Accession to mortgaged property TPA

Accession of Mortgaged Property

Introduction

In the realm of contract law, the concept of accession plays a vital role in defining the rights and obligations of parties involved in a mortgage agreement. Accession refers to the legal principle that governs the rights of a mortgagee (lender) over any improvements or additions made to the mortgaged property by the mortgagor (borrower).

Accession meaning:

Literal Meanings of Accession: 

A thing added to acquire, arriving at;

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Legal meanings of accession:

1) Where there is an acquisition of land from the sea, or river by gradual, low, and imperceptible means, the accretion by alluvion is held to belong to the owner of adjoining land. Such accretion is an accession to the adjoining land.

2) An accession means any accretion to the mortgaged property. Any acquisition which would increase the value of the property mortgaged either in point of area or title or in any other manner would fall under the term accession.

Law of Accession

The law of accession is embodied in Section 63 and Section 70 of the Transfer of Property Act, 1882. The former deals with the mortgagor’s right to accession while the latter refers to the mortgagee’s right to accession.

Mortgagor's Right to Accession [Section 63]

The property originally mortgaged formed a security for the repayment of the loan advanced by the mortgagee and any addition to such property ensure to the benefit of the mortgagee. The accession forms an additional security for his money. He can realise the mortgage money not only from the property originally mortgaged to him but also from the accession. 

It follows that where the mortgagee’s security is enlarged by accession he would be liable to return the property which forms the security together with the accession to the mortgagor on payment of a loan. This is the general rule laid down in Section 63 unless there is a contract to the contrary.

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Understanding Accession

Accession, in the context of a mortgage, refers to the legal principle that addresses the rights of the mortgagee over any improvements or additions made to the mortgaged property. When a borrower enhances or modifies the property, such as constructing a building or making significant renovations, the principle of accession comes into play.

Under accession, the general rule is that the mortgagee acquires an interest in these improvements automatically. This means that the mortgagee's security interest extends to the added value resulting from the enhancements made by the borrower. In simple terms, the mortgagee gains a right to the improved property.

Kinds of Accession

Section 63 deals with two kinds of accession: 

• a) Natural Accession.
• b) Acquired Accession. 

Natural Accession 

Such accession forms part of the security and follows the property on redemption. The mortgagee is entitled to no compensation as he incurs no expense in respect of them. They increase the value of his security, and when his debt is discharged, the. mortgagor is dearly entitled to them. 

Example of Natural Accession: 

Thus, where A mortgaged to B a certain field bordering on a river and the field was increased by alluvion. A on redemption would be entitled to get back the field as well as the alluvion land.

Accession Acquired at Expense 

Suppose an accession is acquired by the mortgagee in possession, will such an accession go to the mortgagor on redemption. If, so, whether the mortgagee would be entitled to claim the expense of acquiring it? 

To answer these questions it is again divided in the two kinds, as: 

(i) Separable Acquired accession:

Where the accession acquired by the mortgagee and is separable from the mortgaged property, the mortgagor is not bound to take it, he must pay the mortgagee the expense of acquiring it. 

Example of Separable Acquired accession:

Government trees standing on the land mortgaged and purchased at a favorable rate by the mortgagee were held to be an accretion to which the mortgagor was entitled on payment of the purchase price and other reasonable expenses. But adjoining Government wasteland brought into cultivation by the mortgagee is not an accession

(ii) Inseparable Acquired accession:

When the accession by the mortgagee is inseparable from the mortgaged property, the mortgagor has no option but to take it on redemption. But in such a case the mortgagee will not be entitled to any compensation except in the two cases given below: 

• 1. Where the acquisition was necessary to preserve the property from destruction, sale or forfeiture, etc.
• 2. When the acquisition was made with the consent of the mortgagor.

Example of Inseparable Acquired accession: 

Thus, if a mortgagee makes necessary repairs to well with the consent of the mortgagor, the mortgagor must pay the costs of repairs to the mortgagee. So, also when the mortgagee planted a grove of mango trees with mortgagor's consent, the mortgagee was allowed compensation. But when the mortgagee without the consent of the mortgagor added an upper storey to a building, or constructed a well, or planted a grove, he was not entitled to recover compensation from the mortgagor. 

It is a question of fact in each case whether an accession is separable or inseparable from the mortgaged property and whether it was made to preserve the property from destruction, forfeiture or sale. 

Application of Section 63 of the Transfer of Property Act

In order that Section 63 may apply, three conditions must be satisfied:

• 1. The addition to the property must be an accession to it.
• 2. The accession to the property must have been received during the continuance of the mortgage.
• 3. The mortgagee must have acquired the accession qua mortgagee.

Mortgagee's Rights:

• Security Interest: The mortgagee has the right to enforce their security interest over the mortgaged property, including any improvements or additions made by the mortgagor.
• Accession to Improvements: The mortgagee has a right to the enhanced value resulting from any improvements made by the mortgagor to the mortgaged property during the term of the mortgage.
• Priority: The mortgagee's interest in the improvements typically enjoys priority over subsequent claims or interests on the property, subject to the provisions of the Transfer of Property Act and any other applicable laws.
• Foreclosure: In the event of default by the mortgagor, the mortgagee has the right to foreclose on the property, including any improvements made, and sell it to recover their dues.

Mortgagee’s Right to Accession [Section 70]

Under Section 70, if after the date of the mortgage, any accession is made to the mortgaged property, the mortgagee shall, in the absence of a contract to the contrary, be entitled to such accession for the purposes of the security. 

Mortgagor's Obligations:

• a. Maintenance and Repairs: The mortgagor must maintain the property and ensure that the improvements remain in good condition.
• b. Consent: Depending on the terms of the mortgage agreement, the mortgagor may be required to obtain the mortgagee's consent before making substantial alterations or additions.
• c. Insurance: The mortgagor is often obligated to maintain adequate insurance coverage on the property, including the improvements, to protect the interests of the mortgagee.

Illustration: 

• 1. A, mortgages to B, a certain field bordering on a river. The field is increased by alluvion. For the purposes of this security B is entitled to the increase. 
• 2. A, mortgages a certain plot of building land to B and afterwards build a house on the plot. For the purposes of his security, B is entitled to the house as well as the plot. 

Comparison Between Sections 63 And 70 of Transfer of Property Act

Section 63 deals with the rights of a mortgagor on redemption to the accession of the mortgaged property and Section 70 provides for the right of the mortgagee to accession on sale or foreclosure of the property. Under Section 63, accessions have been divided into natural and acquired accessions and with respect to acquired accessions, distinction has been made between separable and inseparable accession, but under Section 70 no such distinction is made.

Conclusion

The accession of the mortgaged property is a crucial aspect of the law that defines the rights and obligations of the mortgagee and mortgagor in relation to any improvements or additions made to the mortgaged property. While the mortgagee generally acquires an interest in the enhanced value resulting from the improvements, the specifics can vary based on jurisdiction and the terms outlined in the mortgage agreement.