In the English case of Samuel vs. Jarrah Timber & Wood Paving Corporation (1904) A.C. 323 at 326, Lord MacNaughten opined that “No one … by the light of nature ever understood an English mortgage of real estate.”
Black’s Law Dictionary (Sixth edition,Pg.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.
•A Mortgage is a conveyance of land as security for loan transaction with a proviso for cesser upon redemption.
What is a Mortgage?
A Mortgage is a legal relationship or security transaction by which rights in land are transferred to secure payment of money or the discharge of some other obligation, subject to redemption upon repayment of the loan or discharge of the obligation.
Parties to a Mortgage Transaction
There are two main parties to a mortgage transaction. They are the:
- Mortgagor or Borrower (grants the mortgage)
- mortgagee or lender (who provides the money/takes benefit of the security)
However, there is a concept of “Tripartite Mortgage” where the Mortgaged property is owned by a third party or a third party guarantees the repayment of the loan i.e. a guarantor or surety. In this case, it is advisable for the third party to become a party.
MORTGAGE INSTITUTIONS IN NIGERIA
The following are a few mortgage institutions in Nigeria.
- Federal Mortgage Bank
- Housing Corporations
- Commercial Banks
- Insurance Companies (third party security on Life Endowment Policy)
- Mortgage Banks
- Employers’ Housing Schemes
- State Governments’ Property and Mortgage Boards (e.g. the Lagos State Mortgage Board).
Generally, in Nigeria, the Federal Mortgage Bank is preferable in Nigeria because of the following reasons:
- It has branches across the federation
- It offers low interest rates (as low as 6%)
- It provides up to 66% of the consideration
- It allows for long term (up to 25 to 30 years repayment schedule).
Types of Mortgages
There are two major kinds of mortgages. They are.
1. Legal Mortgage
The transfer of legal title/estate in land by a mortgagor to a mortgagee by a deed, subject to the mortgagor’s right of redemption. See Afribank Nigeria Plc. V Alade (2000).
2) Equitable Mortgage
This is the transfer of an equitable interest/estate in land by a mortgagor to a mortgagee; or an agreement to enter into a legal mortgage. See Jacobson Engineering Co. Ltd v UBA (1993).
CHARACTERISTICS OF EQUITABLE MORTGAGE
A.Debt;
B.Deposit of title deed of the property to be mortgaged by the mortgagor to the mortgagee,
C.Intention of the mortgagor to give the mortgagee a security for the debt contracted.
MODES OF CREATING A LEGAL MORTGAGE
•Assignment
•Sub-demise
•Legal or statutory charge or charge by deed, by way of a legal mortgage; and
•Demise.
DETERMINANTS OF MODE OF CREATION
Note the application of any of these modes depend on:
A.the type of mortgagor’s interest
B.the location of the land and
C.the applicable law
i.e. CA States, PCL States, or Lagos State (MPL).
CREATION OF LEGAL MORTGAGE IN THE CONVEYANCING ACTS STATES:
1. ASSIGNMENT
This is the transfer of the entire interest of the mortgagor. The transfer entails the unexpired residue of his leasehold interest under the Land Use Act, subject to a provision for cesser on redemption.
•The demerits of this method is the creation of privity of estate between the mortgagee and the overlord in terms of restrictive covenants and conditions.
•The main attraction is that the mortgagee in the event of default can sale the property without the involvement of the mortgagor and convey good title.
2. SUB-DEMISE
●The mortgagor sub-demise the unexpired residue less one day with a proviso for cesser upon redemption.
●No privity of contract nor privity of estate between the head lessor (Governor) and the mortgagee.
•The demerits of this method (sub-demise) is that the mortgagee cannot sale the reversionary interest of the mortgagor upon default.
•This is a problem to validly transfer title to a third party.
CIRCUMVENTING THE DEMERITS
1.By introducing the Power of Attorney clause in the mortgage deed by appointing the mortgagee an attorney/authorizing him to deal with the entire estate plus reversionary interest.
2.Trust declaration by making mortgagor to declare himself as trustee of the property in favor of mortgagee as a beneficiary. See Ihekwoaba v A.C.B Ltd., (1998).
3. DEED OF STATUTORY MORTGAGE
– S.26 (1) C.A
•A freehold or leasehold holder may grant a legal mortgage by a charge by deed expressed to be by way of a statutory mortgage, using the prescribed Form in Part 1 of 3rd schedule to the Act.
CREATION of Legal MORTGAGE IN THE PROPERTY AND CONVEYANCING LAW STATES:
1. SUB-DEMISE
- S.109 PCL
•Mortgage of a leasehold interest for a term of years absolute, less at least one day than the term vested in the mortgagor, subject to a proviso for cesser on redemption. See Akano Vs. FBN Plc (2003).
2. CHARGE BY DEED
S. 108 of the PCL
•A charge by deed expressed to be by way of a legal mortgage.
•Chargee is not vested with the interest in the property; but enjoys all the rights of a legal mortgagee – S. 110 of the PCL .
3. STATUTORY MORTGAGE
SECTION 137 PCL
•A mortgage over ‘freehold’ or leasehold with a provision for cesser upon repayment of the loan.
•Prescribed Form - Form 1 in the 4th Schedule to the PCL.
•enjoys the same advantages and suffers the same disadvantages as its counterpart in the C.A States.
Creation of Legal Mortgage under the Mortgage and Property Law of Lagos State (MPL)
Creating a Mortgage under the MPL is dependent on the nature of interest, whether the legal interest is a right of occupancy or a leasehold interest.
RIGHT OF OCCUPANCY
SECTION 15 MPL
A.Demise for a term of years absolute subject to provision for cesser upon redemption, or
B.Charge by deed expressed to be by way of a legal Mortgage, or
C.Charge by deed expressed to be by way of a statutory mortgage.
Note proviso to s.15 (1) mpl
Read: Property Alienation in Nigeria
LEASEHOLD (TERM OF YEARS)
SECTION 16 MPL
•Sub demise for a term of years’ absolute less by one day at least, or
•Charge by deed expressed to be by way of a legal mortgage, or
•Charge by deed expressed to be by way of a statutory mortgage.
•Note proviso to s.16 (1) MPL.
•Note: Forms 1 or 4, second Schedule to the MPL - Charges
•The Forms operate as deeds– s. 49 MPL.
• Creates uniformity in the creation of legal mortgage in Lagos State.
•The Sub-demise is common to both the CA, PCL and the MPL States.
•A sub-demise presents a technical problem: mortgagor did not convey his reversionary interest in the mortgage = mortgagee’s inability to validly transfer mortgagor's reversionary interest in enforcing its right of sale.
SOLUTION DEPENDS ON WHERE PROPERTY IS LOCATED
PCL States: S.112 (1) solved the problem.
CA States: insertion of either or both the
1. Power of attorney and
2. Trust declaration clauses, in the Deed of Mortgage.
MPL - Ss. 19 and 20 settled it.
Successive Legal Mortgages
Successive legal mortgages is possible under the CA , PCL and MPL States, by mortgaging same property twice or more. It involves one MORTGAGOR, using the SAME PROPERTY to create DIFFERENT MORTGAGES with DIFFERENT MORTGAGEES.
FEATURES OF SUCCESSIVE LEGAL MORTGAGES
A.Same mortgagor
B.Same mortgage property
C.Different mortgage
D.Different mortgagees
UP-Stamping
Up-stamping is simply the payment of additional stamp duties on a mortgage document in satisfaction of the increased facility granted over an earlier mortgage. The stamp duty is payable ad valorem and to be stamped within 30 days of execution. Also, Governor’s consent is not required - See Owoniboys Tech Services v U.B.N Plc (2003).
FEATURES IN UP-STAMPING
A.Same property
B.Same parties
C.New facility granted
D.New duties paid
•Proviso: Legal mortgages must be created by sub-demise or charge. See S. 50 LSLRL.
•Under PCL, S. 109 (2) requires the term of the second or subsequent mortgages to be at least a day longer than the term vested in the first or other mortgagees whose security ranks in priority to the second or subsequent mortgagee.
EQUITABLE MORTGAGES
CA AND PCL STATES
•CA & PCL States:
- Common Law and S. 6 PCL
1.Deposit of title deeds with the intention to use same as security for a loan.
