Pledge is an actual delivery of rights (documents) as well as the possession of the goods/property to the. bank against certain loan. The ownership of the property remains with the pledger (customer). In case of non-payment the banker serves a notice for the fact and afterwards can sell the goods.
In case of hypothecation goods are made available as security for the debts without transferring them to the lender (Bank). It means the possession and ownership of goods remain with the borrower. In case of non-payment the bank approaches the court of law to receive full rights of selling the hypothecated property.
Mortgage is a written agreement between borrower (mortgager) and the lender (mortgagee) for obtaining loan against immovable property. In this type of security borrower- (mortgager) provides assurance to the creditor (bank) of legal right in property as security for the discharge of debts. In case of mortgage, legal rights (Documents) are transferred to the bank and the property remains in the possession of the borrower.
TYPES OF MORTGAGE
(1) Legal Mortgage: In case of legal mortgage, the mortgager transfers legal title of mortgaged property in the name of mortgagee by an agreement. On the repayment of loan, the title of mortgaged property is retransferred to the mortgager. It is also called registered mortgage.
(2) Equitable Mortgage: In case of equitable mortgage, the legal title of the property is not transferred to the mortgagee. The mortgagee can apply to the court to convert equitable mortgage into a legal mortgage if the borrower fails to pay the amount of loan on specified date. It is also called unregistered mortgage.