Both the terms “mortgage deed” and “property sale deed” are used interchangeably in property transactions but with completely different meanings. Both the terms acquire importance in possessing the property and in funding but are wrong as both the terms equally pertain to real property. Here, in this article, we will make a difference between a mortgage deed and a sale deed of property, describe their legal background, and also mention some information like the Article 40 mortgage deed used in economic and legal terminology.
What is a Mortgage Deed?
Mortgage deed is a document which is enforceable and has nexus between a borrower (mortgagor) and a lender (mortgagee) when and if the latter gains possession of property as security for a loan—often with intent to purchase the same property. That is, the mortgage deed is provided as security to return loan.
Key Features of a Mortgage Deed
- Purpose: The borrower’s loan liability is secured through mortgage deed. The lender can sue the borrower (usually by way of foreclosure) upon default in loan.
- Parties:
- Mortgagor (borrower): Party who is providing the property to mortgage.
- Mortgagee (lender): Bank or individual lending the amount.
- What the Deed Contains:
- Property to be mortgaged.
- Loan amount being taken.
- Terms and conditions of repayment.
- Obligations and duties of parties.
- Document of Ownership: Even where mortgage deed functions to create lien on behalf of lender over property, the property continues to be owned by mortgagor until default.
What is Article 40 Mortgage Deed?
Article 40 mortgage deed is a special article under Article 40 of law of specific property or finance relating to stamp duty and other charges on mortgage deeds. Provisions to this level are jurisdiction-specific. In most of the jurisdictions, for instance, this law specifies what percentage of the stamp duty is to be remitted in mortgage deeds upon registration. It clarifies and safeguards against illicit practice such as property or mortgage loan under-valuation. Thus, while using a mortgage deed, the person needs to be vigilant with legalities as per Article 40 or the corresponding provision of your state law in an attempt to be in books.
What is a Property Sale Deed?
Transfer deed, sale deed, or property sale deed is a deed by which the seller is transferring the property to the buyer. Sale deed is the most important document which is used for the sale of a property and a valid document of possession by the buyer.
Key Features of a Property Sale Deed
- Purpose: Sale deed passes rights of ownership, title, and interest in property absolutely from one to another.
- Parties to the deed:
- Seller: The party or agency relinquishing ownership rights.
- Buyer: The party or agency taking ownership rights.
- Contents of the deed:
- Description of property sold (address, boundaries, etc.).
- Price paid and terms of payment (including advance paid and balance due).
- Seller warrants free and clear title of the property and of having no legal encumbrance.
- Buyer’s address or phone number and seller’s address or phone number.
- Affidavit of witnesses with parties’ signatures to confirm sale.
Satutory Registration: Once the property sale deed is executed, law in law of property in most countries mandates that it should be registered in the land registry office within jurisdiction. Formal legal proof of ownership is obtained by mere act of registration.
Mortgage Deed vs. Property Sale Deed: Know Differences
Even though it is in nature more or less a transfer of property, use, parties, and legal effect differ by contrast. Contrast hereunder:
1. Purpose
- Mortgage Deed: It is signed mainly as security for loans. It provides the lender with the assurance that in case of default by the borrower, they have a right in law over property. Transfer of ownership does not take place under a mortgage deed.
- Sale Deed of Property: To irrevocably pass seller’s title in property to buyer. Sale deed is the last document recording a buyer’s legal title over purchased property.
2. Parties Involved
- Mortgage Deed: Borrower and lender only. The borrower (mortgagor) retains ownership but loads property with the lender (mortgagee) as security.
- Property Sale Deed: Transfers the ownership from seller to buyer. Ownership takes effect on execution and registration of sale deed.
3. Stress on Ownership
- Mortgage Deed: Not lawfully transferring the ownership from the borrower. But placing property in lien under given lien under loan agreement.
- Property Sale Deed: Transfers the entire ownership from seller to buyer, leading to transfer of title enforceable at law.
4. Default and Legal Consequences
- Mortgage Deed: In default (default of payment), the property may be recovered by sale by auction by the lender instead of the defaulted debt.
- Property Sale Deed: On execution and registration, the vendor renounces all such claims and rights over the property (save as may otherwise in writing be agreed).
5. Legal Jurisdiction
- Mortgage Deed: Based on financial obligation and conditions under a specific formula like Article 40 mortgage deed.
- Property Sale Deed: Subject to contract and law of sale and transfer of immovable properties.
6. Terms and Financial Obligations
- Mortgage Deed: Based on the financial obligation of the borrower to repay the loan and interest, received under terms.
- Property Sale Deed: Refers to payment or consideration only once in case of ownership transfer.
Compliance in Both the Documents
Compliance as per law typically is the most important area of usage of mortgage deeds and sale deeds of property. Problem, legal problem, or financial problem may arise due to non-compliance while registering and enforcing both the documents. The following are compliance requirements in both:
1. Mortgage Deed Compliance
- Perform the act as per jurisdictional acts and law.
- Impose stamp duty on documents like Article 40 mortgage deed in a way that the document gains validity.
2. Property Sale Deed Compliance
- Document the possession of the property prior to execution through the sale deed.
- Document the document prior to local government officials in charge of the act so that legal ownership is exchanged.
Practical Situations for Both Documents
1. Mortgage Deed
If a person wishes to purchase property but is short of money, he can approach a bank and seek a mortgage loan. The lender will prepare a mortgage deed, in which the buyer’s new property is mortgaged to secure repayment of the mortgage.
2. Property Sale Deed
Whenever a buyer finalizes sale of property of the owner, he signs into a sale deed. On the registration day, legal title is transferred to the buyer of property.
The Relationship Between the Two
Similar though they are in property deals, differing in scope and intent, are mortgage deeds and sale deeds of property. For example, when purchasing homes on credit, the two would usually be signed simultaneously. First, the title of the home is transferred to the buyer via a sale deed. Second, a mortgage deed secures the buyer’s financial commitment to the lending institution.
Conclusion
Both mortgage deeds and sale deeds of property form a real estate transaction but are as different from each other as day and night if intention is taken into consideration. While a deed of mortgage deals with the interest of a lender in a mortgage, a sale deed of property is legally used to transfer a property from one to another party. Notice their variation to conclude property transactions together in harmony without resorting to court battles. In mortgage transactions, be cautious of such legislations such as the Article 40 mortgage deed that stipulates how such documents are to be signed and registered.
By rendering both documents legally compliant as well as well-drafted, sellers, buyers, as well as lenders, can protect their interests and facilitate smoother transactions within the real estate industry. Selling a property or acquiring one through financing calls for seeking the advice of legal practitioners to guarantee that your rights are legally protected accordingly.