2.An agreement to create a legal mortgage
3.Contract to create a legal mortgage
4. A defective/inchoate legal mortgage
5. Equitable charge
6.Mortgage of an equitable interest (by assignment).
•Ogundiani v Araba (1978) NSCC 334; B.O.N v Akintoye (1999) 12 NWLR (Pt. 392) 403; Re-Whiterose Cottage (1965) CH 940; Parker v Housefield (1834) 2 My. & K. 419, 420; Matthews v Goodday (1861) 31LJ Ch. 282; British and French Bank Ltd v Akande (1961) ANLR 849.
MPL S. 18; S. 5 LAW REFORM (CONTRACTS) LAW OF LAGOS STATE
1.Deposit of title documents accompanied by agreement to create a Legal Mortgage.
2. Charge accompanied by agreement to create a Legal Mortgage.
2.Assignment of an equitable interest.
ADVANTAGES OF A LEGAL MORTGAGE
The advantages of a Legal Mortgage include that:
- It is easy to enforce
- ItRanks in priority
- It is Less prone to fraudulent practices
ADVANTAGES OF EQUITABLE MORTGAGE
Where:
- the amount of the loan is small
- the repayment period is short.
- Urgent funds are needed
- Easier & less laborious to create.
Distinctions Between Mortgage and other Securities Transactions
Below are some
1. MORTGAGE AND PLEDGE
Pledge is a loan money secured by the possession of chattel given to the lender. On the contrary, in a mortgage transaction, the lender acquires ownership while borrower retains possession. See Adetona v Zenith International Bank Plc.
2. MORTGAGE AND CHARGE
A charge is a specie of mortgage. Mortgage involves the conveyance of property to a mortgagee subject to a right of redemption. On the other hand, a charge conveys nothing but confers certain rights to the chargee over the property as security to the loan.
MORTGAGE AND SALE
•Sale is the total alienation of an interest in a property.
•In a mortgage there is always a right of redemption.
MORTGAGE AND LIEN
A lien is a right to retain the property of a debtor until the discharge of the indebtedness. It is used as a coercive means to enforce repayment and the right of lien is extinguished once the creditor hands over the property to the debtor. On the other hand, in mortgages, a mortgage property is used as security to ensure repayment.
INVESTIGATION OF TITLE
•Key issues:
1.Ascertainment of mortgagor’s status (right/interest in the security)
2.Encumbrance(s).
CONTENT OF A SEARCH REPORT
A Search Report is
- Date of Search
- Place of search
- Name of borrower
- Owner of the property, if different from the borrower
- Description of the property
- Nature of interest
- Whether there is any encumbrance, and if any, the nature
- Conclusion i.e. the solicitor’s advice (whether the security is viable or not).
- Name and signature of the solicitor that conducted the search.
If the Mortgagor is a company, the content of the search report would include:
- Date of search
- Name of company
- Date of incorporation & RC number
- Names & addresses of shareholders
- Names & addresses of directors
- Borrowing powers (limit & procedure)
- Registered charge against the company’s assets
- Last annual report filed
- Conclusion
- Name & signature of the solicitor.
Documents Required to obtain Governor’s Consent
The following documents are required to obtain Governor’s consent:
- Application for consent in the prescribed form
- Covering letter of application for consent
- Tax clearance certificate (mortgagor)
- Receipts of payment of all rates & taxes in respect of the property E.gs tenement rates (for developed property), ground rent, development levy where applicable etc.
- Title deeds of the land
- A duly executed Deed of mortgage
- Building plan approval (for developed property).
- Evidence of payment of inspection, charting and consent fees.
S
LEARNING OUTCOMES
1.Explain the various covenants in a mortgage and the importance of the covenant
2.Draft a deed of mortgage
Covenants in Mortgage Transactions
Covenants are terms and conditions specifically agreed upon by parties that are to govern the relationship between the mortgagor and the mortgagee as captured in the deed.
WHO PREPARES THE MORTGAGE DEED
•Usually prepared by the mortgagee’s solicitor.
•In preparing mortgage deed, implied terms should be avoided.
•Rely on express terms.
VALIDITY OF A MORTGAGE TRANSACTION
1.Capacity of both mortgagor and mortgagee:
⮚Infants
⮚Persons of unsound mind
⮚Statutory corporations and companies
⮚Trustee
VALIDITY OF A MORTGAGE TRANSACTION
2. Title of mortgagor-Erikitola v Alli (1941) 16 NLR 56.
3. Proper documentation and execution. S. 3 Illiterate Protection Act; S.8 Land Instrument Registration Law; Okelola v Boyle (1989).
VALIDITY OF A MORTGAGE TRANSACTION
4. Governor’s consent. Savannah Bank v Ajilo (1989); Awojugbagbe Light Ind. v Chinukwe (1993).
5.Stamping.
6. Registration.
Information Required to Prepare a Mortgage Deed
The particulars of Information required by a Solicitor to prepare a mortgage deed include:
- Parties: Name, address and occupation
- Description of mortgage property.
- Principal sum and agreed interest
- Valuation report by an estate valuer.
5. Legal due date and repayment mode.
6. Original title deeds to the property.
7. Nature of interest of the mortgagor.
8. Name of the owner of the security if different from mortgagor.
9. Name, addresses and occupation of witnesses.
ADDITIONAL INFORMATION FOR A COMPANY
10. Certified True Copy of certificate of registration.
11. Certified True Copy of FORM CO7.
12. Certified True Copy of Memorandum and Articles of Association.
13. Board resolution approving request for loan.
14. Tax clearance certificate.
COVENANTS IN A DEED OF MORTGAGE
1.Covenant for the payment of the mortgage sum and interest at a fixed date.
COVENANT FOR PAYMENT OF MORTGAGE SUM & INTEREST…
•The mortgage sum is the principal advanced to the mortgagor while the interest is the sum accruing on the principal over time.
•The interest must be agreed by the parties.
•The repayment date for the sum is fixed.
•The repayment date for the periodic interest is also fixed.
•Until the specified date (legal due date) passes, debt can’t be called; no right of action against the mortgagor arises.
•The only right that may arise on failure to pay interest is taking of possession.
•Failure to pay periodic interest does not confer the right to sale on the mortgagee until expiration of legal due date. See Twentieth Century Banking Corporation v Wilkinson (1977) 1 Ch. 99.
•Applicable limitations law begins to run from the legal due date. See Federal Administrator General & Ors. v Cardoso & Ors. (1973).
•Where bank is the mortgagee, the rule on interest is that parties are bound by agreed rate of interest.
•Interest is the mortgagees profit.
•Defined as ‘the rental payment for the use of credit by the borrower and returns for parting with liquidity’.
•In the absence of express agreement on interest, recourse is had to Customs and CBN rate. UBA Plc. v Lawal (2008).
•Note the existence of certain banking legislations fixing the rate of interest and any interest charged beyond it will be illegal and void.
•In the absence of inserting an interest rate, court will hold that it is inequitable to allow redemption without payment of interest. See Cityland & Property (holdings) Ltd. v Dabrah;
•Above will not apply if expressly stated in the deed that no interest will be charged.
CONTRACTUAL PERIOD AND INSERTION OF EARLIER DUE DATE
•This is a remedy by the mortgagee to ensure that the mortgagor abides by the exact duration time of payment.
•The mortgage deed may rather contain a proviso ‘that where the mortgagor is in default of payment of interest, the mortgage becomes due on demand or it becomes due upon failure to pay 1 or 2 instalments’.
•The interest chargeable whether simple, fixed, or compound interest and percentage. See UBA v Lawal (2008).
•Its unlawful for a mortgagee to unilaterally vary interest rate except the deed provides. Ayanlere v F.M.B (Nig) Ltd.
•To charge compound interest parties must expressly agree in the deed, though no rule against it. See Owoniboys Technical Services Ltd v Union Bank of Nigeria Plc (2003).
IMPOSITION OF HIGH INTEREST RATE ON A MORTGAGOR FOR FAILURE TO PAY EARLY
•Courts does not enforce such clause.
•Note Negative inducement and Positive inducement.
•‘The interest rate payable is 12%, failure to pay promptly, the rate becomes 20%’.
