Foreclosure of mortgage property
What is the foreclosure of mortgage?
Overview
As said by Danbury, the right to foreclose is an equitable right given to the mortgagee to counterbalance the mortgagor’s right to redeem. This was a proper move on the part of equity courts because one has to become just before he professes to become generous. Foreclosure can be affected only by an order of the Court.
The Court thereby gives the mortgagor and all the parties interested in the equity of redemption an opportunity to redeem the mortgage. The mortgagor, who in such proceedings is already too late to redeem at law, shall be deprived even of his equitable right.As Strahan puts it, it is simply the right to ask the Court to withdraw its suitable cases, therefore, a Court passes first of all a conditional order of foreclosure, called a foreclosure nisi, which if not complied with by the mortgagor will become absolute, and the mortgagor will be barred forever from redeeming his property, resultantly the mortgagee will hold the land absolutely both at law and in equity.
Foreclosure meaning in law:
A legal proceeding to terminate a mortgagor's interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.
Suit Foreclosure of mortgaged property means:
A suit to obtain a decree that a mortgagor shall be fully debarred of his right to redeem the encumbered property is named a suit for Foreclosure.
Where Foreclosure is allowed:
Section 67 of the Transfer of Property Act provides for this. The position of various mortgagees under the Act is that in case of a simple mortgagee and a usufructuary mortgage, no foreclosure is allowed, while in case of an English mortgagee and a mortgage by deposit of title deeds the remedy of sale is allowed. It is only in case of a mortgage by conditional sale that a foreclosure is allowed. An anomalous mortgagee may have, according to the terms of the mortgage, both or any one of the two remedies: foreclosure or sale. A dismissal of the redemption suit on failure of the mortgagor to redeem operates to foreclose his right of redemption and he will not be allowed to sue for redemption again, as it amounts to harassment of the mortgagee.
Mortgagee against whom a preliminary decree had been passed could apply for final decree for sale or foreclosure if the decree holder/mortgagor defaulted in payment of mortgage money. Decree for sale could be passed except in case of mortgage by conditional sale, a usufructuary mortgage or an anomalous mortgage in which case a decree for foreclosure would be passed. Mortgagor in case of usufructuary mortgage would be entitled to payment at any time even after the expiry of period fixed and he could apply for final decree. mortgagee in Usufructuary mortgage could not apply for a final decree on default of payment by the mortgagor.
Opening the Foreclosure
As said before, although the absolute foreclosure order appears to be final, a Court will open a foreclosure in circumstances compelling and inducing it to do so. They are, as enumerated by Snell:
- i) An accident at the last moment preventing the mortgagor from raising the money,
- ii) Any special value of the property to the mortgagor,
- iii) A marked disparity between the value of the property and the amount lent,
- iv) The promptness of the application; and
- v) Where the mortgagee pursues another remedy after obtaining an order of of foreclosure absolute. It was for this reason that Maitland remarked that “one is not very safe in purchasing a foreclosed estate.”
Law in Subcontinent for reopening a final decree of foreclosure:
In subcontinent, no such provision for reopening a final decree of foreclosure exists as could be gathered from Order 34, Rule 3 of the Civil Procedure Code.
Besides suing a mortgagor personally and foreclosing his right of redemption, in Subcontinent, a mortgagee has the remedies of a judicial sale, without intervention of Court, appointment of a receiver and taking possession of the mortgaged property.
Court has no jurisdiction of reopening a final decree of foreclosure:
In order to decide whether the Court has jurisdiction in a case where there has been a final decree for foreclosure it must have regard to the provisions of the Transfer of Property Act and the Code of Civil Procedure, and when these are examined it is manifest that the Court has not the jurisdiction to reopen a foreclosure decree in order to extend the time for redemption.
These statutory provisions when read together leave no room for the contention that the Court had power within its equitable jurisdiction to grant relief of the nature sought. The proviso to section 60 and the provisions of section 98 of the Transfer of Property Act in themselves may not be conclusive, but the provisions of Order 34, rules 2 (2) and 3 of the Code of Civil Procedure put the question beyond doubt.
By Order 34, rule 2 (2) of Civil Procedure Code, the Court's power to extend the time for redemption is limited to the period between the passing of the preliminary decree and its displacement by a final decree and rule 3 expressly provides that the final decree shall declare that the mortgagor and persons claiming through or under him are debarred from all right of redemption.
What is the foreclosure process:
(1) Where, before a final decree debarring the defendant from all right to redeem the mortgaged property has been passed, the defendant makes payment into Court of all amounts due from him under sub-rule (1) of rule 2, the Court shall, on application made by the defendant in this behalf, pass a final decree
- (a) ordering the plaintiff to deliver up the documents referred to in the preliminary decree,
- (b) and if necessary,
- (c) ordering him to re-transfer at the cost of the defendant the mortgaged property as directed in the said decree,
- (d) and, also, if necessary,
- (e) ordering him to put the defendant in possession of the property.
Where payment in accordance with sub-rule (1) has not been made, the Court shall, on application made by the plaintiff in this behalf, pass a final decree declaring that the defendant and all persons claiming through or under him are debarred from all right to redeem the mortgaged property and also, if necessary, ordering the defendant to put the plaintiff in possession of the property.