In India, MODT is a commonly used instrument in the mortgage market. It creates a simple, effective, and cost-efficient method of securing a loan against property. It is a relevent option for borrowers seeking long-term funding for business or personal use.
What is a Memorandum for Deposit of Title Deed (MODT)?
The Memorandum of Deposit of Title Deed (MODT) is a legal document that facilitates the creation of a mortgage on a property. It is a document that provides evidence of the deposit of legal title documents, deeds, and property papers with a lender as a security against a loan or credit facility. It is also known as an “equitable mortgage” because it creates a charge on the property without taking actual possession of the property.
The MODT is essentially a pledge agreement that allows the lender to obtain legal possession of the property’s documents and deeds. In return, the lender advances the funds per the agreement signed by both parties. The debtor has the right to utilize the property as long as all rules and conditions of the loan agreement are met. When the borrower fails to paqy back the loan amount, the lender can sell the property to recover the debt.
The MODT is executed in the presence of two witnesses who attest to the borrower’s identity and the authenticity of the property papers that are being deposited. Once the document is duly executed and registered with the local Sub-Registrar of Assurance, the lender can exercise its rights to the legal title documents and deeds in the event of default.
The MODT also includes a clause specifying the repayment terms and conditions, including interest, repayment period, and other relevant details. There is also a provision for transferring and assigning rights to the MODT to another party, meaning lenders can sell their rights to a third party in a loan default by the debtor.
Benefits of MODT
The Memorandum of Deposit of Title Deed offers many benefits to lenders and borrowers. Some of the benefits are:
The MODT is a cost-effective method of securing a loan against property, which saves both parties involved in the transaction.
As compared to traditional mortgage methods, the MODT is processed faster. It is because the legal documentation and registration requirements are less extensive and time-consuming.
Flexible Repayment Options
The borrower can choose a repayment period and interest rate based on their financial requirements. The lender also has the flexibility to accept or reject a borrower based on their financial position.
No Transfer of Property Ownership
Unlike traditional mortgages, the MODT does not involve the transfer of property ownership. The borrower can live in the property and continue using it if they abide by the loan agreement’s terms and conditions.
Security against Loan Default
The MODT is a legal document that provides security to the lender against any loan defaults by the borrower. In default, the lender can legally sell the property to recover the loan amount.
Thus, the Memorandum of Deposit of Title Deed (MODT) is a valuable and cost-effective way to secure a loan against property. It is a popular option for borrowers who wish to avail of long-term funding for personal or business needs. Ensuring that both parties recoginzed all loan agreement terms and conditions before entering a MODT. If you are a borrower, it is advisable to consult a legal expert before signing any loan agreement, including the MODT.
Disadvantages of a Memorandum for Deposit of Title Deed (MODT)
Loss of ownership
The title deed becomes the collateral of the loan, which means that the borrower can only sell or transfer ownership of the property once the loan is repaid in full. It can deter those who want to avoid losing their property.
In a default, the lender can confiscate the property and sell it to retrieve the loan amount. It can lead to legal skirmishes between the borrower and the lender, which can be time-consuming and expensive.
Lack of transparency
Some lenders may include hidden clauses in the loan agreement, harming the borrower’s interests. It can lead to misunderstandings and disputes between the borrower and the lender.
The limited scope of the loan amount
The loan amount availed through MODT is limited to the property’s value. It can be a disadvantage for borrowers who require an enormous loan amount.
Valuation of property
The lender may have different property valuations compared to the borrower, which can lead to disputes regarding the loan amount.
Advantages and Disadvantages of MODT in Nutshell
|Fast and easy way to secure a loan.||Inconvenience as the property documents need to be physically deposited with the lender.|
|Property owners can only sell or transfer the property once the loan is repaid.||Lower interest rates compared to unsecured loans.|
|Flexible repayment options.||The lender can auction the property in case of default in loan repayment.|
|People with cheap credit scores can avail of it.||It involves risk, and the borrower may lose ownership of the property.|
|Helps in maintaining liquidity as borrowers can access funds without selling the property.||Lengthy legal procedures in case of any disputes.|
What’s the ways to Cancel the MODT (Memorandum of Deposit of Title Deed)?
A Memorandum of Deposit of Title Deed (MODT) is a document that confirms the deposit of a property’s title deed with a lender or a creditor as collateral security against a loan. In simple terms, it is a document that gives the lender or creditor the right to take possession of the property if the borrower defaults on the loan. This document is a popular financing option in India, also known as a registered mortgage.
A MODT is a legal document, and once it is executed, it becomes a binding agreement between the borrower and the lender or creditor. However, the borrower may want to cancel the MODT if they have repaid the loan or have other reasons. Cancelling a MODT requires following specific procedures, as described below.
Procedure for Cancelling a Memorandum of Deposit of Title Deed (MODT)
Step 1: Obtain a No Objection Certificate (NOC) from the lender or creditor
The first step to cancel a MODT is to obtain a No Objection Certificate (NOC) from the lender or creditor who holds the document. The NOC should state that the lender has no objection to the cancellation of the MODT and that the borrower has cleared all outstanding dues related to the loan. The borrower must pay all outstanding dues before requesting the NOC.