•‘The interest rate payable is 20%, on prompt payment it becomes 12%’.
2. Covenant to Insure the Property
Popularly known as the “covenant to insure”, it’s essence is to secure/preserve the value of the property in the event of damage before the repayment of the loan.
•The practice is for the mortgagor to covenant to insure.
•The mortgagee may however insure in order to protect his insurable interest where mortgagee fails to insure.
COVENANT TO INSURE
•A mortgagee whose mortgage is by a deed, has a statutory right to insure the property against fire provided there is no contrary agreement in the deed. See s.19 (1) CA; S.123(1) PCL; S.35 (ii) MPL.
•If mortgagee insures, the premium is charged to the property at same interest rate.
INSTANCES WHEN MORTGAGEE MAY NOT INSURE
1.Agmt. in the mortgage deed not to insure.
2.The mortgagor insures the security pursuant to the mortgage agreement.
3.Where mortgage agmt. is silent, but mortgagor insures the security to the statutorily prescribed amount with mortgagee’s consent.
The Covenant to Insure MUST contain the following:
- Date of commencement of insurance
- the insurance company
- the amount of insurance
- the risk to be insured
- the Person to insure and pay the premium.
- the Application of insurance money in the event of damage.
APPLICATION OF INSURANCE MONEY
•In the absence of insurance clause in the deed, mortgagee cannot compel mortgagor to surrender any insurance money paid to the mortgagor by his insurers.
•If the insurance is insured in the name of the mortgagee, he is entitled to the benefit of the policy even though mortgagor pays the premium.
•Where the mortgagor insures in his own name, the mortgagee cannot compel him to surrender insurance money. See Lees v Whireley (1866).
•Note that the insurance money cannot be applied to liquidate or reduce the debt except by order of court. S.67(2) Insurance Act.
•Where the mortgagor insures in the joint name of the parties, the mortgagor cannot be compelled to give up the insurance money because there insurable interest are not the same. See Jia Ent. (Electrical) Ltd. v British Commonwealth Insurance company (1962).
3. Covenant to Repair
•The essence is to maintain the property so it will not lose value in the event of potential sale.
•Duty is upon the mortgagor to ensure the property is kept in a good state of repairs.
•It is of the mortgagees interest for this covenant to be inserted.
•Consequently where mortgagor fails to repair, mortgagee and charge the cost on the property.
•Note that where mortgagee repairs, such repairs must not be of a nature that will prevent mortgagor from redeeming the mortgage. Nigerian Loan and Mortgage Co. Ltd v Ajetunmobi (1944).
4. Covenant on leases and sub-leases on the property
•Creation of mortgage does not prohibit mortgagor to create leases or sub-let except deed prohibits.S. 18 CA and S. 121 PCL.
•Consider if the lease was created before or after the mortgage.
•If the lease exist before the mortgage, mortgagee is not entitled to rent.
•The lease hitherto created binds the mortgagee and subsequent purchaser.
•If the lease was created after the mortgage, it does not bind the mortgagee or subsequent purchaser except made with his consent but binds parties to the lease.
The usual practice is for the lease or sub-lease to be required to be with the prior written consent of the mortgagee, where it is taking place after the mortgage.
•the CA & PCL regulates and states whosoever is in possession can create a lease binding on the other. See s.18(1) CA; s.121(1) PCL
5. COVENANT TO CONSOLIDATE DIFFERENT MORTGAGES
Consolidation is the right of a mortgagee who has two or more mortgages on different properties from the same mortgagor to refuse to permit him to redeem one without the other(s) - Pledge v White (1896) AC 187.
•This happens where a mortgagor uses different properties to secure a loan.
•Thus, if consolidated, mortgagor cannot redeem each property without redeeming all.
•Mortgagee is barred from burdening the mortgagor with a covenant to consolidate different mortgages. See S.17 CA; S.115 PCL; S.28(1) MPL
PROHIBITION OF CONSOLIDATION
•Parties must expressly agree to consolidation in the last deed.
•See S.17 CA; S.115 PCL; S.28(2) MPL forbidding consolidation except with consent of parties.
XTICS OF CONSOLIDATION
A.Reservation of the right to consolidate.
B.Same mortgagor
C.Same mortgagee. See Pledge v White.
D.Different properties.
E.Different loan amount.
6. Covenants on observance and performance of covenants in the head lease
•If the mortgage property is under a lease or sub-lease, mortgagor should ensure that the covenants on the head-lease are observed.
•Mortgagor must extract this undertaken to observe the covenant from mortgagee.
•Where mortgagor does not wish to observe the covenants in the head-lease, parties may covenant for the mortgagor to continue to be liable to perform the covenants.
7. COVENANT AS TO DECLARATION OF TRUST AND POWER OF ATTORNEY
•This is a remedial covenant which enables the mortgagee to deal in transactions in respect of the mortgaged property.
•This covenant may enable the mortgagee to transfer legal title to a purchaser if mortgagor defaults in repayment of loan or interest.
APPLICABLE WHERE:
A.Mortgage by sub demise in the CA states.
B.Application of insurance money where the mortgagor insures the security.
C. Compensation money where property acquired for public use by govt. see s.28 and 51 LUA- mortgagee is not entitled for compensation paid for govt. acquisition.
OPPRESIVE TERMS IN A MORTGAGE
8. COVENANT FOR POSTPONMENT OF REDEMPTION FOR A TERM
ONCE A MORTGAGE, ALWAYS A MORTGAGE
This is an inherent right of mortgagor in mortgages.
⚫Any clause that prevents the mortgagor from redeeming the security, or postponing the right of redemption is a clog and may not be enforceable against the mortgagor. See Ejikeme v Okonkwo (1994); Fairclough v Swan Brewery Co. Ltd (1912).
•Until the mortgage is extinguished either by sale, foreclosure, lapse of time, the mortgagor’s right to redeem is sacrosanct.
DETERMINATION THAT A CLAUSE IS A CLOG:
The court will consider the following:
A.The nature of the mortgage
B.Nature of the parties
C.Circumstances of each case.
See Four-maids Ltd v Dudley Marshall (Properties) Ltd. (1957).
FORM/CONTENT/PARTS OF A MORTGAGE
1. COMMENCEMENT AND DATE
THIS DEED OF MORTGAGE IS MADE THIS ………… DAY OF ……………. 20….
2. PARTIES
BETWEEN:
MR WILSON BEKEE Businessman of No 9 Sani Abacha Road, Rumueme, Port Harcourt……..(MORTGAGOR) OF THE ONE PART
AND
XYZ BANK PLC a Public Liability Company registered under the CAMA 2020 with RC No:3465 and having its registered office at No 1 Eastwest road, Port Harcourt,Rivers State, (MORTGAGEE) OF THE OTHER PART;
3. RECITALS
(NARRATIVE AND INTRODUCTORY)
⚫WHEREAS
1.The mortgagor is by virtue of a c of o issued by the State Governor dated…and reg as No..at page..in vol..at Lands registry, Lagos the holder of statutory right of occupancy over the entire property known as….
2. The mortgagor has agreed with mortgagee to mortgage all his interest over the mortgaged property as security for a loan of….subject to ceaser on redemption.
CONTENTS OF RECITALS…
⮚To contain mortgagor property and title
⮚His desire to borrow
⮚Mortgagees agreement to lend
⮚Guarantors agreement to guarantee.
4. TESTATUM
NOW THIS DEED WITNESSES as follows:
⚫Note that a mortgage has two testatum:
a. the first (or small) testatum, and
b. the second testatum;
⚫The first testatum contains the date of repayment of the loan and the interest chargeable.
⚫Note the rules of positive and negative inducement in charging interest.
•The second testatum contains the capacity in which the mortgagor is mortgaging and the description of the mortgaged property.
•It also contains the provisions for redemption.
•Where the mortgagor mortgages as a “beneficial owner”, seven covenants (instead of six in a lease) are implied:
•e.g: “The Mortgagor as beneficial owner conveys to the Mortgagee ALL THAT parcel of land located and known as Plot 13, Kwame Nkrumah Street, Asokoro, Abuja, and more particularly described and edged red in the Survey Plan drawn by MR. XYZ (Licensed Surveyor)”.
