PROPERTY LAW: MORTGAGES 1
MORTGAGES
A mortgage is a type of security for a loan, it may be defined as an agreement which may be expressed by deed between persons in which a borrower of a sum of money puts up his property as collateral for the money given with the understanding that the property will be conveyed back to him upon the repayment of the money and any interest on it. In Suberu v A. I. S. L. Ltd. (2007) 10 NWLR (Pt. 1043) 590, a mortgage was defined as “a conveyance of land or an assignment of chattels as a security for the payment of a debt or discharge of some other obligation for which it is given. The security is redeemable on payment or discharge of such debt or obligation, any provision to the contrary notwithstanding”.
Black’s Law Dictionary (6th Edition, page 1009) defines a mortgage as “an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt”.
In Olowu v. Miller Bros (of Liverpool) Ltd. (1922) 3 NLR 110; Per Pennington J., the court defined a mortgage as “security created by contract for the payment of a debt already due or to become due.”
Several efforts have been made in Nigeria to define what a mortgage is. In Intercity Bank Plc. v. Fred and Food Farms Nig. Ltd (2001) 17 NWLR (Pt. 742) 349, a mortgage is defined as a conveyance of property as security for debt which is lost or becomes dead to the debtor if the money or the interest due thereon is not paid on a certain date.
The complexity of the doctrine of mortgage was acknowledged in the old English case of Samuel v. Jarrah Timber and Wood Paving Corporation (1904) A. C. 323, that “No one by the light of nature has yet understood the nature of English mortgage”.
PARTIES TO A MORTGAGE TRANSACTION
- The ‘Lender’ is called the ‘Mortgagee’.
- The ‘Borrower’ is called the ‘Mortgagor’.
- The ‘Guarantor’ (if any) who guarantees repayment of a loan e.g. insurance companies.
- Land Use Act.
- Land Instrument Registration Law
- Registration of Titles Law (RTL).
- Conveyancing Act (CA).
- Property and Conveyancing Law (PCL).
- Stamp Duties Act.
- Illiterate Protection Act.
- Land Registration Act.
A mortgage protection policy is useful to protect the borrower (and his estate) in the event of death or bankruptcy and the borrower cannot repay the loan.
Mortgage institutions are regulated by the provisions of the Mortgage Institutions Act, Cap. M19 LFN, 2004. The object of this is to make provisions for establishment and licensing of mortgage institutions and to accept savings and deposits from members of the public and pay interest on the deposit.
The following are examples of mortgage institutions in Nigeria:
- Federal Mortgage Bank
- Commercial Banks
- Insurance Companies also known as Life Endowment Policy
- Housing Corporations
- Staff Housing Schemes
- Private developers
This is the apex institution for mortgage business in Nigeria. It is established by section 1 of the Federal Mortgage Bank of Nigeria Act, Cap E16 LFN, 2004.
Section 5 of the Act provides that the function of the Bank shall be to provide loan-term credit facilities to Primary Mortgage Institutions (PMI) in Nigeria, licence, control, and encourage the growth of Secondary Mortgage Institutions, the Bank also collect, manage and administer the National Housing Fund.
The advantages of the bank as a source of loan are:
- It gives as much as 66% of purchase price as loan;
- It gives a long term loan payable over a period of 20 years;
- It gives a low interest rate of about 6% per annum; and
- It has lots of branches across Nigeria so it is widely spread and easily accessible.
Commercial banks provide credits for financing projects including party acquisition. They are usually the last resort for mortgage loan because they prefer to give short term loans with very high interest rate. It is normally between 5 to 10 years of repayment while the interest is some times as high as
20%. Thus, it is not the best option for loan.
INSURANCE COMPANIES
This is a policy of life insurance which is a form of savings. Such companies may lend or guarantee loan from a Bank with a collateral mortgage of life policy, that is, the insurance company may serve as a guarantor to a holder to borrow from a Commercial Bank. Thus, the insurance companies provide money for the purchase of a property or guarantee loan from a bank. In this type of mortgage loan, no option of the loan is repayable until the period stated in it matures or upon the death of the borrower.