Step 2: Draft a cancellation deed
Once the borrower has the NOC, they should draft a cancellation deed. The deed should be on stamp paper of the required value and mention the details of the MODT, including the loan amount, date of execution, and registration number. The deed should state that the borrower is cancelling the MODT and that the lender has no objection to the cancellation.
Step 3: Obtain signatures from the lender and witnesses
The borrower should take the cancellation deed to the lender or creditor and get it signed. The lender or creditor will usually have their legal representative sign the document. Additionally, two witnesses should be present at the time of signing, and they should also sign the document.
Step 4: Submit the cancellation deed for registration
Once all parties sign the cancellation deed, it must be registered with the Sub-Registrar of Assurances or the Registrar of Assurances, depending on the state. The borrower should pay the registration fee and obtain a copy of the registered cancellation deed.
Step 5: Obtain the original title deed
After the cancellation deed is registered, the lender or creditor should return the original title deed to the borrower. The borrower should ensure the title deed is returned with all the necessary endorsements and seals.
The Acts in India Related to the Memorandum for Deposit of Title Deed (MODT) and its Cancelation
The Transfer of Property Act, 1882
Section 58(f) of this act deals with MODT and provides that when a person delivers the title deed of his immovable property to another person as security for a loan, the transaction is called a MODT.
Registration Act, 1908
Section 17(1)(b) of this act provides that a MODT may be registered; if it is not registered, it will not be admissible as evidence in a court of law.
Indian Contract Act, 1872
This act governs contracts in India, and a MODT is considered a contract between the borrower and the lender.
Limitation Act, 1963
This act sets a time limit for the cancellation of a MODT. The time limit for filing a suit for cancellation of a MODT is three years from the date of execution of the MODT.
The Other Legal Provisions Related to the Cancellation of a MODT are:-
- The borrower can cancel the MODT by returning the original title deed to the lender.
- The lender can cancel the MODT by returning the title deed to the borrower and releasing the mortgage.
- The borrower can approach the court to cancel a MODT if the lender refuses to release the mortgage even after repaying the loan.
- The court may order the cancellation of a MODT if it finds that the loan has been fully repaid or if the lender has violated the terms of the contract.
The Land Case Laws in India related to Memorandum for Deposit of Title Deed (MODT) and its Cancelation
Salem Advocate Bar Association, Tamil Nadu v. Union of India, (2005) 6 SCC 344
The Supreme Court held that banks and financial institutions have the right to enforce the Memorandum for Deposit of Title Deeds (MODT) in cases of default by the borrower.
Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana, (2011) 1 SCC 664
The Supreme Court held that the Memorandum for Deposit of Title Deeds (MODT) is not a valid document for transferring immovable property and, therefore, cannot be relied upon as evidence of title.
Suraj Lamp & Industries Pvt Ltd v. State of Haryana & Anr. (2012) AIR SC 3585
In this case, the Supreme Court of India declared that transactions involving the deposit of title deeds as security for loan repayment do not require registration under the Registration Act of 1908.
ICICI Bank Limited v. Sidco Leathers Ltd., (2017) 2 SCC 135
The Supreme Court held that the Memorandum for Deposit of Title Deeds (MODT) is a valid document for creating a charge on immovable property and can be enforced by a bank or financial institution through appropriate legal proceedings.
Jitendra Nath Biswas v. State of West Bengal, (2019) 13 SCC 513
The Supreme Court held that cancelling the Memorandum for Deposit of Title Deeds (MODT) is permissible only if the borrower pays off the entire loan if the bank releases the security, or if there is a mutual agreement between the parties.
Hinduja Leyland Finance Ltd. v. Rajeev Kumar and Ors., (2019) 8 SCC 288
The Supreme Court held that a borrower could seek cancellation of the Memorandum for Deposit of Title Deeds (MODT) by approaching the Debt Recovery Tribunal or the Civil Court if there is any violation of the terms and conditions of the loan agreement or if the bank has acted in bad faith.
S. K. Das Associates v. State Bank of India & Anr. (2003) AIR SC 3054
The Supreme Court held that a Memorandum of Deposit of Title Deed (MODT) executed in favour of a creditor creates an equitable mortgage by deposit of title deeds, which can be enforced by the creditor in the event of default by the borrower.
Trimurti Developers v. Delta Corp Ltd. (2010) AIR Bom R 252
The Bombay High Court held that a Memorandum of Deposit of Title Deed (MODT) could be cancelled by mutual agreement between the parties or by a court order if the debt is satisfied or the security is no longer required.
N. Narayanan v. The Assistant Registrar (2013) AIR Mad 331
The Madras High Court held that a cancellation of a Memorandum of Deposit of Title Deed (MODT) could be registered under the Registration Act, 1908 and that the parties involved must execute the cancellation.
Cancelling a Memorandum of Deposit of Title Deed can be a complicated process that requires several steps. However, it is essential to follow the correct procedure when cancelling the MODT to ensure that the borrower’s interests are protected. The NOC and the cancellation deed are essential documents that must be drafted correctly and signed. Registering the cancellation deed with the relevant authorities and getting the original title deed back from the lender or creditor are also critical steps that need to be undertaken to cancel the MODT successfully.