PROVIDED ALWAYS that if the mortgagor shall repay to the mortgagee all principal monies and interest on the day and at the rate stipulated, then the mortgagee shall at the request and cost of the mortgagor execute and do all such deeds, acts and things as may be necessary for reconvening the said premises to him.
•e.g: “PROVIDED THAT if the mortgagor shall on the 31st day of July 2021 pay to the mortgagee the principal sum with interest as contained in this deed of mortgage, the term created under this mortgage shall cease.”
BENEFICIAL OWNER IMPLICATIONS…
1.Mortgagor has the right to convey
2.Free from encumbrances
3.Assurance or undertaken
4.Quiet possession
5.Power of sale has arisen
WHEN DOES POWER OF SALE ARISE OR CONDITIONS?
A.Mortgage must be created by deed
B.The legal due date must have passed
C.There is no contrary intention contained in the agreement.
BENEFICIAL OWNER IMPLICATIONS…
6. Power of sale has become exercisable.
7. Compliance with relevant laws and conditions.
POWER BECOMES EXERCISABLE IF:
a)Default on two consecutive times to pay instalments.
b)Service of notice of demand and 3 months has passed from date of service.
c)There is a breach of another fundamental term in the deed.
PRECAUTIONARY MEASURES TO BE TAKEN
1.Must not sale to itself or cronies
2.Must act bona fidei
3.Must not collude with buyers
4.Must not sale at a negligible price or gross undervalue
5. MORTGAGE CLAUSE
⚫This is the clause that provides for the interest mortgaged e.g:
“TO HOLD to the mortgagee for a term of 25 years and SUBJECT TO the provision for cesser upon redemption”.
6. MORTGAGOR’S COVENANTS
1.To observe covenants in the head-lease:
2. The mortgagor shall at all times during the continuance of this security keep the mortgaged property in good and substantial repair and condition PROVIDED THAT upon the mortgagor’s neglect…
3. To at all times during the continuance of this security keep the mortgaged property insured against fire and other risk…
COVENANTS…
4. The mortgagor shall at all times during the continuance of this security not to lease or sub-let the mortgaged property to any other tenant without the prior written consent of the mortgagee aside the existing tenant…
7. POSTPONMENT OF REDEMPTION (IF NECESSARY)
8.CONSOLIDATION (IF NECESSARY)
9.TESTIMONIUM
IN WITNESS OF WHICH the mortgagor has executed this deed and the mortgagee has caused its common seal to be affixed in the manner below on the date above.
OR….
•IN WITNESS OF WHICH the mortgagor and the mortgagee have executed this deed in the manner below, the day and year first above written.
10. SCHEDULE (IF ANY)
(Description of the mortgaged property)
The mortgaged property is plot………….
The property is a 10 storey building containing twenty flats of 3 bedroom apartment.
The property covers an area of……
11. EXECUTION AND ATTESTATION
•FOR INDIVIDUALS:
•SIGNED, SEALED AND DELIVERED BY THE WITHIN NAMED MORTGAGOR
…………………….
Vincent Okon
•IN THE PRESENCE OF:
•NAME ……………………..
•ADDRESS …….…
•OCCUPATION …………...
•SIGNATURE ………………
FOR COMPANIES:
THE COMMON SEAL OF XYZ LTD/PLC IS HERETO AFFIXED AND THIS DEED DULY DELIVERED BY THE MORTGAGEE
IN THE PRESENCE OF:
__________ ____________
DIRECTOR SECTRETARY
12. GOVERNOR’S CONSENT
I CONSENT TO THE TRANSACTION CONTAINED IN THIS DEED OF LEGAL MORTGAGE
……………………………………
EXECUTIVE GOVERNOR OF RIVERS STATE
UP-STAMPING
Practice of payment of additional SD in respect of an increased facility over a subsisting mortgage:
•Parties, property(security) and the terms of the additional loan must be the same as the initial mortgage
•Taken to SDO for fresh stamping to reflect the new consideration.
On consent in respect of the subsequent mortgage, see
Adepate v. Babatunde Julius (2002) FWLR (Pt. 91), 1503; Owoniboys v. UBN Ltd (2003) 15 NWLR (Pt. 844), 545; SDA, s. 82; CAMA, s. 227.
Remedies available to a Mortgagee
The following remedies are available to a Mortgagee
Legal Mortgagee:
A legal Mortgagee has the following remedies
- Taking Possession
- Appointment of a Receiver
- Sale of the Security
- Foreclosure action
- Action on the Personal Covenant
Equitable Mortgagee:
An equitable mortgagee has the following remedies
- Taking possession
- Appointment of a Receiver
- Sale of the Security
- Foreclosure action
- Action on the Personal Covenant
- Action for Specific Performance
SALE OF THE SECURITY
The mortgage security may be sold by the mortgagee as an exercise of his power of sale. However, certain conditions must be fulfilled for such sale to be valid. These conditions are:
- Conditions for the power of sale to arise
- Conditions for the power of sale to be exercisable
The conditions for the Power of sale to arise under CA, PCL & MPL are:
- The mortgage must be by deed,
- The legal due date i.e. the date for repayment of the loan has accrued
- There must be no contrary express agreement or intention against selling in the deed of mortgage - see S. 19 CA, S. 123 PCL & S. 35 MPL
Please note that all three conditions must be fulfilled
On the other hand, the conditions for the Power Of Sale to become exercisable Under CA & PCL:
•S. 20 CA & S. 125, PCL
a. There is a default in payment of the principal sum of which notice of payment is served on the mortgagor and he remains in default 3 months after the service of the notice; or
b. There is a default in payment of the interest of which 2 months notice have been served and the mortgagor still does not pay; or
c. There is a breach of any covenant (other than the covenant to pay the principal sum and interest) in the mortgage deed or under statute i.e. the CA or the PCL .
- see Okafor & Sons Ltd. Vs Nigerian Housing Development Society(1972) All NLR 200.
●The power becomes exercisable when any of the above 3 conditions exists.
●NOTE the distinction btw when the power arises & when it becomes exercisable.
CONDITIONS FOR THE POWER OF SALE TO BECOME EXERCISABLE UNDER MPL
S. 37 MPL –
•Mortgagor or one of two mortgagors remaining in default of payment of principal, interest on it or part of it for two months default after service of notice,
Or
•Breach of a provision/covenant (other than the covenant for payment of the mortgaged sum or interest) in the mortgage deed or MPL by a mortgagor or some other person.
CONDUCT OF SALE:
•Public auction or private contract or tender
•Sale must be genuine (motive is irrelevant)
Bound to sell at a good price which need not be the market value provided, he acts in good faith & without collusion
UBA v Okeke & Or (2004) 7 NWLR (Pt. 872) 393; Eka-Eteh v NHDS Ltd. (1973) 6 SC 183.
Compliance with the applicable Auctioneer’s Law in the Service of notice, is a condition precedent for a valid sale by public auction - Okonkwo v Coop & Comm. Bank Nig PLC (2003) FWLR Pt. 154, 457.
Compliance with the agreed mode of service of notice is mandatory (except where no mode was agreed upon.
S. 21 (2) C.A., S.126 (2) PCL& S. 38(2) MPL, offers protection to a purchaser who buys where the power has arisen but has not become exercisable, provided, he is a bona fide purchaser for value without notice
Application of Proceeds OF SALE
Proceeds must be used to offset the loan and the remainder given to the mortgagor where there is a balance – B. Visioni Nig. Ltd v. NBN Ltd. (1975) 1 NMLR 8. As such, the proceeds from the sale must be ranking in priority and may be applied in the following manner:
- Payment of cost & expenses incidental to the conduct of the sale e.g Auctioneer’s fees
- Payment of the principal sum & interest on the mortgage.
- Payment of balance if any, to the mortgagor or any other person entitled to the mortgaged property.
NOTE: mortgagee not an agent of the mortgagor when selling but is in respect of the proceeds of the sale.
When may a Sale be set aside?
