A sub mortgage is the mortgage of a mortgage. If the mortgagee mortgages his interest in the mortgaged property wholly or partially by way of security, it is called sub mortgage. Let’s discuss what is sub mortgage for a bank loan.
What is sub mortgage?
A mortgagee may offer to a bank as security the mortgage in his favor that is his rights as a mortgagee.
Thus the mortgagee while borrowing can only offer as security his rights in the mortgagee property and not the whole property which is owned by the mortgagor.
The banks usually do not accept sub-mortgage as security is available and a cover is required for a weak advance already made, however, in case, it is accepted it should take the following precautions:
1. The bank should give written notice to the mortgagor asking him to acknowledge receipt of the notice in writing and confirm the amount due by him to the mortgagee.
2. The original mortgagor should be asked not to make a repayment (part or whole) to the mortgagee but to the sub-mortgagee, i.e., the bank.
3. The mortgagee should be asked to hand over the original mortgage deed and the accompanying title deeds to the lending banker.
4. The sub-mortgage is governed by the terms of the original mortgage deed and therefore, the banker should carefully examine the terms of the original mortgage deed.
Priority of mortgages
In the case of two or more mortgages on the same property, the mortgage first executed takes priority over other mortgages executed subsequently.
It is to notice that priority is by the time of execution and not by the time of registration of documents.
Priority will be forfeited on account of fraud, misrepresentation, or gross negligence of the prior mortgagee.
According to Section 78 of the Transfer of Property Act provides “Where through the fraud, misrepresentation or gross neglect of a prior mortgagee, another person has been induced to advance money on the security of the mortgaged property; the prior mortgagee shall be postponed to the subsequent mortgagee.”
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