, you have requested us to give our legal opinion as to whether tagging of the Land as security against the Loan instead of creating charge by way of registered mortgage shall protect the interest of the Bank in case of default of the Borrower. If tagging of the Land shall protect the interest of the Bank, you have requested us to provide you with drafts of all appropriate agreements/documents which are required for tagging of the Land.

OUR OPINION:

The creation of charge over immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan is a mortgage in accordance with Section 58(a) of the Transfer of Property Act 1882.

Hence notwithstanding that a mortgage is already in place in favour of the Bank securing a loan, if the Bank allows a new loan, a further mortgage has to be created in order to secure the new loan amount.

There is no specific law relating to “tagging” of security, but according to Indian case law “tacking” is possible where subsequent advances are charged on the property covered by a previous mortgage, a covenant that the mortgagor shall not be permitted to redeem the earlier deed without redeeming the latter one is valid and enforceable. There are also Indian case law which states that, where in a subsequent document there is a stipulation that without payment of the two sums the property previously mortgaged is not to be redeemed, the effect of the clause is to create a further charge on the property.

There do not appear to be any Bangladeshi Court Precedent with regard to tacking.

In any case, please note that, Section 17 (a) of the Registration Act 1908 stipulates that, any document which purports or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent to or in immovable property shall be registered.

A tacking document purports to create a right/interest in immovable property, will required to be registered in order for it to be valid and effective in accordance with Section 49 of the Registration Act 1908,.

Please note that, the sub-registers in Bangladesh are not familiar with this method of ‘Tacking’. Therefore, there may be practical problems in explaining this instrument to the sub-register and in registering the relevant document/agreement. There may also be difficulties ascertaining the stamp duties and registration fee for registering such an instrument. If the instrument creates a mortgage over immovable land, the sub-register may well require the document be registered paying the stamp duties and registration fees as for a deed of mortgage.

In light of the above, we suggest the Bank to consider whether the Bank wants to ‘Tack’ the previous mortgage or whether the Bank wants to obtain another deed of mortgage securing the new loan.

If after considering our opinion, the Bank wants to ‘Tack’ the previous mortgage, then the Bank may instruct us accordingly and we shall prepare the necessary drafts.

All documents/papers referred to us are returned herewith.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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