There are several instances when a sale may be set aside. They include:
- when a different mode of sale was agreed between the parties;
- where the mortgagor has no good title;
- when there’s a failure to obtain requisite consent;
- when there’s non-registration of the mortgage;
- where there is fraud by the mortgagee or collusion between the mortgagee and the purchaser
- where the right of sale has not arisen;
- where there is fraud by the mortgagee or collusion between the mortgagee and the purchaser;
6. where the right of sale has not arisen;
7. where the mortgagee’s right of sale has been caught up with a statute of limitation;
8. where the mortgage is a fraud on the mortgagor;
9. the sale occurred after payment of mortgaged sum and interest.
2.TAKING POSSESSION OF THE SECURITY
•Possession goes with legal estate and it is available as of right to a legal mortgagee even when there is no default
•An equitable mortgagee can only take possession of the security upon a court order;
Rights of a Mortgagee in Possession
The following are the rights of a Mortgagee in possession. Generally, he can:
- create leases binding on the mortgagor
- evict from the property any person impeding on his rights
- receive rents and profits
- extinguish the mortgagor’s right of redemption, where he remains in possession for 12 or more years without acknowledging the mortgagor’s interest – see various limitation laws. Cardoso’s case (supra).
However, the following consequences renders this remedy unpopular:
a.strict accountability for profits made or received,
b.payment of occupation rents, (for use of premises)
c.liability for repairs on the property.
3.APPOINTMENT OF A RECEIVER
•Implied in every mortgage created by deed & the mortgage sum must be due; See S. 19 (1), I(iii) CA, S. 123(1), I(iii) PCL. & S. 35(1), I(iii).
• the power of sale must therefore have arisen & become exercisable; S. 24 (1) CA and S. 131 (1) PCL. C/F S. 43(1) MPL.
•NOTE: the power can be conferred on an equitable mortgagee ( not created by deed) on application to court.
•Prudent to expressly provide for the appointment of receivers in the event of default in the mortgage agreement
•a receiver though appointed by the mortgagee is the agent of the mortgagor
• a court appointed receiver is an officer of the court
•Appointment/removal of a receiver must be in writing
•Empowered to recover the income of the property for the discharge of the loan & interest by action, distress or otherwise.
– see Awojugbagbe Light Industries Ltd. Vs Chinukwe & Anor.
5. FORECLOSURE
• an order of court which has the effect of terminating the mortgagor’s equitable right to redeem & destroying his equity of redemption.
• primary remedy of the equitable mortgagee. See OGUNDAINI V. ARABA (supra).
•often an order of sale is made in lieu of foreclosure (judicial sale)
• a purchaser under the order, must obtain the Gov.’s consent before a cert. of Purchase will be issued by the court. DANJARA V. BAI (1965) NMLR 445.
• A foreclosure order once made, puts an end to all other remedies of the mortgagee unless reopened.
•ACTION ON THE PERSONAL COVENANT
•ACTION ON THE PERSONAL ACCOUNT
REMEDIES AVAILABLE TO A MORTGAGOR
The following remedies are available to a Mortgagor
1. EQUITY OF REDEMPTION - This is the sum total of the mortgagor’s interest over the security that comes into existence at the time of executing the mortgage deed
2. LEGAL RIGHT TO REDEEM
•legal or contractual right of the mortgagor to redeem on or before the legal due date
3. EQUITABLE RIGHT TO REDEEM
•Arises where the legal right to redeem has elapsed. Operates till property is redeemed, sold or foreclosed
• A result of equity’s intervention in the agreement btw the parties
4. To demand for an Account (where mortgagee goes into possession)
5. To balance of proceeds of sale where applicable
6. Right to repossession the property/document/deeds
Discharge of a Mortgage
If a mortgagor has satisfied the terms of repayment of the mortgage, it can be discharged. Below are the following ways to discharge a mortgage.
- Legal Mortgage - Discharged by deed of discharge also known as deed of release or deed of surrender/reconveyance
- Legal Charge - Discharged by a simply receipt i.e. statutory receipt
3. EQUITABLE MORTGAGE - Discharged by a simply receipt of payment under hand, but where payment is made to the mortgagee’s solicitor, the receipt should be by deed, to protect the mortgagor or the person paying the money.
4. MPL – S 47 - Discharged by A receipt (Form 2 in First Schedule may be used). It may also be discharged by a Deed of reassignment, surrender, release or transfer executed in lieu of receipt - MPL, s. 47(4). In the case of a statutory mortgage or legal charge, it will be discharged by a receipt in Form 5 of the Second Schedule to the MPL for statutory mortgage or legal charge
5. FOR A Company in any of the above modes, the same modes of discharged above applies. However, it is important to additionally file a memorandum of satisfaction at the Corporate Affairs Commission pursuant to Section 229 of the Companies and Allied Matters Act 2020.
Nature of a Mortgage
•In the English case of Samuel v. Jarrah Timber and Wood Paving Corporation when the court stated that:
•“No one by the light of nature has yet understood the nature of English mortgage”.
•(1904) A.C. 323. See also: Olowu v. Miller Bros. (of Liverpool) Ltd (1922) 3 NLR 110.
Megary and Wades
•“… a mortgage is a conveyance of a legal or equitable interest in property, with a provision for redemption i.e. that upon repayment of a loan or the performance of some other obligation the conveyance shall become void or the interest shall be reconveyed” (The Law of Real Property, Sixth edition, London Sweet and Maxwell 2003, Pg.1169)
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Cheshire and Burn
•In natural justice and equity, the principal right of the mortgagee is to money and his right to the land is only as a security for the money. Hence the rule established by courts of equity was that a mortgagor must be allowed to redeem his fee simple, despite his failure to make repayment on the appointed date.
Right of Redemption
•Time was not therefore to be of the essence of the transaction.
•The position is that upon the date fixed for repayment, the Mortgagor has at Common law a contractual right to redeem.
• If the date passes without repayment, he obtains a right to redeem in equity.”
Once a Mortgage
• In Owoniboys Technical Services Ltd v. Union Bank of Nigeria Ltd (2003) SCNQR 58, the Court held that:
“Once a mortgage, always a mortgage, there must be no clog on the equity of redemption.”
•. See also: Santley v. Wilde (1899) 2 Ch. Div. 474
Parties to a Mortgage
•The borrower is known as the ‘Mortgagor’
•The lender as the ‘Mortgagee’
•If between 2 Parties only – Mortgagor/ Mortgagee
•Where a 3rd Party provides the security – Mortgagor / Mortgagee / Guarantor
The Role of Solicitors
•Solicitors are involved in the:
•Negotiation
•Drafting and
•Perfection of Mortgages.
•A Solicitor must bear in mind at the stage of negotiation, the purpose for which his client requires the loan.
Sale of Land ‘Subject to Mortgage’
•If you are consulted to purchase a property on behalf of your client for which he/she has no sufficient fund, you may advise your client to secure Mortgage loan.
•The contract of sale should be made conditional upon your client obtaining the loan. If the loan is not granted the vendor shall refund deposit paid by your client ( the prospective purchaser). This is known as Contract Subject to Mortgage.
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Sources of Mortgage Loan in Nigeria
1. Federal Mortgage Bank of Nigeria:
•This is the apex institution for Mortgage business in Nigeria. It grants loans for the purchase or construction of houses or for the improvement or extension of existing ones.
Advantages of FMBN Loan
a.it gives as much as 66% of purchase price
as loan
b.long term loans repayable over a period of 20
years
c. low interest rate of about 6% P.a.
c.Spread across the country with branches
across all the States.
Other Sources of Mortgage Loan
2. Housing Corporations
•A good example of this is the FHA or LSDPC at the state level. They provide funds for building or sometimes they build and offer them to the public for sale.
•The advantages:
a. Low interest rate
a.Security of Tittle in respect of property
purchased from it - C of O easily available
3. Employers’ Housing Scheme
•Some employers like Banks and other big Companies often provide this benefits for some of their employees by direct acquisition of land through Employees’ Cooperative Society or in conjunction with private property developers.
4. Life Endowment Policy
•Insurance Companies may lend or guarantee loan from a Bank with a collateral Mortgage of Life Policy. In this type of Mortgage loan, no portion of the loan is repayable until the period stated in it matures or upon the death of the borrower.
5. Commercial Banks
•They provide credits for financing projects including property acquisition. They are usually the last resort for Mortgage loan because they prefer to give short term loans with very high interest rate.