HOUSING CORPORATIONS
An example of this is the Federal Housing Authority established by Federal Housing Authority Act, Cap. F14 LFN, 2004, for the primary function of recommending to government a National Housing Programme and the execution of such programmes.
They provide funds for building or sometimes they build and offer them to the public for sale.
The advantages of this as a source of loan are:
- It gives low interest rate.
- Security of title in respect of party purchased from it since they are granted on state land, the granting of Certificate of Occupancy is automatic and immediate.
This is a scheme made for the benefits of employees to enable them acquire their own houses. The employer gives loan on the security of the property; the practice is that the employee is required to deposit the title document with the employer until the loan is fully paid. In consideration, the banks make deductions from the salaries of the employee over a period of time. Only very few organization are still able to operate this scheme because of lack of funds.
PRIVATE DEVELOPERS
This has to do with developing of estates for sale to the public. A prospective buyer is expected to pay only 50% to take possession and the balance is payable over 15 years at an interest of 15% per annum upon delivery.
TYPES OF MORTGAGES
There are two types of mortgages viz:
- Legal mortgage; and
- Equitable mortgage.
LEGAL MORTGAGE
This is a mortgage created pursuant to statutory provisions (Conveyancing Act 1882; Property and Conveyancing Law 1959; and the Registration of Titles law)
Subject to the provision of the relevant law and due execution, a legal mortgage conveys the legal title of the mortgagor has the right to redeem the mortgage upon payment of the amount or fulfillment of the obligation secured by the mortgage.
ADVANTAGES OF LEGAL MORTGAGE
- Enforcement – A legal mortgage is easier to enforce than equitable mortgage.
- Priority – A legal mortgage ranks higher than equitable mortgage in order of priority. In instances where there is no notice of equitable mortgage, a legal mortgage takes priority over the equitable mortgage.
- Security – A legal mortgage is more secured against fraud than equitable mortgage.
This is a mortgage that confers equitable interest on the mortgagee. It is a mortgage created under the rules of equity.
ADVANTAGES OF EQUITABLE MORTGAGE
- Small amount – Equitable mortgage is good for a loan of small amount, that is, where the loan is for a small amount, it is better to secure the loan by equitable mortgage which is cheaper than a legal mortgage in terms of perfection.
- Short period of payment – Equitable mortgage is good for a short term loan, that is, where the period of repayment is for a short period, equitable mortgage is better because it is easier and quicker to achieve than the legal mortgage.
This is the same all over Nigeria. Thus, there is uniformity in creating equitable mortgage. It may be created orally, or in writing, or by conduct. However, there are several methods of creating equitable mortgage viz:
- Deposit of the deed – There must be an intention that the deposit must serve as security for the mortgage. Thus, once the delivery of title deed is accompanied with a clear intention that the title deed should be taken or retained as security; it shall amount to the creation of equitable mortgage. The practice is that the mortgagor executes a memorandum of deposit that contains the terms of the loan (that is, the amount, interest, date of repayment, nature of the security, etc). The memorandum of deposit under hand or as a deed, but as a deed is better because it has the advantage of conferring on the lender (the bank) the statutory power of sale of the mortgaged property notwithstanding that the bank is an equitable mortgagee provided that the memorandum contains any, or all of the power of attorney clause and the trust device.
- Agreement to create a legal mortgage – The owner of a legal estate may agree in writing in addition to deposit of title deeds, to create a legal mortgage in favour of a creditor. In such instances, once the lender advances the money whether the agreement is under seal or under hand, equitable mortgage is created. This is based on the principle that equity regards as done that which ought to be done – Walsh v. Lonsdale (1882) 21 Ch. D. 9. The equitable mortgagee can enforce the agreement by an action in equity for specific performance – Yaro v. Arewa Construction Ltd (2008) All FWLR (Pt. 400) 603; Carter v. Wake (1877) 4 CH. D. 605; Ogundiani v. Araba (1978) 1 LRN 280.
