PROPERTY LAW

UNIT 8

  • MORTGAGES
  • CREATION OF MORTGAGES
  • RIGHTS AND OBLIGATIONS OF THE PARTIES
  • REDEMPTION AND FORECLOSURE

MORTGAGES

A mortgage is a legal arrangement where a person known as the mortgagor borrows money from another known as the mortgagee and uses property as security for the loan. In essence, the property acts as collateral until the loan is repaid. Mortgages are crucial in property law practice as they help secure financing while safeguarding the lender's interest in the property. In Nigeria, the legal framework for mortgages is primarily governed by statutes, case law, and common law principles. The types of mortgages includes the following:

  1. Legal mortgage: A legal mortgage transfers the legal title of the property to the mortgagee until the mortgagor repays the loan. It is the most secure form of mortgage because the mortgagee can claim ownership if the borrower defaults. Legal mortgages are typically created by deed and registered under applicable laws. The relevant statutory framework for legal mortgages is found under the conveyancing act of 1881 which is applicable in states where the act remains in force and the property and conveyancing law of 1959 (PCL) in states like Lagos. In Northern states governed by the land tenure law, there are special provisions governing mortgages of land. See the case of Union Bank of Nigeria Ltd. v. Ozigi (1994) 3 NWLR (Pt. 333) 385 where the court held that a mortgage deed must be registered in order to confer legal rights on the mortgagee.
  2. Equitable mortgage: An equitable mortgage arises when there is no formal transfer of the legal title but there is an intention to create a mortgage. It is created through deposit of title deeds, an agreement in writing, or sometimes even by conduct. An equitable mortgage offers less protection than a legal mortgage because it does not confer legal ownership, but it is enforceable. See section 21 of the land use act of 1978 which provides for the governor’s consent in transactions involving land under mortgage and the case of Okuneye v. FBN Plc (2012) 15 NWLR (Pt. 1323) 337 where the court affirmed that a deposit of title deeds with the intent to create security over land constitutes an equitable mortgage.

CREATION OF MORTGAGES

  1. Legal mortgage creation: A legal mortgage is usually created by a deed and requires registration under the land instrument registration laws of various states. The most common methods of creating a legal mortgage in Nigeria are the following:
    1. Assignment or transfer of legal title: The legal interest in the property is transferred to the mortgagee, subject to the mortgagor’s right to redeem the property upon repayment of the loan. This method is widely used for leasehold interests.
    2. Sub-demise: In some cases, particularly where the land is subject to a term of years, that is, leasehold, a sublease is granted to the mortgagee. Here, the mortgagor retains a nominal interest but grants a sublease to the mortgagee for the duration of the mortgage. See the case of Intercity Bank Plc v. Safari Motors Ltd. (2011) 4 NWLR (Pt. 1238) 342 where the court reiterated that where there is no formal deed of assignment but an intention to mortgage, the mortgage is equitable.
  2. Equittable mortgage creation: Equitable mortgages are created without the formalities required for a legal mortgage. Common ways to create an equitable mortgage includes the following:
    1. Deposit of title deeds: This occurs when the mortgagor deposits the property’s title documents with the mortgagee as security for the loan. See the case of Lawal v. Tsalha (2014) 5 NWLR (Pt. 1390) 134 where the supreme court held that equitable mortgages can be created through deposit of title deeds accompanied by an agreement to create security over the property.
    2. Written agreement: An agreement to mortgage, even if unperfected by deed, may suffice to create an equitable mortgage.

RIGHTS AND OBLIGATIONS OF THE PARTIES

  1. Rights of the mortgagor: the following are the rights of the mortgagor:
    1. Right to redeem: The mortgagor has an inherent right to redeem the property upon full repayment of the mortgage debt. This is known as the equity of redemption, and it exists even if the mortgagee is in possession of the property. See the case of Awojugbagbe Light Industries Ltd v. Chinukwe (1995) 4 NWLR (Pt. 390) 379 where the court emphasized the mortgagor’s right to redeem at any time before foreclosure.
    2. Right to quiet possession: The mortgagor retains the right to quiet enjoyment and possession of the property as long as the terms of the mortgage are adhered to.
  2. Obligations of the mortgagor: the following are the obligations of the mortgagor:
    1. Repayment of the loan: The primary obligation is to repay the loan with any agreed interest as stipulated in the mortgage contract.
    2. Maintenance of the property: The mortgagor is also required to maintain the property and ensure it does not deteriorate, which might affect the mortgagee's security.
  3. Rights of the mortgagee: the following are the rights of the mortgagee:
    1. Right to foreclose: If the mortgagor defaults, the mortgagee can apply to the court to foreclose the mortgagor's right to redeem the property. Upon foreclosure, the mortgagee takes absolute ownership of the property. See the case of Adjei v. National Investment Bank (1996) 6 NWLR (Pt. 456) 567 where the court ruled that foreclosure can only occur after a court order.
    2. Power of sale: The mortgagee has the power to sell the mortgaged property to recover the debt. This power must be exercised in good faith and in accordance with the mortgage contract. See section 123 of the property and conveyancing law of 1959 which empowers the mortgagee to sell without a court order once the power has become exercisable.
    3. Right to possession: The mortgagee has the right to take possession of the property if the mortgagor defaults, even before foreclosure or sale. See the case of Oshinowo v. Oceanic Bank International Plc (2012) 5 NWLR (Pt. 1305) 397 where the court upheld the mortgagee’s right to possession upon default by the mortgagor.

REDEMPTION AND FORECLOSURE

The mortgagor’s right to redeem the property is a crucial aspect of mortgages in Nigeria. However, when the mortgagor defaults and fails to redeem, the mortgagee may initiate foreclosure proceedings. Foreclosure extinguishes the mortgagor's right to redeem and grants the mortgagee absolute title to the property. It is a court-driven process and can only be done by judicial sale or decree. See section 20 of the land use act 1978 which limits certain powers of sale and foreclosure, particularly where the mortgage involves land under the act and the case of Ogundiani v. Araba (1978) 6 SC 55 where the court affirmed that foreclosure is a judicial remedy available to the mortgagee upon default by the mortgagor.


CONCLUSION

Mortgages are a critical aspect of property law practice in Nigeria, governed by both statutory provisions and case law. Understanding the rights and obligations of both the mortgagor and mortgagee, along with the procedures for enforcement, ensures that the interests of both parties are protected. Courts in Nigeria have consistently upheld the principles of equity, particularly regarding the right to redeem and the duties of a mortgagee in exercising power of sale.