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    Net Worth & Solvency Glossary · Net Worth Mechanics

    How a Mortgage Enters an Indian Net Worth Statement

    noun · security over immovable property · two forms met most often: equitable and registered
    Definition

    A mortgage is security for a loan given over immovable property, such as land, a house or a building, in which the borrower transfers an interest in the property to the lender while usually keeping possession.

    In Indian lending, the two forms met most often are the equitable mortgage, created by depositing the title deeds with the lender, and the registered mortgage, created by a mortgage deed registered with the sub-registrar.

    • Written by Subham Jhunjhunwala
    • Reviewed by CA Sundram Gupta
    • Reviewed on · Updated

    See related terms

    How it enters the statement

    A mortgaged property stays on the statement. It is not removed.

    1. The property, at its own valueShown as an asset. A reader who disagrees with the value can substitute their own figure.
    2. The outstanding loan, as a liabilityFrom the sanction letter and the latest loan statement.
    3. The net positionIt follows from the two. Where the loan exceeds the value, it is shown as negative, not as nil.

    Where one property secures more than one loan, each charge is listed separately.

    Meaning

    01Equitable and registered mortgages: the practical difference

    Mortgage by deposit of title deeds

    Equitable mortgage

    Created by
    The borrower hands the original title deeds to the lender, intending them as security.
    Cost and time
    It is quick, it can cost less in stamp duty depending on the state, and many housing and business loans rest on it.
    Visibility
    May leave no public trace at all, so disclosing it is the borrower's responsibility.
    Mortgage by registered deed

    Registered mortgage

    Created by
    A mortgage deed is signed and registered at the sub-registrar's office, like any other registered document.
    Cost and time
    It usually takes more time and duty, and it is generally regarded as giving the lender a clearer position.
    Visibility
    Appears in the registration records and on an encumbrance certificate.
    For someone whose net worth is being certified, the practical difference is visibility. A registered mortgage appears in the registration records and on an encumbrance certificate. An equitable mortgage may leave no public trace at all, so disclosing it is the borrower's responsibility. Both secure the debt.
    "Mortgage certificate" or "indenture of mortgage"Usually means the mortgage deed itself, or a lender's letter confirming the mortgage and the amount it secures.

    On a certificate

    02Netting a mortgaged property against its outstanding loan during certification

    The property is shown at its own value, the outstanding loan is shown as a liability, and the net position follows from the two. Three things go wrong when that is not done.

    Error one

    Removing the property

    Understates assets and leaves an unexplained loan on the other side.

    Understates the position
    Error two

    Ignoring the loan

    Overstates the position, and is the more serious error.

    The more serious error
    Negative equity

    Showing it as nil

    Where the loan exceeds the property's value, the position is shown as negative, not as nil. A reader needs to know the asset will not clear its own debt.

    Shown as negative

    The netting is shown openly, not done silently, so a reader who disagrees with the property value can substitute their own figure. Where one property secures more than one loan, each charge is listed separately, because a single combined figure hides which lender ranks first.

    This is how a mortgaged home or office appears in a net worth certificate signed by a CA.

    The evidence

    03Title deeds, sub-registrar records and sanction letters a CA asks to see

    A CA establishes ownership and charges separately, because one does not prove the other.

    Ownership

    The registered title deed

    Shows who owns the property.

    Registered charges

    The encumbrance certificate

    Shows what has been registered against the property over the period searched, which is where a registered mortgage appears.

    The outstanding amount

    The sanction letter and latest loan statement

    Show the outstanding amount and the security the lender believes it holds.

    The equitable mortgage

    The lender's confirmation

    The evidence for an equitable mortgage, because the public record may show nothing.

    A clean encumbrance certificate is therefore not proof that a property is free of a mortgage. Wherever a loan exists, the lender's confirmation is asked for, and its absence is treated as a gap in the evidence, not as proof that no charge exists.

    Also see

    04Security terms commonly confused with a mortgage

    The record a registered mortgage appears in, the ratio a lender applies to it, and three forms of security over movables that are not mortgages.

    Where a registered mortgage shows

    Encumbrance Certificate

    The record of what has been registered against a property. It shows a registered mortgage, but may miss an equitable one.

    Read the definition
    The lender's ratio

    Loan-to-Value Ratio (LTV)

    The share of a property's value a lender will advance against a mortgage.

    Read the definition

    Security over movables, often confused with a mortgage

    Not mortgages
    • HypothecationA charge over movables the borrower keeps.
    • PledgePasses possession of movables to the lender.
    • LienA right to keep property until a debt is paid.

    A mortgage is the form for immovable property.

    Browse all net worth and solvency terms

    Written by Subham Jhunjhunwala · Reviewed by CA Sundram Gupta

    Reviewed on: Last updated: Applies to: mortgaged immovable property in India entering a certified net worth statement

    This entry describes Indian practice in general terms and is not legal advice on a particular property.

    Need help with a certificate that uses mortgage? See our Net Worth Certificate.The certified statement in which a mortgaged property and its loan are netted openly.