- Equitable charge of the mortgagor’s property – This is a mere charge or lien in the property. Mere equitable charge of the mortgagor’s property does not create an estate (proprietary right) which may rest in the mortgagee by way of specific performances, but merely gives a right to payment of the property. The security in this instance can only be realized through sale or appointment of a receiver under an order of court – Ogundiani v. Araba (supra).
- Equitable mortgage of registered land – Under the Registration of Titles Law, equitable mortgages can be created by the deposit of Certificate of Title and completing and filing Form 15 in the 1st Schedule under section 58 of the Registration of Titles Law.
- Mortgage of equitable interest – Where the interest of a mortgagor over a property is only equitable, the only interest he can mortgage over such property is equitable and not legal. That is, a holder of an equitable interest can only create an equitable mortgage on the interest he holds.
The mode of creation of a legal mortgage depends on where the property is located, and Nigeria may be divided into three jurisdictions namely – the C. A States, P & C. L States, and land under Registration of Titles Law, Lagos.
- Conveyancing Act (C. A) States – There is no statutory provision governing the mode of creation of a legal mortgage in these States, therefore, the applicable law is still the common law subject to modifications introduced by the Land Use Act, 1978. Since no freehold interest in land can be acquired in Nigeria, the relevant law is that applicable to the creation of a legal mortgage of leasehold interest.
- Assignment of the mortgagor’s interest in the land with a covenant for reassignment or re-conveyance of the mortgage. Assignment is the transfer of the unexpired residue of the term in the property to the mortgagee. The advantage of this mode is that there is no reversionary interest in the mortgagor, hence in the event of a default, the mortgagee can pass his entire interest to a purchaser without problem. Although there is no privity of contract between the Governor/Headlessor and the mortgagee, but there is privity of estate. This makes the mortgagee liable for all the covenants and conditions in the headlease. The mortgagee is bound to observe and perform the restrictive covenant that runs with land in equity; this is no doubt a hardship on the mortgagee being bound by onerous covenants he was not privy to – Tulk v. Moxhay 41 E. R 1143.
- Sub-demise at least one day shorter than the term of the original lease with a proviso for re-conveyance on redemption of the mortgage. The major advantages of this mode are that there is no privity of contract or estate between the mortgagee and the headlessor; and there is no uniformity because it is also an applicable mode under the PCL which makes it attractive to banks. The only disadvantage is that it preserves the mortgagor’s right to reversion. Title in the mortgaged property, is vested in the mortgagor. Which means that the mortgagee cannot give a perfect title to the purchaser in the event of default by the mortgagor. This interest can be avoided by drafting device – In the white Rose Cottage (1965) CH. D 940. Either a Power of Attorney Clause or a Trust of declaration or both may be inserted to vest the mortgagor’s reversionary title in the mortgagee. In Power of Attorney Clause, it operates to vest irrevocably authority over the mortgaged property on the mortgagee or his attorney irrevocably until the loan is repaid. The implication is that in case of a default, the mortgagee can sell – Labededi v. Odunlana & Anor. (1973) 4 CCHCJ; Chime v. Chime (2001) 3 NWLR (Pt. 527). In a trust declaration clause on the other hand, it makes the mortgagor a trustee of the mortgaged property in favour of the mortgagee. The mortgagee is also empowered to remove the mortgagor as trustee and appoint new trustees in the management of the mortgaged property – LCB Ltd. v. Goddard (1897) 1 CH. D. 642.
- Deed of statutory mortgage is also another form by which mortgage in the C. A States may be created. Section 26(1) of the Conveyancing Act states in part that “a mortgage of freehold or leasehold land may be made by a deed expressed to be made by way of statutory mortgage, being in the form given in Part I of the Third Schedule to this Act…” The form in the schedule may be modified as circumstances require. The major advantage of this method is that it is simpler to create and may be discharged by simple receipt; which turns out to be one of its disadvantage also since the receipt is not registrable and the mortgage may continue to be reflected in the register.