Investigation of Title to Mortgage Property
•Prudent professional practice places obligation on the Solicitor acting for the lender to investigate the genuineness of the borrowers title proposed as security.
•Two major issues to investigate are:
i) the title of the borrower; and
ii) the value of the property – this must accommodate the credit sought by the borrower.
Purpose of Investigation
•The investigating solicitor at this stage should:
1. Ascertain borrowers ownership of the property charged as security to the Bank. Is the Mortgagor the owner or a 3rd party?
2. Ensure that the same property has not been previously mortgaged or charged as security.
3. That there is no other encumbrance(s) on the property.
How to Investigate Title to Land
•A meticulous perusal of the documents of title is imperative.
•A physical inspection of the property.
•Searches at:
a.Land Registry,
b.Probate Registry and
c.The CAC ( in case of Companies)
Caution on C of O as Title Document
•OGUNLEYE Vs. ONI (1990) 2 NWLR ( Pt. 135) 745 there must be either legal or equitable interest in the borrower prior to the LUA in 1978 except in the case of a grant.
•The solicitor should trace the borrower’s title to a good root as laid down in IDUNDUN V. OKUMAGBA (1976) 10 . S.C 227.
Writing Search Report
•The brief for the investigation of tittle in a mortgage loan is normally given out by Banks.
• After the search, the solicitor writes a report for the consideration of the Bank whether or not to accept the security.
Content of a Search Report
1. Date of search
2. Name of borrower.
1. Name of person giving security, if different
from borrowers
4. Description of property:
2. Title of the borrower or person giving the
security
6. Encumbrances (if any):
If the Mortgagor/Borrower is a Company
•The following matters should be inspected at CAC:
–Date of Registration of the Company and the RC . Number.
–Borrowing powers of the Company in the Article of Association.
–Particulars Company Directors
– Whether Annual Returns are filed up to date
•Whether there is any registered charge or encumbrances
Types of Mortgage
•There are two broad types of Mortgages, namely:
•Legal Mortgage and
•Equitable Mortgage.
Legal Mortgage
•This is a mortgage created pursuant to statutory provisions. It is usually created by Deed, signed, sealed and delivered.
•The form and contents of the instrument creating such a mortgage are prescribed by law and non compliance with the provision of the law may be fatal to the transaction.
Legal Framework for Mortgage Creation in Nigeria
•There are three operative laws regulating the creation of legal mortgages in Nigeria. They are:
1.Conveyancing Act 1882 (now Conveyancing Law of States);
2.Property and Conveyancing Law, 1959 (Laws of Western Nigeria) – now PCL of Ogun, Ondo, Osun Oyo, Delta; Edo and Ekiti states) and
3.Mortgage & Property Law of Lagos State 2010.
Conveyancing Law States
•All States in Nigeria except old South West and Lagos State.
•By virtue of the LUA, creation of legal mortgage by demise is not possible since the highest tenor of R of O is 99 years and nemo dat quod non habet.
Current Modes in the CL States
1.Assignment of the unexpired residue (term) with a proviso for ceser upon redemption.
b.Advantage – Passage of the entire legal
and equitable interests of the Mortgagee.
c.Disadvantages – Privity of estate/Contract.
d.Obligation to service all outgoings and rates/Indemnify Mortgagor against loss of title.
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2. Sub-Demise (or Sub-Lease) Less few days
1.Advantages –
b.No privity of estate/ Contract
c.Uniformity with PCL and MPL
4.Disadvantage – Reversionary Title of the Mortgagor (legal interest) will not pass to the Mortgagee.
5.Solution – Pass the RT by inserting a P of A clause or a Trust Declaration
Current Modes in the PCL States
1.Sub-Demise Less Few Days – S. 109 PCL
2.Advantages –
c.No Privity of Esate
d.Possibility of creating subsequent legal mortgage subject to the value of the mortgaged property.
e.Passage of the Mortgagor’s reversionary title without P of A or TD – S.112 – See: Akano v. FBN Plc (2003) FWLR (Pt. 185) 491 at 504.
2. Legal Charge
1.A Charge by Deed expressed to be a Legal
Mortgage - S. 108 (1) PCL
2.Enjoys the status of a Legal Mortgage –
S. 110
3.Advantages:
d.Simplicity of form
e.No breach of head lease
f.Discharged by a simple receipt of payment.
7.Disadvantages:
h.Discharge receipt not registerable/ b. no proviso for
redemption
Creation of Legal Mortgage under the MPL Lagos State
1.For a R of O under the LUA (S. 15(1) MPL 2010):
b.Charge by Deed expressed to be a Legal
Mortgage, or
c.Charge by Deed expressed to be a Statutory Charge
MPL Cont’d
1.Leasehold interest for a term absolute
b.Charge by Deed expressed to be a Legal
Mortgage, or
c.Charge by Deed expressed to be a Statutory Charge
d.Sub-Demise for a term absolute less few days
Creation of Equitable Mortgage
1.Deposit of title Deed as collateral security for Mortgage loan.
2.Deposit of Title Deed accompanied by Memorandum undertaking to prepare a Mortgage Deed at a future date.
3.Equitable Charge
4.Defective Deed of Mortgage
5.Where holder of equitable interest creates a mortgage.
Creation of Equitable Mortgage under the MPL of Lagos State – S. 18
1.Deposit of Title instrument accompanied with agreement to create a legal mortgage.
2.Charge on property accompanied by an agreement to create a legal mortgage.
3.Assignment of an equitable interest in property
Creation of Successive Legal Mortgages in Nigeria
•This occurs when the same property is mortgaged twice or more in securities transaction, the value of any real property intended as security is directly proportional to the property’s networth. It is therefore a prudent commercial practice for a borrower to maximize the value of his property as security.
Successive Mortgage & CL States
•In the C.A State where common law applies it is impossible to create a subsequent successive legal management because a management is deemed to have divested himself of his legal title over a property once legal management is created on it. What is left is his equity of redemption which can only suffice to create equitable management.
Successive Mortgage & PCL States
•Subsequent successive legal Mortgage over the same property is possible.
•S. 109 (2) only requires the term to be taken by a 2nd subsequent Mortgage to be at least a day longer than the term vested in the 1st Mortgagee.
Subsequent Legal Mortgage vs. Mortgage Upstamping
•SLM – Creation of more than one legal mortgage using the same property of collateral security in favour of the same or different Mortgagee – Only Possible under PCL and MPL.
•MU – Negotiating and obtaining new/additional Mortgage from the same Mortgagee using the same Mortgaged Property as collateral security - Possible in all jurisdictions in Nigeria.
Perfection of Mortgage
•Due execution of Mortgage instrument.
•Stamping of Mortgage Instrument ad valorem
•Registration of the Mortgage instrument at the appropriate Land Registry and CAC, if a Company.
Documents required for the perfection of Legal Mortgage
1. Photocopies of the title document (Original to be sighted).
2. Mortgagor’s 3 years tax clearance certificate.
3. Receipt of payment of current Ground Rent.
4. Receipt of payment of tenement rate.
5. Duly completed application for consent form.
6. A copy of the approved building plan of the
property.
7. A copy of the valuation report of the property.
8. Any other document as may be required e.g.
fire insurance policy.
•If a Company:
•A copy of the memo and Article.
•A copy of the Resolution of the B o D authorizing the Mortgage.
•A copy of the Certificate of Incorporation of the Company.
MORTGAGE 3
●OUTLINE
•Up-stamping
•Rights and remedies available to a mortgagee
•Rights and remedies available to a mortagor
•Discharge of a mortgage
UP-STAMPING
●This is payment of additional stamp duties to reflect the amount of an additional loan granted to a morgagor.
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CONDITIONS FOR UP-STAMPING
●The parties are the same
●The property (security) is the same
●The terms and conditions of the loan must be the same with the initial mortgage.
●The value of the security must be sufficient to accommodate the additional loan requested.
DOES THE ADDITIONAL LOAN REQUIRES GOVERNOR’S CONSENT?
●No, it does not require the consent of the governor so long as the consent of the governor has been obtained in the initial loan. See OWONIBOYS TECHNICAL SERVICES LTD V UNION BANK OF NIG LTD (2003) 15 NWLR (Pt.844) 545 SC
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RIGHTS OF MORTGAGEE
•Right to take possession.
