Mortgage means taking a loan in exchange for a property, like land or house. When you take a loan and keep your house or property on stake, that property becomes a mortgaged property. The mortgaged property can be freed only when the lender pays off the loan.
You can even gift, inherit, or get a mortgaged property through a will, but certain conditions exist. How can you gift or inherit a mortgaged property? We would tell you how you can gift, inherit, or pass on a mortgaged property through different methods.
Gifting A Mortgaged Property
Ways are using which you can gift a mortgaged property. As the gift deed states that one can gift a share of his/her property, house, or other things to a relative, there is no mention of gifting a mortgaged property. However, you can do so, but some conditions need to be fulfilled.
Conditions For Gifting
- You can gift your mortgaged property to anyone after clearing the dues.
- If you want to gift the mortgaged property, even if there are dues, then the receiver would also have to take the burden to clear the due for the property.
- The receiver can only benefit from the gifted property only after all the dues are cleared.
Properties Under “Gift”
One cannot gift anything with the help of a gift deed. There are certain things that you can gift by using a gift deed. The rules vary based on the situation. For example, a widow can only gift a certain portion of the property she acquired after her husband’s death. There is no way a widow can gift the whole property to another person, as it would leave her with nothing. Similarly, a person can gift away his/her self-acquired property to anyone only when he/she is still in the condition of earning. The conditions vary based on the situation.
Gift Deed Vs Sale Deed
Gift Deed and Sale Deed have a slight difference in them. While in the sale deed, one gives away his/her property in return for money, in the gift deed, one gives away his/her property without any money in return. Another interesting difference is that, in the sale deed, you can sell your property to anyone. Even if the buyer is not your relative, he/she can buy your property. In a gift deed, you can gift your property only to your blood relatives.
When Is A Gift Liable For Tax?
A gift, when received from relatives during marriages or from relatives, is not taxable. Neither the donor nor the receiver has to pay any tax for the gifts exchanged.
In case some work is going on in the property received as the gift, then the receiver has to pay tax, as stated in the section of “Income from other sources.”
A gift is an irrevocable deal, and to make sure that it cannot be changed in the future, the deal is done in the presence of 2 witnesses. Along with that, both donor and receiver have to sign on the property in the registrar office and pay the stamp duty value and registration fee.
Loans On Gift Deed
If you get a house as a gift, then there is no way you can get a home loan for the gifted house. As the house is already transferred in your name, you cannot get a home loan for the gift deed.
However, one can get a loan for a gifted property. If the property is properly registered and all the documents are up to the mark, you can get a loan for the property you have received through a gift deed.
Inheriting A Mortgaged Property
A mortgaged property can even be transferred through inheritance. In case the owner has an untimely death and has not cleared the outstanding dues, then the mortgaged property will be passed on to his/her dependants, such as children and spouses. In such cases, the family member can claim the mortgaged property by clearing the outstanding dues.
What Happens If There Was A Home Loan Taken On Mortgaged Property?
In cases where a home loan was taken on the mortgaged property, the insurer has to pay the dues to the lender and get his/her property cleared. If there is an untimely death of the insurer, then his/her family members have to clear the dues.
After clearing the dues, the insurer must take the loan clearance certificate and property papers from the lender. The inheritor can now transfer the ownership to his/her name after clearing the dues.
Gifting An Inherited Property
You can even gift your inherited property through a gift deed. A gift deed will allow you to give away your property to your relatives without any money in return.
If you have a mortgaged property, you can also gift it to your relatives if the receiver agrees to pay the property’s mortgaged dues.
Mortgaged Property Through WILL
One can even get a mortgaged property through WILL deed. In such cases, the new owner is the one who should pay off the dues and free the mortgaged property. After freeing the property, the owner can benefit from it.
Importance Of WILL
A WILL deed can be done by anyone who wants to pass on his/her property to the person of choice. A friend can pass on his property to his best friend, and a grandfather can pass on his property to his grand-daughter, and so on.
A WILL deed is important as it states the person who would take care of your property after you pass away. Though you can always change the person you want to pass your property, you must make the right decision.
In the case of Life Insurance, you would have a beneficial nominee in your WILL. Beneficial nominees are the persons who are direct dependents of yours, such as your spouse or kids. Other than this, you cannot nominate anyone to claim your insurance money. This new rule was made so that the insurance money would be in the right hands, and the insurer’s family would have a secure future.
However, the same cannot be said about the Employees Provident Fund or EPF. If the EPF member dies, then the money would go directly to the employee’s nominee. It does not matter whether the nominee is a member of the family or not. The money of the dead employees is assigned to the nominee. In case the employee has not assigned any nominee, the money would go directly to the employee’s direct dependents.
Another case of WILL is bank deposits or mutual funds, where you have to nominate a nominee who would get the money after you pass away. However, the nominee here is just a care-taker of your investments, and he/she would have to distribute the money to your legal heirs. In this case, the legal heirs do have a right to your investments.
In the case of shareholders, after the shareholder dies, the nominee is the shares’ care-taker. Here the nominee has no right over the shares; instead, he/she has to take care of the shares. The legal heirs of the shareholder will have the right over the shares.
