WHAT TO DO IF YOU FIND OUT THAT THE PROPERTY YOU PURCHASED WAS ALREADY MORTGAGED TO SOMEONE ELSE: THAT’S WHAT THE ALLAHABAD HIGH COURT EXPLAINED IN “JUGUL KISHORE VS BANWARI LAL AND ORS.”

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Introduction

Buying a property is a big decision for anyone. A person invests his life savings in buying a flat or plot for his family, which he believes will become his home. But, as we all know, there are risks which are always present in making such a high value transaction. Many a times after you purchase a property you became aware of a mortgage which the seller has taken on the property and now the mortgagor is breathing down your neck to get the money out of you. This is more prevalent in Delhi where unregistered GPA’s, Wills etc. are used to transfer the property.

What are your remedies in such cases and can you force your seller to get you out of this trouble? This will be the topic of our discussion and we will see how in the instant judgment the Court has helped purchasers of property by explaining their rights and power vis a vis the Seller.

So, let’s see these remedies.

Brief Facts

Let’s say you purchased a property (let’s say a flat in Sarita Vihar) from Y for let’s say Rs. 100/- in the year 2022. Only after purchasing the Flat, giving all the money to Y and living in the Flat for One year, you come to know that the Flat was already mortgaged to Z in the year 2018 for Rs. 200/- i.e. even before you purchased it. But nothing in this regard was communicated to you by Y. But this does not make any difference as Z filed a case in the Court for selling the property in order to get his Rs. 200/- back. So how you should solve this problem you are in?

We have to move step by step to understand and resolve the problem. First of all, let’s understand the concept of Mortgage.

What is a Mortgage?

If you live in North India you must have come across the term “Girwi Rakhna”. This is Mortgage. In this transaction if you take a loan from someone then in order to assure him that you will pay the money back you mortgage something with him. You must have come across this when you take a home loan from a Bank.

You surrender the original title deeds to the Bank in order to get the loan. If you fail to pay the loan, then the Bank will sell your property in a Public Auction either conducted simply through DRT i.e. Debt Recovery Tribunal or in case of SARFAESI through Court. That is precisely the reason that you give your original title deeds/sale deed to the bank and keep it deposited with the bank till you pay the loan. The Bank in this case is called the Mortgagee and you are called Mortgagor.

In the above case the Z is the mortgagee and Y, who sold the Flat, is a Mortgagor.

Seller Did Not Tell You about the Mortgage on the Property

Now what are the remedies available to you, who is simply an innocent purchaser?

Now the situation is this – You after purchasing the property came to know that the property was initially mortgaged, which fact was not communicated to you by the Seller and now the mortgagee have come knocking on your doors to sell the property so that his loan could be repaid.

Solutions

There are some solutions to the abovementioned problems and they are as follows.

Firstly, you can file a case against Y claiming one of the two reliefs.

You can ask Y to discharge the loan amount due to Z. But why? Because of Section 55 (1) (g) of Transfer of Property Act, 1882. This Section states that when a property is sold  by someone to you and it is not written in the Sale Deed that the property is sold “subject to any mortgage”, the seller have to pay the mortgagor and the purchaser is free from any liability. So, if you would have known from the beginning that there is a mortgage on the property, even then you do not have to pay anything. Even you can file a case in the Court in which you can force Y to pay the mortgage money i.e. Rs. 200/- to Z and free the property from such burden.

Now the case by you against the mortgagor Z may take some time and in between it can happen that  the Mortgagee Z get and order from the Court to sell the property to recover the mortgage money or loan. In such a case a Bailiff of Court will come to your home asking you to vacate the Flat. What can you do in such a situation?

Here you can simply pay Z his Rs. 200/- for the time being, so that at least you can live in your Flat peacefully. Now you can  file another case against Y in which rather than asking him to pay Rs. 200/- to Z, YOU can say that as you have already paid Rs. 200/- to Z, Y should pay you Rs. 200/-.

When You Do Not Have Money for Paying Mortgage

Secondly, it can happen that you do not have Rs. 200/- with you, as happens with most people as they spend their life savings for purchasing the property and hence have very little left with them after purchasing the property. May be that is the reason that most of the people purchase a property when they retire and get a lump sum amount.

In such a case you can ask Z to do whatever he wants with the property and you simply vacate it. But then you must file a case against Y for return of purchase price you paid to him i.e. Rs.100 with interest. This is your right under Section 55 (2) of Transfer of Property Act, 1882 and you can ask the Seller/Vendor to compensate you for your loss.

Beware of Property Which Has These Words In The Sale Deed

If in a Sale Deed it is written that the property is sold on “as is where is”, “as is where is” or “whatever there is” basis you should avoid buying it. Because in case it is written in your Sale Deed and after purchasing the property you become aware of any defect in the property, you cannot do anything and either you have to pay the mortgagee his money or let go of the property. These words are generally written in the auction sale conducted by the Banks, but because of the low sale price in such auctions people purchase the property endangering their hard earned money

So either you should ask the Seller to delete these words or you do not buy the property at all. If the Seller insists on keeping this Clause, you have to buy this property get an Indemnity Clause inserted in the Sale Deed.

Conclusion

It is generally said that it is the duty of the buyer to check the chain of the documents, revenue records or Registrar’s office before purchasing a property and if he fails to do so he should be blamed for any defect in the property which may be found out later on. This is called the Doctrine of Caveat Emptor meaning “Buyer Beware”.

But Section 55 (1) (g) of Transfer of Property Act does not even demand this from the Buyer and even if he was aware of the mortgage and still buys the property he can get the refund of the money he has given to the Seller. Therefore it is important that the Purchaser/Vendee of a property knows his rights before and after buying a property, so that he cannot be taken for a ride by the Seller.

Parveen Semwal

Advocate, High Court of Delhi and Supreme Court of India