•Right to appoint a receiver.
•Action in court to recover the principal sum and interest.
•Foreclosure.
•Right to sale the property.
•Order of specific performance.
•Right to consolidate.
•Possession of title deed
RIGHT TO TAKE POSSESSION
➢It is immediate and not contingent on the default of payment of the loan.
➢The mortgagee is entitled possession whether or not the mortgagor is in default of payment of the loan. See HUGHES V WAITE
●A legal mortgagee does not need an order of court to take possession.
●A mortgagee can even take possession by force ( where the mortgagor resists the exercise of the right) AWOJUGBAGBE LIGHT INDUSTRIES NIG LTD V CHINUKWE & ORS (1995) 4 NWLR ( Pt 390 )379
•It is an exception to the rule against self-help (viet armis). See OJUKWU V GOVERNOR OF LAGOS (1985) 2 NWLR (PT.10) 806
●The mortgagee cannot be liable for trespass when it exercise its right to take possession. See AWOJUGBABE LIGHT INDUSTRIES LTD V CHINUKWE
●Where the mortgagor remains in possession, he is a tenant at will or tenant at the mercy of the mortgagee. See AWOJUGBABE LIGHT INDUSTRIES LTD V CHINUKWE.
●The mortgagor is not entitled to the statutory protection available under the Recovery of Premises Act before the mortgagee can take possession.
● NOTE: An equitable mortgagee who wants to take possession must apply to court.
WHEN SHOULD A MORTGAGEE TAKE POSSESSION
●Fear of destruction or depreciation is imminent
●Where the property is being squandered
●Where the primary concern is the payment of interest and not the mortgage sum.
WHY IT IS NOT ATTRACTIVE FOR THE MORTGAGEE TO TAKE POSSESSION
•Strict Accountability: The Mortgagee must account strictly to the mortgagor for profits made or received on the property. See WHITE V CITY LONDON BREWERY, YOUNG V ABINA
•Liable for Repairs: The mortgagee must carry out repairs on the property. See SANDON V HOOPER.
NOTE: Repair does not mean improving the mortgagor out of his estate. See NIGERIAN LOAN & MORTGAGE LTD V AJETUNOBI
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•The mortgagee cannot make profit from the property; he can only realize his security
•Payment of Occupation Rent: where the Principal sum & interest has been paid and the mortgagee still remains in occupation. See ADEROKUN V UAC 7 WACA 63
RIGHT TO APPOINT A RECEIVER
●WHO IS A RECEIVER?
•An independent, uninterested third party appointed by the court, corporation or other person to manage the property that belong to a bankrupt mortgagor. See ADETONA&ANOR V. ZENITH INTERNATIONAL BANK LIMITED (2003) 3 NWLR (Pt. 1129) 577 CA
•The Receiver takes over the management of the security for the purpose of applying the proceeds towards satisfaction of the loan and interest.
➢NOTE: The receiver has power to recover the income of the property by action, distress or otherwise, and must apply the money to discharge the loan and interest.
CONDITIONS FOR THE MORTGAGEE TO BE ENTITLED TO APPOINT A RECEIVER
●The mortgage must be by deed.
•Once the mortgage is by deed, the power to appoint a receiver need not be expressly stated in the deed.
•When a legal or an equitable mortgage is created by deed, the mortgagee has a right to appoint a receiver upon a default when the loan is due to receive income of the mortgage property or any part of it.
•An equitable mortgage created not by deed, the mortgagee must apply to court for appointment of a receiver.
See section 19(1)(i) CA & 123(1) PCL
●The mortgage sum must be due.
POWERS OF A RECEIVER
➢S.s 24 CA & 131 PCL
•Demand for money from any person liable to make payment in respect of the property.
•Take possession and lease out the property to tenants.
•Sue either in the name of the mortgagor or mortgagee.
•Receive remuneration or commission and such commission unless a contrary rate is stated, can be 5% of the gross income derive from the property.
•Pay out of the income received by him from the property, costs, charges, and expenses incurred by him as receiver.
•Repair the property.
•Insure the property against fire.
POWERS OF A RECEIVER UNDER CAMA
●Section 556 & the 11th Schedule of CAMA 2020.
•Take posession and protect the property.
•Receive rents and profits.
•Discharge all outgoings in respect of the prroperty.
•Manage the property a view to the beneficial realisation of the security.
•Sell or otherwise dispose of the property of the companyby public auction or private treaty.
•Raise or borrow money and grant security over the property of the company.
•Appoint a slicitor or accountant or other professionals to assist him in performance of his functions.
•Bring or defend action in the name of the company
•Refer to erbitration any question affecting the company
•Effect and maintain insurance in respect of the business and property of the company.
•Use company seal and other things as provided in the 11th schedule.
●NOTE: once a receiver has been appointed directors or liquidators in case of members’ voluntary winding up, shall cease until the receiver is discharged.
DUTIES AND LIABILITIES OF A RECEIVER
●Duty to act in good faith.
●Duty to act within the scope of his authority.
●Duty of care.
APPLICATION OF RECEIPTS OR PROCEEDS BY RECEIVER
●Pay all rents, taxes, rates and outgoings whatever affecting the mortgage property.
●Pay the principal sum having priority.
●Pay pay commission, premiums of any insurance under the mortgage deed.
●Pay the interest sum.
●Pay residue if any to whosoever is entitled.
●See sections 24(8) CA, 131(8) PCL
ACTION IN COURT TO RECOVER PRINCIPAL AND INTEREST
➢it is a remedy available to the mortgagee where the mortgage instrument does not confer an express power of sale on the mortgagee. See EZOMO V NNB PLC
➢Either by summary judgment or undefended list procedure see O 11 Lagos & Abuja, O 35 Abuja
FORECLOSURE
➢A judicial process in which the mortgagee by order of court, terminate the mortgagor’s equity of redemption and become absolutely vested with title to the mortgage property.
➢A legal proceeding instituted by the mortgagee to terminate a mortgagor’s interest in the property.
➢See AFRIBANK PLC V ALADE(2002) 13NWLR (PT 685) 591CA
➢It is available when the legal due date for redemption has expired.
➢It vests absolute interest in the mortgagee and it becomes the property of the mortgagee.
PROCEDURE
➢Due to the strong effect of an order of foreclosure. Upon an application for an order of foreclosure the court will rather order the sale of the property so that the mortgagee can take their money and give the balance to the borrower.
●Where the court is willing to grant the foreclosure order it will:
•First make the order nisi ( 6 months)
•Then absolute if the borrower is still unable to pay.
EFFECT OF FORCLOSURE
•The mortgagor’s title becomes absolute
•The mortgagee cannot sue the mortgagor to repay the loan if the property is subsequently sold by the mortgagee and it is insufficient to satisfy the loan.
•The interest of a purchaser who buys from a mortgagee who sells as a mortgagee and not as an absolute owner after obtaining foreclosure order is defeasible.
REOPENING A FORCLOSURE ORDER
•Where there is timeous application for reopening the foreclosure order.
•Where the inability of the mortgagor to pay within 6 months of grace is due to circumstances beyond his control and especially where he now pays the mortgage sum into court.
•Where the security far exceeds the outstanding mortgage sum and interest.
•Where the security is of special value to the mortgagor, such as where the mortgage property is a family property.
•Where it is just and equitable to allow the mortgagor redeem.
•See CAMPPBELL V HOLYLAND(1982) 7 Ch 166
RIGHT TO SALE PROPERTY
➢It is central or paramount to a legal mortgage created by deed
➢It is automatic when the loan becomes due.
➢The power of sale must first arise before it becomes exercisable.
➢FOR THE POWER TO ARISES:
•the mortgage must be created by deed;
•Date of repayment must have expired or installment fallen due.
•No agreement against sale must have been made.
