Usufructuary mortgage :
According to Section 58(d) of the Transfer of Property Act, ‘a Usufructuary mortgage is a transaction in which
(a) the mortgagor delivers possession expressly, or by implication and binds himself to deliver possession of the mortgaged property to the mortgagee, and
(b) authorizes the mortgagee, to retain such possession until payment of the mortgage money and to receive the rents and profits accruing from the property or any part of such rents and profits and to appropriate the same in lieu of interest, or in payment of the mortgage money, or partly in lieu of interest and partly in payment of the mortgage money.
Essential features of Usufructuary mortgage
(i) The mortgagee is put in possession of the mortgaged property. Here, by possession it is meant, the legal possession and not the physical possession. For example, the mortgagor may continue to enjoy the physical possession as the lessee of the mortgagee or the mortgagor may be the caretaker of the property directing the tenants to pay rent to the mortgagee. However, the deed must contain a clause providing for the delivery of the property to the mortgagee and authorizing him to retain such possession.
(ii) The mortgagee has the right to receive the rents and profits accruing from the property. Such rents and profits or part thereof, may be appropriated in lieu, of interest or in payment of the mortgage money or partly for both.
(iii) Unless there is a personal covenant for the repayment of the mortgage money, there is no personal liability for the mortgagor. Therefore, the mortgagee cannot sue the mortgagor for repayment of the mortgage debt; nor can he sue mortgagor for the sale or foreclosure of the mortgaged property.
(iv) There is no time limit specified and the mortgagee remains in possession of the property until the debt is repaid. The only remedy for the mortgagee is to remain in possession of the mortgaged property and pay themselves out of the rents and or profits of the mortgaged property. If the mortgagor fails to sue for redemption within thirty years, the mortgagee becomes the absolute owner of the property.
Bankers do not prefer this form of mortgage for the following reasons:
(i) There is no personal covenant to repay the debt.
(ii) As the mortgaged money can be recovered only by the appropriation of rents and/or profits, it will take a very long time to recover money through this process.