Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Mortgage under the Transfer of Property Act, 1882

Updated 11 October 2026 · Fact-checked

A mortgage transfers an interest in specific immovable property to secure a loan. For banks, you must know the types of mortgage, marshalling under section 81 (a later mortgagee can make the earlier debt be met from properties not mortgaged to him) and section 79 (priority up to a stated maximum).

Understand Mortgage under the Transfer of Property Act, 1882

A mortgage is the transfer of an interest in specific immovable property as security for a loan. The owner is the mortgagor. The lender, usually a bank, is the mortgagee. The property stays with the mortgagor, but the bank gets a right to be repaid out of it if the borrower defaults.

The Act recognises six types of mortgage: simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title-deeds (also called equitable mortgage) and anomalous mortgage. In banking practice, the two you meet most are the registered mortgage and the equitable mortgage by deposit of title-deeds. Under section 96, the provisions that apply to a simple mortgage apply, so far as may be, to a mortgage by deposit of title-deeds. For the formalities of each type, rely on the Act's definitions in section 58 and the rules on registration and attestation.

Problems arise when one owner mortgages the same property, or several properties, to more than one lender. Two rules in the Act settle who is protected. Section 81 (marshalling) protects the subsequent mortgagee when the owner has mortgaged two or more properties to the first lender. Section 79 protects the prior mortgagee whose security covers an uncertain amount, such as a cash credit account, when a maximum is stated.

Marshalling under section 81: the owner mortgages two or more properties to one person, and then mortgages one or more of them to another person. The subsequent mortgagee can, unless the contract says otherwise, require that the prior debt be satisfied out of the property or properties not mortgaged to him, as far as they will extend. This cannot prejudice the prior mortgagee or any other person who has acquired an interest in any of the properties for consideration.

Section 79: a mortgage may secure future advances, the performance of an engagement, or the balance of a running account. If it expresses a maximum, a subsequent mortgage of the same property, made with notice of the prior mortgage, is postponed to the prior mortgage for all advances or debits up to that maximum. This holds even if the advances are made with notice of the subsequent mortgage. This is why banks fix a limit in the mortgage deed for cash credit and overdraft accounts.

Key rules to remember

Types of mortgage: Simple | Conditional sale | Usufructuary | English | Deposit of title-deeds | Anomalous; Six types. Be ready to define each in a line and say which a bank typically uses.
Section 81 – Marshalling securities: Owner mortgages properties A and B to X, then mortgages A to Y → Y can require X's debt to be met first from B, so far as B extends; Applies in the absence of a contract to the contrary. Cannot prejudice X or anyone who acquired an interest in any property for consideration.
Section 79 – Uncertain amount with maximum: Later mortgage (with notice) is postponed to the prior mortgage for all advances up to the stated maximum; Covers future advances, performance of an engagement, or balance of a running account. Applies even if later advances are made with notice of the subsequent mortgage.
Section 96 – Deposit of title-deeds: Simple mortgage provisions apply, so far as may be, to a mortgage by deposit of title-deeds; Use it to link the rules on enforcement and priority to equitable mortgages.

How to solve Mortgage under the Transfer of Property Act, 1882 questions

Most questions give facts about a borrower, properties and lenders, and ask who is entitled to what. Use this order.

1List the properties and the order of mortgages: who is the first lender, who is the second, and which properties each holds.
2Identify the type of mortgage or the type of debt: a fixed loan, or a running account, future advances or engagement.
3If one lender holds all the properties and a later lender holds only some, think of marshalling under section 81.
4If the first mortgage secures a fluctuating balance, check whether a maximum is expressed. If yes, think of section 79 and check notice.
5State the rule in plain words and add the conditions: no contrary contract, no prejudice to the prior mortgagee or to a person who acquired an interest for consideration.
6Apply the rule to the figures, with amounts worked out step by step.
7Give a clear conclusion, and add a practical drafting or compliance point for the bank, such as stating a maximum in the deed.

Quickest way: Two-question test for priority problems

When to use it: When the problem has two lenders on overlapping property and you have a few minutes.

Ask: does the first lender hold more properties than the second? If yes, section 81 marshalling is likely.
Ask: is the first lender's debt a running account with a stated maximum? If yes, section 79 is likely.
Write the rule in one sentence, with its exceptions.
Apply it in one or two lines and state the result in rupees.

