If the mortgaged property of the mortgagor is mortgaged again to another person as security for further borrowing, such a mortgage is called a second mortgage. Let’s know detail about what is second mortgage.
So, mortgagor, after giving a first mortgage, can thereafter legally create a second and even subsequent mortgage on the same property. The second mortgage will rank in priority after the first, the third after the second, and so on.
A creditor holding a second charge by way of mortgage is entitled to precedence after the first charge is met.
He must inform the prior mortgagee of his charge because the first mortgagee cannot part with the title deed or sale proceeds of the property unless he has notice of the second charge.
What is second mortgage
Bankers are not usually inclined to accept second or subsequent mortgages as cover for advances as such mortgage is subject to the prior mortgage. When allowed it should be ensured that the margin between the first mortgage money and the saleable value of the property must be considerable.
Another drawback of a second or a subsequent mortgage is that the title-deeds do not come in the banker’s possession. The title-deeds must have already been handed over by the mortgagor the first mortgagee.
If a second mortgage is taken as security, the banker should hove notice to the first mortgagee and obtain his acknowledgment and also his confirmation of the amount due to him.
An inquiry should be made from the first mortgagee if he is under any obligation, according to the terms of the mortgage deed, to make any further advances to the mortgage.
If he is under such an obligation, that point must be carefully kept in mind by the banker. The law on the point is stated in section 79 of the Transfer of Property Act. 1882 as under
“If a mortgage made to secure future advances, the performance of an engagement or the balance of a running account expresses the maximum to be secured thereby, a subsequent mortgage of the same property shall, if made with a notice of the prior mortgage, be postponed to the prior mortgage in respect of all advances or allowed with notice of the subsequent mortgage.”
It will be seen that there are two important conditions in Section 79 quoted above. Firstly, whether there is a maximum amount to be secured by the first mortgage and, secondly, whether the second or subsequent mortgagee has had notice of the first mortgage.
Notice of the first mortgage is registered with the Sub-Registrar, as such registration is a notice under Section 3 of the Transfer of Property Act, 1882.
Even where the first mortgage is by way of deposit of title-deeds, the effect of notice can be established, as the title-deeds will be in the custody of the first mortgagee and therefore, if the second mortgagee advances the money without asking for them, he will be doing so at his own risk and will be affected with a constructive native of ht equitable mortgage.
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