Legal Question in Real Estate Law in Pakistan

From the point of view of transfer of title to the mortgaged property, mortgages are divided into two categories: legal mortgage and equitable mortgage.

Legal Mortgage!!!

In the case of legal mortgage, the mortgagor transfers legal title to the mortgaged property in favor of the mortgagee by a deed. In legal mortgage transfer of legal title to the mortgage involves expenses in the form of stamp duty and registration charges.

Equitable Mortgage!!!

On the other hand, in case of an equitable mortgage, the mortgagor transfers the documents of title to the mortgagee for the purpose of creating an equitable interest of the mortgagee in the property.

It means that legal title to the property is not passed on the mortgagee, but the mortgagor undertakes, through a Memorandum of Deposit, to execute a legal mortgage in case he fails to pay the mortgage money. The mortgagee is thus empowered to apply to the court to convert the equitable mortgage into a legal mortgage if the mortgagor fails to pay the mortgage money on the specified date.

It is worth mentioning that a mortgage by deposit of title deeds requires three ingredients: the existence of a debt in the present or future, the deposit of title deeds, and an intention that the title deed should be the security for the debt. The intention is indeed the essence of the transaction. An agreement of sale by itself does not create any interest in the property. Hence such an agreement is not deemed as Document of Title to property. For equitable mortgage, the deeds deposited must relate to the property or as material evidence of title and must have been deposited with the intention of creating a security thereof.

Whereas when an effective equitable mortgage has been created, the

token mortgage adds nothing to the security. Where the equitable mortgage is

ineffective, the token mortgage would be the �only� security effective �only� for the �token� money. Therefore, the ultimate issue always remains, whether effective security for the entire exposure has been created or not.

Inamullah Ansari

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