Section 78 of TPA : Section 78: Postponement Of Prior Mortgagee

Explanation using Example

Imagine John has a property on which he takes a mortgage loan from Lender A. Unbeknownst to Lender B, Lender A fraudulently misrepresents the status of the property, claiming it is free of any mortgages. Trusting Lender A, Lender B then provides John with another loan, using the same property as collateral. Later, it comes to light that Lender A had been dishonest about the property's status.

In this scenario, under Section 78 of the Transfer of Property Act, Lender A, who committed the fraud, would be postponed, meaning that Lender B's mortgage would take priority over Lender A's when it comes to repayment from the property's value, despite Lender B's mortgage being created later.