- Property and Conveyancing Law States – These are States in the Old Western Region of Nigeria namely – Oyo, Ogun, Osun, Ondo, Ekiti, Edo and Delta.
- Demise is for a term of years absolute, subject to a provision of cesser upon redemption. Any purported conveyance of an estate in fee simple by way of mortgage shall operate as a demise of the land to the mortgagee for a term of years absolute, without impeachment for waste but subject to cesser on redemption – section 108(2) PCL. However, the creation of a legal mortgage even though sanctioned under the PCL is no longer possible because of the Land Use Act which provides that the greatest interest a person can have is a specified term of not more than ninety years (90 years). As a result of this, sub-demise is used for the creation of legal mortgage in the PCL States.
- Sub-demise or sub-lease must be at least one day shorter than the term of the lease which is being mortgaged otherwise it will operate as an assignment – section 109(1) PCL. The advantage of the sub-demise is that it allows for second and subsequent mortgages to be created on the lease. Further, where a mortgage is created by sub-demise under the PCL, the two remedial devices, that is, Power of Attorney and Declaration of Trust are not necessary because section 112 of the PCL grants the mortgagee the right to sell the property with the reversionary interest of the mortgagor where he defaults to pay the principal with interest.
- Legal Charge is another means by which a legal mortgage can be created in the PCL States – Section 108(1) of PCL. Section 110 of PCL provides that where a legal mortgage of land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies. The charge must be made by deed and not by writing; otherwise it shall have no legal effect. It must also be expressed to be by way of a legal mortgage. In law, the chargee has as much rights as the mortgagee. The charge gives the chargee similar rights as a mortgagee in the enforcement of payment of money loaned. The legal charge has the following advantages –
- The form of a legal charge is simple and short.
- It does not amount to a breach of covenant in a lease against the assignment and subletting, because the charge creates no actual sub-lease in favour of the mortgagee, but only gives him rights as if he had a sublease.
- It is discharged by a simple statutory receipt and not by a deed of release.
- It is a convenient way of mortgaging freeholds (where permitted) and leasehold together because the mortgage terms are not stated, but the properties are listed in the schedule with a statement that they are charged by way of a legal charge.
- Registration of Titles Law – Section 18 of the Registration of Titles Law (RTL) provides that the registered owner of land may in the prescribed manner charge the land or lease with the payment of money to the like extent as if the land was not registered land. The charge is completed by entry in the register of the particulars of the mortgagee and the registration of the charge in the Form 5 of the Land Registry.
The advantage is that it is simpler, speeder, and cheaper. The chargee has similar rights as a mortgagee under the C. A. States.
SEARCH REPORT
The search report depends on whether the borrower is a natural person or a company.
The search report should contain the following where the borrower is a natural person –
- Date of the search
- Name of the borrower
- Name of the person giving security, if different from borrowers
- Description of the property
- Name of the property
- Encumbrances (if any), Registrations and other adverse facts as may be observed from:
- Physical inspection of the land or building, that is, whether the property really exists and if it is vacant or occupied;
- The register at the land registry, that is, to obtain the details of the property in the lands registry of the State; and
- Government acquisition, that is, whether the property is within an area compulsorily acquired by government or proposed to be acquired.
- Name of the company (borrower)
- Date of the search
- Date of incorporation
- Registration number
- Name and address of Shareholders of the company
- Particulars of company Directors
- Borrowing powers of the Company
- Any registered charge against the company’s assets
- Annual returns filed
- Encumbrances, if any.
The consent of a Governor of a State where the land is situated must be sought and obtained – Section 22 of Land Use Act; Savannah Bank v. Ajilo (1989) 1 NWLR (Pt. 97) 305; Awojugbabe Light Industries Ltd. v. Chinukwe (1995) 4 SCNJ 162; (1995) 4 NWLR (Pt. 390) 379.
