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Purchasing mortgaged properties
Nowadays, many properties are caused to be sold by banks and financial institutions. These are usually owned by various borrowers or guarantors. If there is a default and the borrower or guarantor is not in a position to reverse it, the properties may be sold.
The enforcement of the charge created by a borrower or a guarantor has become relatively easier after the passing of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This Act is referred to in common parlance as SARFAESI.
The scheme of the Act facilitates a speedier enforcement of the security and therefore sale of the property concerned.
The definition of a borrower includes a guarantor also. Practically, any type of property will be covered by the definition.
After passing of the SARFAESI Act, a bank or a financial institution is in a position to sell the property even though there is no mortgage deed and other requirements as required earlier were not fulfilled. In other words, the position of various types of charges, in most of the cases was equated with that of a registered mortgage deed and the security could be enforced without the intervention of the court or tribunal.
The conditions for enforcement of the security interest are also set out in the Act. The bank or financial institution should be a secured creditor. A secured creditor means a creditor in whose favour a security interest is created by the borrower for due repayment of a financial assistance.
A security interest means a right, title and interest of any kind whatsoever in respect of a property created in favour of the bank or financial institution. A security agreement means an agreement, instrument or a document or an arrangement under which the “security interest” is created in favour of the “secured creditor”.
The definition of “security agreement” includes a mortgage created by deposit of title deeds.
The borrower should have committed a default. A default means non-payment of principal debt or interest or any other amount payable by a “borrower” to a “secured creditor”. The “secured creditor” has to give a statutory notice giving the “borrower” a minimum prescribed time for repayment.
R.L. NARAYANAN
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