“The concept of charge under the Transfer of Property Act does not transfer any interest, but the charge holder simply entitled to recover the money from the property”.
What is Transfer of Property Act?
An act has been established in case of properties and everything related to its transfers which came into force on the 1st day of July, 1882. This law is related to the modes of transferring property (sale, mortgage, lease, gift, will etc.) by the act of parties and was imposed in whole Bangladesh. “Transfer of property” means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, or to himself and one or more other living persons; and “to transfer property” is to perform such act. In this section “living person” includes a company or associations or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.[1] It is a civil legislation of immense significance owing to the vast number of property related transactions taking place throughout the country.
In the Transfer of Property is defined as an act by which a living person transmits property, in present or in future, to one or more other living persons, or to himself, and one or more other living persons, and ‘to transfer property’ is to perform such act. In this section ‘living person’ includes a company or association or body of individuals, whether integrated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.
It is essential to note the meaning of the word property as applied in the act. Property has been given a rather wide spectrum covering both tangible material things, e.g., land and houses as well as rights which are not exercised over any material, e.g., a right to repayment of a debt. The word ‘transfer’ in the Act has also been used in a wide sense. It may stand for either transfer of all the rights and interests in the property or transfer of one or more of subordinate rights in the property. Thus, the expression ‘transfer of property’ may, therefore, entail either transfer of things, transfer of one or more of the rights in a thing, or transfer of a debt.
Every person who is competent to contract is competent to transfer property either wholly or in part. He should be entitled to the transferable property, or authorised to dispose off transferable property which is not his own. The right may be either absolute or conditional. A transfer of property may be made without writing in cases where a written document is not expressly required by law. It can be transferred either absolutely or conditionally. Such transfer can be only to the extent, and in a manner allowed and prescribed by law. The property may be movable or immovable, present or future.
Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is capable of passing in the property and in the legal incidents thereof.
In case a property is transferred subject to a condition which absolutely restrains the transferee from parting with or disposing off his interest in the property, the condition is void. The only exception is in the case of a lease where the condition is for the benefit of the lessor or those claiming under him.
What is the concept of charge?
Charges are where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore enclosed 3[which apply to a simple mortgage shall, so far as may be, apply to such charge]. Nothing in this section applies to the charge of a trustee on the trust- property for expenses properly incurred in the execution of his trust, 4[and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge].
A charge is not mortgage. In each mortgage, there is charge, but each charge is not a mortgage. Section 100 of Transfer of Property Act states that if immovable property is made as security for payment of money and if it doesn’t amount to mortgage, then the later person is said to have a charge on property. However, a charge doesn’t create an interest in the property.
The rights of charge holder
The rights are—
· For the preservation of the mortgaged property from destruction, forfeiture or sale etc.
· For taking sides of the mortgagor’s title to the property.
· For making his own title thereto good in opposition to the mortgagor; and
· When the mortgaged property is a renewable lease-hold, for the renewal of the lease; and may, in the nonappearance of a contract to the contrary, add such money to the principal money, at the rate of interest payable on the principal, and where no such rate is fixed, at the rate of nine per cent. per annum: Provided that the outflow of money by the mortgagee under clause (b) or clause (c) shall not be deemed to be necessary unless the mortgagor has been called upon and has failed to take proper and timely steps to preserve the property or to support the title.
Where the property is by its nature insurable, the mortgagee may also, in the absence of a contract to the contrary, insure and keep insured against loss or harm by fire the whole or any part of such property; and the premiums paid for any such insurance shall be added to the principal money with interest at the same rate as is payable on the principal money or, where no such rate is fixed, at the rate of nine per cent. per annum. But the quantity of such insurance shall not exceed the amount specified in this behalf in the mortgage-deed or (if no such amount is therein specified) two-thirds of the amount that would be required in case of total destruction to reinstate the property insured.