Where the land is subject to a customary right of occupancy, the consent of the appropriate local government is required so long as the transfer is not one subject to the Sheriff and Civil Process Law. Under this, section 21 states that “it shall not be lawful for any customary right of occupancy or any part thereof to be alienated by assignment, mortgage, transfer of possession, sublease or otherwise howsoever – (a) without the consent of the Governor in cases where the property is sold by or under the order of any court under the provisions of the applicable Sheriffs and Civil Process Law; or (b) in other cases without the disapproval of the appropriate Local Government.”
Failure to obtain the consent of the Governor before actual mortgage itself makes the transaction null and void – section 26 of Land Use Act.
The consent is only required where the legal interest is transferred and not for an agreement to transfer the interest.
The consent of the Governor is also not required for creation of debentures, since a deed of debenture is a charge on the floating assets of a company and not a charge on the land which requires the consent of the Governor – Nig. Ind. Dev. Bank Ltd. v. Olalomi Ind. Ltd. (2002) FWLR (Pt. 98) 995.
The consent of the Governor is required by law to be granted by him although he can delegate his authority for granting consent to a State Commissioner. In U. B. N Plc v. Ayodare & Sons Nig. Ltd. (2007) All FWLR (Pt. 383) 1 at 23, the Supreme Court, per Oguntade JSC, stated that “… section 22 of the Act postulates that the Governor, shall sign the letter granting consent …” In Union Bank Nig. Plc. Ishola (2002) FWLR (Pt. 100) 1253, the court held that where the Governor’s power to grant consent are properly delegated vide a legal notice to the State Commissioner for Housing and Environment who was in charge of land matter, the consent granted by the latter to the mortgage transaction was proper and valid.
It should be noted that where the approval for consent is to be granted to a mortgagee, the Governor should try and sign the letter. Where however the Governor grants the consent through his delegate (a State Commissioner), the Commissioner must convey the approval under his hand and not under the hand of another state official. In Federal Mortgage bank Plc. v. Babatunde (2000) FWLR (Pt. 3) 385, the court held that there is no evidence to show that the Governor delegated his powers under the Act to any body, let alone to the Permanent Secretary, Ministry of Works, Lands, Housing and Environment, Kwara State on whose behalf the letter of approval was written.
It is the duty of the mortgagor to apply for the grant of the consent of the Governor and not the mortgagee. A common problem in mortgagees is where the mortgagor has collected the money, deposited the title deeds and executed the mortgage documents with the expectation that he will apply for the consent of the Governor, but only to turn round and alleges that the consent was not obtained or even to frustrate the grant of the consent – Ugochukwu v. C. C. B (2000) 1 NLLC 361 at 383; Union Bank of Nig. Plc v. Orharhuge (2000) 2 NWLR (Pt 645) 795. The courts have held that such person would not be allowed to turn round and claim that because the consent was not obtained, the transaction was null and void. However in practice, it is the mortgagee that seeks for the consent since he is the one that stands to lose if the mortgage is set aside for lack of consent.
The most important documents required to procure the consent of the Governor are:
- Application for consent by way of written letter or a duly completed consent form.
- Duly executed deed conveying the agreement between the two parties.
- Tax clearance certificate of the parties.
- Receipts of payment of ground rent, consent fee, inspection fee, tenement rate and other charges imposed on the property.
From: …………………………………………………. (name of the person making the report).
To: …..………………………………………………. (name of the person who needs the report).
Location of the property: ……………………………….……………. (address of the property).
Title No. of the property: ……………………………….... (Registered Title No. or C of O No.)
Date of the search: …………………………………………………. (date)
Place of the search: ………………………………………… (land registry, probate registry, etc)
Name of registered owner: …………………………………………. (name)
Nature of interest of registered owner: …………………………………. (nature of interest)
Existing encumbrance(s) on the property (if any): ……………………………………….
Observations and comments by the Solicitor: ……………………………………………
Any other comment: ………………………………………………………………………
____________________
Name and Signature
Comments
Post a Comment