Condition On Mortgaged Property Through WILL
There are certain cases where a person can get a mortgaged property through WILL. In such cases, the new owner would have to clear the outstanding dues to free the property. Only after clearing the dues, the owner can take advantage of the property.
Only after clearing the dues, the owner can get the property papers and change the property’s ownership. Till then, the owner cannot get the property even if he/she has received it through WILL deed.
Transfer Of Mortgage
The transfer of mortgage means assigning the current mortgage from the present holder to another person. Transfer of mortgage in cases where the current holder cannot pay the dues and need an alternative for the same.
Buyers usually take an interest in such transfers as it benefits them due to previous interest rates. The mortgaged amount has interest rates that are less in value in the present time. Hence, by participating in such deals, they do not have to pay higher interest rates and are assigned to pay only the outstanding dues.
Only mortgages that are “assumable” are valid for transfer, while the rest are not valid. An assumable mortgage is the type of mortgage where the current owner transfers the remaining mortgage to the buyer.
Housing loans, which are insured, VA loans, and agricultural loans, are “assumable” mortgages. Other than this, no mortgages are considered as assumable.
The advantage of having assumable mortgages is that the seller has a say in the negotiation and can set the price as much as he/she wants. The advantages are that he/she would have low-interest rates and low closing costs for the buyer.
Can you transfer the ownership of a mortgaged house?
Yes, you can transfer the ownership of a mortgaged house if you fulfill the following criteria.
- The combined income of both the owners should be more than the income of the present owner.
- The mortgaged house should not have three or more borrowers.
- The transfer will not be applicable if a removed owner is still living on the property.
- The mortgaged property should not be a buy-to-let type of property.
Selling A Mortgaged Property
There are certain ways in which you can sell your mortgaged property to another person. Some of the ways are stated below.
A buyer using his savings to buy property
In this case, the buyer and the owner settle into an agreement, after which the deal is done. Here, it is important to get a letter from the bank stating the mortgaged property’s outstanding dues. The buyer will then have to clear the dues, after which the transfer of the property will be done.
If the buyer cannot pay the whole amount, then the seller will have to pay the remaining balance and clear the mortgage.
Buyer applying for Home Loan
As the bank will not give a home loan for a mortgaged property, the seller would have to clear the dues and take the banks’ paper. The seller can now sell the property to the buyer, applying for a home loan to buy the property.
Buying A Mortgaged Property
If you think that buying a mortgaged property might not be a good idea, then here are some of the benefits of doing so.
- The mortgaged property is sold at a lower price. As mortgaged properties are those properties that had previous owners, it might have some damages. Due to this, such properties are sold at a lower price.
- You can easily get a loan for mortgaged properties. As mortgaged properties had previous records in banks, it is easier to apply for such property loans. In addition to that, the papers’ verification is all done by the previous owner, which spares you from the hard work.
- Most of the mortgaged properties are under ten years. Most of the sellers put up their mortgaged properties on sale due to financial reasons. Such properties are not that old, and you might find them in good condition.
Various Methods Of Transferring Property
Before knowing whether you can gift or inherit a mortgaged property, it is important to know the different methods to transfer a property. There are 5 different methods to transfer immovable property.
i. Sale Deed
The Sale deed, as the name suggests, means selling the property directly to the buyer. After the seller has sold his/her property to the buyer, the ownership transfers to the buyer, you can set a sale value for your property by making the necessary registrations at the Registrar’s office. The seller has to pay for the stamp duty and registration fee, which varies from place to place.
ii. Gift Deed
A gift deed is a process of gifting a property, like a house, jewelry, or shares, to another person, without receiving any amount from the receiver. Gift deeds can be done for gifting something to a relative, like a house or property, which cannot be changed in the future. After the gift deed is done, the person cannot ask for money or property from the new owner.
iii. Relinquishment Deed/Release Deed
The Release deed is applied when there are multiple owners of a property. If one owner of the property wants to move his/her shares of the property to another co-owner, then he/she can do so with the help of a relinquishment deed. This deed, irrevocable and cannot be changed in the future.
iv. Partition Deed/Settlement Deed
The Partition deed is done when there is more than one owner of a property. Through this deed, the property is partitioned amongst the co-owners. Simultaneously, the settlement deed is made in front of a third party, who has no interest or connection with the property. In both cases, the property gets divided among the co-owners of the property.
v. Inheritance/WILL Deed
One can even get a property through the WILL deed or by inheriting it. While inheritance means passing on the property to the next generation of the family, the WILL deed has a different meaning. One can create a WILL deed and make anyone the next owner of his/her property. The advantage of the WILL deed is that one can change the WILL as per their wish throughout their lifetime. After the WILL creator’s death, the property belongs to the person whose name is present in the WILL.
You can inherit, sell, and even buy a mortgaged property and benefit from it. As most of the mortgaged properties are transferrable, you can even get such property at a lower price. We hope this article was helpful to you in knowing more about mortgaged properties.