Mortgage by Conditional Sale under the Transfer of Property Act

Shivendra Pratap Singh

Advocate

High Court Lucknow

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The world of real estate and property transactions is governed by various legal intricacies, ensuring that every aspect of a transaction is clearly defined, and the rights of parties involved are safeguarded. One such intricacy is the concept of “Mortgage by Conditional Sale” as provided under the Transfer of Property Act, 1882 (TP Act) in India. In this blog post, we’ll delve deep into this concept and try to understand its nuances.

What is a Mortgage by Conditional Sale?

Section 58(c) of the Transfer of Property Act defines a mortgage by conditional sale. It stipulates that if the mortgagor ostensibly sells the mortgaged property:

  1. On the condition that upon default of payment of the mortgage money on a certain date, the sale shall become absolute, or
  2. On the condition that upon such payment being made, the sale shall become void, or
  3. On the condition that when such payment is made, the buyer shall transfer the property back to the seller,

Then, the transaction is termed as a mortgage by conditional sale.

Key Features of Mortgage by Conditional Sale

  • Security Purpose: The primary purpose of this mortgage is to serve as security for the loan. It means the “sale” is not a genuine sale but is only a condition imposed to secure the loan amount.
  • Reverting Ownership: If the mortgagor (borrower) repays the loan as agreed, the sale becomes void, and the property rights revert to the mortgagor.
  • Default in Payment: In the event of a default, the conditional sale becomes absolute, effectively transferring ownership rights to the mortgagee (lender).

How is it different from a regular sale or other types of mortgages?

  1. Nature of Transaction: In a regular sale, the ownership of the property transfers immediately upon completion of the sale. In contrast, in a mortgage by conditional sale, the ownership remains with the mortgagor unless there is a default.
  2. Reversibility: The transaction can be reversed if the conditions are met, i.e., if the mortgagor pays back the loan within the stipulated time.
  3. Protecting the Borrower: This mortgage mechanism ensures that a borrower isn’t immediately stripped off their property rights when securing a loan. They get an opportunity to reclaim their property if they can adhere to the terms of the agreement.

Conclusion

Mortgage by conditional sale is a blend of mortgage and sale. It is intricately designed to provide benefits to both the lender and the borrower, ensuring that the lender’s interests are safeguarded while giving the borrower a fighting chance to reclaim their property. As with all legal matters, it’s essential to approach these transactions with a clear understanding and ideally under the guidance of a legal professional.

If you’re considering engaging in a mortgage by conditional sale or any other property transaction, consulting with a legal expert can save you from potential pitfalls and ensure that your interests are well-protected.