The concept of charge holder does not transfer any interest but the charge holder simply entitled to recover the money from property
The proprietor of any land subject to the provisions of this Act, or of any estate or interest therein, may transfer the same by executing a transfer in the prescribed form, which transfer shall, for description of the land intended to be dealt with, refer to the instrument to the land, with such further description as may be necessary, and shall contain a precise statement of the estate or interest intended to be transferred. Transfers shall be registered in the prescribed manner and transferees shall have priority according to the date and time of registration. Upon the registration of a transfer, the estate and interest of the transferor as set forth in the instrument of transfer, with all rights, powers and privileges thereof belonging or appertaining, shall pass to the transferee, and the transferee shall thereupon become the proprietor thereof and shall be subject to and liable for all requirements and liabilities to which he would have been subject and liable if he had been the former proprietor of such estate or interest. By virtue of the registration of a transfer of a mortgage or lease the right to sue upon the mortgage or lease and to recover any debt, sum of money, annuity, or damages there under (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof:
Provided that nothing in this section shall prevent a court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person.
A charge secured on land (whether a first or second charge) can only be created by deed expressed to be by way of legal mortgage.[2]The borrower and the lender are generally free to agree the specific conditions of the loan secured by the charge and the circumstances in which the lender can enforce the charge in order to recover the outstanding duty. It’s an agreement which gives immovable property as security for the satisfaction of a debt without transferring any interest in the property constitutes a charge by act of parties. No particular form of words is necessary case for creation of a charge. It is sufficient, if, having regard to all the conditions of the transaction. The document shows meaning to make the land security for the payment of the money mentioned therein. But there must be a clear intention to make a property security for money in present. If there is an intention to create a charge in presenting an agreement to mortgage may amount to a charge. A mere undertaking to discharge an obligation or liability is not enough if the intention to make a specified property of finance liable is absent. An agreement which gives immovable property as security for the satisfaction of a debt, or for the payment of a maintenance allowance in perpetuity, without transferring any interest in the property or an agreement by which an owner of a share in a village receives in lieu of his share a lump sum out of the revenue, constitutes a charge on the property and is not a mortgage.
The following are the illustrations of charges by acts of parties:
A inherited an estate from his maternal grand-mother and executed an agreement to pay his sister B a fix annual sum out the rents of the estate; B has charges on the estate.
A sued B on a promissory note. The compromise decree directed the fee of the money and further directed the B shall not dispose of his share in a factory until satisfaction of the entire decrial amount. It was held that A had a charge on the property specified.
At any time after the principal money has become due, the charge holder has a right, on payment or tender, at a proper time and place, or the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and every documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished: Provided that the right granted by this section has not been extinguished by the act of the parties or by decree of a Court.
A mortgage is a transfer of an interest in definite immovable property but a charge is not. In a charge no right in rem is created, but the right is rather more than a personal obligation, for it is a just ad rem, that is right of payment out of property specified, while a mortgage is a right in rem. A charge can be created by act of parties or by operation of law; but a mortgage can be created merely by act of parties. The formation of a charge does not necessarily imply the existence of a debt while it is always so in case of a mortgage. A mortgage is superior against subsequent transferees and may be enforced against a bona fide purchaser for value with or without notice, while a charge is good only against subsequent transferee with notice. A charge created by operation of law does not require registration and act of parties entails registration irrespective of the amount involved.
The Act defines simple mortgage as- where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money, and agrees, expressly or impliedly that in the event of his failing to give according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money, the transaction is called a simple mortgage and the mortgagee a simple mortgagee.
In easy terms a simple mortgage does not involve giving the possession of the mortgagor’s property to the mortgagee. It is beneath mutual agreement that in case of non-payment by the mortgagee to the mortgagor within the specified time, the mortgagee can cause the mortgaged property to be sold in accordance with law and have the sale proceeds adjusted towards the payment of the mortgage money.
In a simple mortgage, there is a personal covenant to pay the mortgage money whereas in charge, there is no understanding to pay the money in person. Besides there is a transfer of interest in the property mortgaged, in a charge there is no such transfer. Notwithstanding this vital distinction, the section says: “The provision hereinbefore contained which apply to simple mortgage shall, so far may be, apply to charge.” In case of a simple mortgage, the charge-holder has got a right to enforce the charge by sale of the property subject to charge.