➢See sections 19(1) CA, 123(1) PCL NIG. ADVERTISING SERVICES LTD V. UBA PLC
➢THE POWER BECOMES EXERCISABLE WHERE:
a)DEMAND NOTICE SERVED: where the mortgagee serves the mortgagor demand notice requiring him to pay the mortgage sum and he defaulted for at least three (3) months. See sections 125(i) PCL, 20(i) CA or
b)INTEREST IN ARREARS: where the mortgagor is in default of the payment of interest for two (2) months. See sections 125(ii) PCL, 20(ii) CA
c)BREACH OF ANY PROVISION IN THE MORTGAGE DEED OR LAW. See sections 125(iii) PCL, 20(iii) CA , B.O.N v. Aliyu, B.O.N v. BABATUNDE (supra), OKWONKWO v. C.C.B. (NIG) PLC
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Note: The construction of the above is disjunctively
NOTE: Ss.19(2) CA & 123 PCL- the requirements may be excluded either completely or be varied by agreement of the parties.
POWER OF SALE AND THE COURT
●The mortgagee need not approach the court before exercising the power of sale so long as the mortgage is created by deed andd the legal due date has expired. See ESTERN RELIGION TRADERS SYNDICATE V FASHUGBE.
●The court will not restrain a mortgagee from sale even if there is a dispute as to the actual amount due. See INTERCITY BANK V FEED & FOOD FARMS NIG LTD (2001) 17 NWLR (Pt 742) 347.
●The court will not restrain the mortgagee’s power of sale merely because the amount due is in dispute or because the mortgagor objects to the manner in which the sale is being arranged or because the mortgagor has commemced a redemption action. See NIGERIAN HOUSING DEVELOPMENT SOCIETY LTD V YAYA MUMMUNI (1977) 1 NSCC VOL II 65 @ 73,, ADAM V SCOTT (1859)7 WR 213.
“The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute or because the mortgagor has begun a redemption action, or because the mortgagor objects to the manner in which the sale is being aranged. He will be restrained, however, if the mortgagor pays the amount claimed in court, thst is, the amount which the mortgagee claims to be due to him..’’
Halsbury’s Law of England 4th Edition Paragraph 725
EXERCISE OF POWER OF SALE UNDER MPL
a)Notice requiring payment has been served on the mortgagor or on several mortgagors and there is default of payment of the mortgage money for 2 months after such service; (section 37(i) MPL ) or
b)Some interest under the mortgage is in arrears and unpaid for 2 months after becoming due (sections 37(i) MPL ) or
c) There has been a breach of some provisions contained in the mortgage deed or under the MPL (section 37(i) MPL )
WHAT IS THE IMPLICATION OF SALE WHEN THE POWER OF SALE HAS NOT ARISEN?
•A purchaser who buys the mortgaged property before the power of sale arises will not get a good title.
WHAT IS THE IMPLICATION OF SALE WHEN THE POWER SALE HAS ARISEN BUT HAS NOT BECOME EXERCISABLE?
•A purchaser who buys without the power of sale becoming exercisable will have a good title regardless of the irregularity, the only remedy available to the aggrieved mortgagor is action for damages against the mortgagee. See Sections 21(2) CA and section 126(2) PCL
NIGERIA ADVERTISING SERVICES LTD v. UBA
➢Note: A purchaser of mortgage property is therefore, concerned with whether the power of sale has become arisen than whether the power o f sale has become exercisable. See OKAFOR V N.H.D(1972) N.S.C.C 271, OGWUCHI V FMB NIG LTD (1990) 6 NWLR (Pt.156) 330
CONDUCT OF THE SALE
●The sale may be through Public auction or by private treaty.
●The mortgagee is not bound to sell at a particular price.
●The mortgagee is only require to sell in good faith.
●With respect to the sale, the mortgagee is not a trustee of the mortgagor.
A SALE AT UNDER VALUE
●A sale at under value without more will not be a ground to set aside the sale except there is a proof of bad faith such as the mortgagee selling to itself or its privy etc. the court may infer bad faith see FARRAR VFARRAR, EKA-ETEH V N.H.D.S LTD (1973) 6 SC 183, W.A.BLTD V SAVANNAH VENTURES LTD (2002) 10 NWLR (775) 401
WHEN CAN A SALE BE SET ASIDE
•Where the mortgagor has no good title from the beginning i.e. ab initio see ERIKITOLA V ALI (1941) 16 NLR 56
•Where the sale is at such a low values that it raises an inference that there is fraud.
➢Where there is corruption or collusion with the purchaser of the property that amount to fraud. See OGWUCHI V FMB NIG LTD (1990) 6 NWLR (Pt.156) 330
•Where there is evidence that that the money advanced has been paid in full
•Where the mortgagee sells to itself or to its privy ( sale to a simulacrum)
•Where the right of sale has not arising before the actual sale. See TWENTIETH CENTURY BANKING CORPORATION V WILKILSON
•Where the required consent was not obtained. for example under LUA, the consent of the Governor is required for legal mortgage. See SAVANNAH BANK V AJILO
CAN THE MORTGAGEE SALE TO ITSELF OR ITS PRIVY?
●As a rule the mortgagee must not sell the mortgage property to itself or its agents or privies.
●Where the mortgagee sells to itself or its agent/privy by a private treaty it will be invalid. See EKAH ETE V NIGERIA HOUSING DEVELOPMENT SOCIETY LTD.
●Where the mortgagee sells to itself or its agent/privy by public auction it will be valid. See OKONKWO V CCB NIG PLC (1997) 6 NWWLR (Pt.507)48CA, (2003) 8 NWLR (Pt.822) 347 SC
It is important to note that the Mortgagee may still sell even when the Mortgagor has paid a SUBSTANTIAL PART OF of the loan. The Payment of substantial part of the loan will not stop a mortgagee from exercising the power of sale - NIGERIAN HOUSING DEVELOPMENT SOCIETY V MUMUNI LTD & ANOR (1977) NSCC65
APPLICATION OF THE PROCEED OF SALE (SECTION 21(3) CA , 127PCL):
•pay up all mortgages having priority;
• pay commission to the auctioneer and all other cost;
•pay up outstanding mortgage sum
•Pay outstanding interest; and
•pay balance (if any) to the mortgagor or to any persons entitled to it.
•NOTE: where the proceeds of the sale does not satisfy the principal and the interest the mortgagee can sue the mortgagor to recover the balance.
●NOTE: a purchaser of a mortgaged property is protected under the law. See S.21(2) CA. WEMA BANK v. ABIODUN (2006) 9 NWLR (Pt. 984) 1
ORDER OF SPECIFIC PERFORMANCE
●This remedy is available to an equitable mortgagee in the following ways:
•Where the mortgagor fails to complete the documentation for the mortgage after receiving the mortgage sum.
•Where the mortgagor fails to liquidate the mortgage sum after the legal due date
RIGHT TO CONSOLIDATE
•The right of the mortgagee not to allow the mortgagor redeem a mortgage property without redeeming the other.
POSSESSION OF TITLE DEEDS
●The mortgagee can take possession of the title deed. For example, in mortgage created by assignment under CA the mortgagee can take possession of the title deeds or documents.
RIGHTS OF MORTGAGOR
•Equity of redemption: the sum total of the mortgagor’s interest over the mortgage property.
•Legal right of redemption: the contractual right of a mortgagor to redeem on the date agreed by the parties.
•Equitable right to redeem: the right to redeem after the agreed date to redeem has elapsed.
•Strict account: where the mortgagee takes possession.
•Balance of the proceeds of sale; if any
•Reconveyance or release of mortgaged property, return of original title documents, and keys to mortgaged property on discharge: the mortgagor is entitled to a re possesion of any title document in possesion of the mortgagee.
FURTHER RIGHTS OF THE MORGAGOR WHERE THE MORTGAGOR REMAINS IN POSSESION.
•Right to rent.
•Right to sue for trespass to defend the mortgage property.
•Right to lease subject to mortgagee’s consent where the mortgage deed provides for it.
DISCHARGE OF MORTGAGE
●The mode of discharge of mortgage depends on the mode of its creation.
●Legal mortgage by way of demise or sub-demise created in the CA States is discharged by a deed of discharge or a deed of release or surrender which is registerable.
●Legal mortgage under the PCL is discharged by way of a statutory receipt
●Equitable mortgages are discharged by receipt of payment of the principal and interest
●In Lagos State, a discharge of a legal mortgage is effected by the completion of Receipt of a Mortgage. See section 47(1)MPL
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