Common mistakes in Mortgage under the Transfer of Property Act, 1882

Applying marshalling when the second mortgagee has no claim over any property the first lender does not already hold.
Students remember the word marshalling but not the facts needed to trigger it.
Fix: Check that the owner mortgaged two or more properties to the first person and then mortgaged one or more of them to another person.
Saying marshalling always applies.
The rule looks automatic.
Fix: State that it applies in the absence of a contract to the contrary, and it cannot prejudice the prior mortgagee or a person who acquired an interest for consideration.
Forgetting the notice condition in section 79.
Students focus on the maximum and skip the words about notice.
Fix: Write that the subsequent mortgage must be made with notice of the prior mortgage.
Giving the first lender priority above the stated maximum under section 79.
Students assume priority covers the whole balance.
Fix: Priority is only for advances or debits not exceeding the maximum. The excess ranks behind the later mortgage.
Treating an equitable mortgage as a separate law with its own rules.
The term is used in banking practice, not as a heading in the Act.
Fix: Say it is a mortgage by deposit of title-deeds, and that section 96 applies simple mortgage provisions to it so far as may be.

Worked examples

Example 1

Ravi owns a shop in Pune and a flat in Nashik. He mortgages both to Bank A for ₹20,00,000. He then mortgages only the shop to Mr. Sharma for ₹5,00,000. There is no contrary contract. Bank A seeks to recover from the shop. Advise Mr. Sharma.

Show the solution

Facts: two properties are mortgaged to Bank A, and then one of them (the shop) is mortgaged to Mr. Sharma.
Rule: under section 81, the subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage debt satisfied out of the property not mortgaged to him, so far as it will extend.
Application: the flat is not mortgaged to Mr. Sharma. He can require that Bank A's debt be met first from the flat, as far as the flat's value extends.
Limit: this must not prejudice Bank A's rights, or those of a person who acquired an interest in either property for consideration. If the flat is insufficient, Bank A may still go against the shop.
Practical point: a bank should check for later charges and state in the deed if it wishes to exclude marshalling by contract.

Answer: Mr. Sharma can require Bank A to look first to the Nashik flat, so far as it will extend, but Bank A's rights are not prejudiced if the flat falls short.

Example 2

Meera mortgages her land to Bank B to secure the balance of her cash credit account up to a maximum of ₹10,00,000. She later mortgages the same land to Mr. Iyer for ₹10,00,000, and Mr. Iyer has notice of Bank B's mortgage. At that date, Bank B's balance is ₹4,00,000. Bank B later advances more, and the balance rises to ₹12,00,000. Who has priority and for how much?

Show the solution

Rule: section 79 applies where a mortgage securing a running account expresses a maximum. A later mortgage made with notice is postponed to the prior mortgage for all advances or debits not exceeding that maximum.
Facts: the maximum is ₹10,00,000, and Mr. Iyer had notice of the earlier mortgage. The later advances were made after his mortgage, but that does not matter, even with notice of his mortgage.
Priority: Bank B ranks first up to ₹10,00,000.
Excess: ₹12,00,000 − ₹10,00,000 = ₹2,00,000 is above the stated maximum, so it is not covered by the priority. It ranks after Mr. Iyer's mortgage.
Practical point: the bank should state a maximum in the deed and monitor the account against it.

Answer: Bank B has priority over Mr. Iyer for ₹10,00,000. The remaining ₹2,00,000 is not protected by section 79 and ranks behind Mr. Iyer.

Exam tips

Quote the section number with the rule in your first line, then apply it. Examiners look for provision, analysis, conclusion.
Always write the conditions: no contrary contract and no prejudice for section 81; notice and stated maximum for section 79.
Do the arithmetic line by line. Show the maximum, the balance and the excess separately.
Add a short drafting point, such as stating a maximum in the mortgage deed or checking for earlier charges.

Practice questions from Advances, Securities and Documentation

Mortgage under the Transfer of Property Act, 1882 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Mortgage under the Transfer of Property Act, 1882: frequently asked questions

What are the types of mortgage under the Transfer of Property Act?

There are six: simple mortgage, mortgage by conditional sale, usufructuary mortgage, English mortgage, mortgage by deposit of title-deeds and anomalous mortgage. Banks mostly use registered mortgages and the equitable mortgage by deposit of title-deeds.

What is marshalling of securities under section 81?

If an owner mortgages two or more properties to one person and then mortgages one or more of them to another, the later mortgagee can, unless the contract says otherwise, require the earlier debt to be met from the properties not mortgaged to him. It cannot prejudice the prior mortgagee or a person who acquired an interest for consideration.

What does section 79 say about a mortgage for an uncertain amount?

If a mortgage securing future advances, an engagement or a running account states a maximum, a later mortgage made with notice of it is postponed to it for all advances or debits within that maximum. This applies even if the advances are made with notice of the later mortgage.

Do the rules for simple mortgages apply to an equitable mortgage?

Yes, so far as may be. Section 96 provides that the provisions for a simple mortgage apply to a mortgage by deposit of title-deeds.