While it can vary greatly from state-to-state, once the lender on a first mortgage forecloses on a property, the lender will sell the first mortgage to the highest bidder in a foreclosure auction sale. The sale proceeds will then be used to pay down any real estate taxes that are due. Once the real estate taxes have been paid, if any proceeds are left, the first loan must be paid, and then the second. If the proceeds from the auction are not enough to cover these debts, several things can happen. If the balances in the first and second loans cannot be paid off, both lenders typically have the right to sue the borrower for balances owed, plus interest and other costs. If both lenders sue the borrower and win, each will be granted a “deficiency judgment.” Such a judgment will give both lenders the legal right to garnish the borrower’s wages, seize his or her bank accounts, and place a levy against other property not exempted by state law. However, not all states allow deficiency judgments. In a state that does not allow for such a judgment, a lender’s rights to proceed against a borrower are terminated once the property is foreclosed upon. Once the foreclosure is complete, the lender may not pursue further collection activity. In addition to the above, when the first mortgage lender carries out a foreclosure sale, the second mortgage lender may also bid for the property at the time of foreclosure sale. Even after the property has been sold at auction, the second mortgage lender may pay off the required amount of money to the first mortgage holder and get the property back at the end of the “redemption” period. These last two options are attempts to recover the money the second mortgage holder has invested, although they are rarely undertaken (particularly in a weak housing market). Additionally, a second lender can also charge-off any unpaid debt after getting a part of the sale proceeds when the first loan is paid off. This means, the second lender considers the debt uncollectible, but legally, the borrower still owes the money. Therefore, if the second mortgage holder charges-off the loan while it will no longer pursue a borrower, the second mortgage holder can still sell the right to collect on the debt to a third-party collector. The third-party collector has the legal right to make continued attempts to collect the debt.
Conclusion
A charge gives rise to a new proprietary interest in support of the lender over the borrower’s property. In contrast to a mortgage there is no transfer of the borrower’s existing interest but the formation of a new burden upon the borrower’s ownership. This interest by way of charge appropriates the borrower’s property to the refund of the loan. In other words it entitles the lender to look to the borrower’s property should the borrower fail to pay back the loan, for instance by insisting that the property to be sold. When the loan is repaid the charge will come to an end as there is no longer any appropriation. A charge doesn’t involve the transfer of ownership, in the same way as a mortgage of unregistered title. The charge holder is deemed to have all the legal rights of a mortgagee. However, some mortgagee rights depend on possession, such as the inherent right to take possession. A charge holder doesn’t have the possession as a mortgagee. However, it is often the case that state of affairs of a charge of registered land, right a grant mortgagee, by the terms of the charge deed.
References
1. An Introduction to Land Law from
http://fds.oup.com/www.oup.com/pdf/13/9780199593408.pdf
2. Barkat, Abdul, etal, Political Economy of the Vested Property Act in Rural Bangladesh,
Association for Land Reform and Development, (1997)
3. Land Policy and Administration in Bangladesh: A Literature Review (2003) retrieved from
http://www.carebangladesh.org/publication/Publication_7013284.pdf
4. Law of Property Act 1925 available from
http://www.legislation.gov.uk/ukpga/Geo5/15-16/20/enacted
5. Mortgages and Liens (2011) retrieved from
http://www.leg.state.or.us/ors/086.html
6. Property Law from http://legal-dictionary.thefreedictionary.com/Property+Law
7. Real Property Transfer Fee Covenants retrieved from
http://ssl.csg.org/dockets/2012cycle/2012volume/2012volume/realpropertytransfers2012sslvol.pdf
8. Rights of Property in Bangladesh retrieved from
https://www.lawyersnjurists.com/articles-reports-journals/law-and-ethics/rights-of-property-in-bangladesh/
9. The Transfer of Property Act, 1882 (Act no. IV of 1882) retrieved from
http://bdlaws.minlaw.gov.bd/print_sections_all.php?id=48 [Accessed 2 April 2013]
10. Transfer property (2005), The Times of India, Hyderabad available from
http://timesofindia.indiatimes.com/hyderabad/Transfer-property/articleshow/977776.cms
11. Transfer of Interests in Real Property from
http://www.dre.ca.gov/files/pdf/refbook/ref06.pdf
12. What Happens to Second Mortgages in a Foreclosure? Retrieved from
http://real-estate-law.freeadvice.com/real-estate-law/mortgage_matters/what-happens-to-second-mortgages-in-foreclosure.html
[1] THE TRANSFER OF PROPERTY ACT, 1882 (Act no. IV of 1882) retrieved from http://bdlaws.minlaw.gov.bd/print_sections_all.php?id=48 [Accessed 2 April 2013]
[2] Section 85 of the Law of Property Act 1925 – a mortgage deed is the legal document establishing a loan on property