Mortgages in Nigeria: A legal insight

Mortgages occur when a borrower transfers ownership of a property (usually real property) to a lender as security with the tacit understanding that the security would be returned to the mortgagor following the payment of the secured debts. 

In other words, a mortgage is a transfer of real estate securitized for a loan. The property is charged and is used to secure the debt’s principal sum plus the interest. The parties to a mortgage are the mortgagor (the debtor) and the mortgagee (the creditor). Regardless of any provisions to the contrary, the security is redeemable following the mortgagor’s payment of the debt in full.

A mortgage entails three vital characteristics: a mortgagee, who receives the interest in the property transferred by the mortgagor; the mortgagor, who offers his property to the mortgagor as security in exchange for the loan; and the mortgage sum, which is the amount of money involved in the transfer of the interest.

The fundamental characteristic of a mortgage is that it transfers an equitable or legal right in real estate with the possibility of redemption after payment of the principal and interest of the loan.

This article provides insight into the Nigerian practice and styles in undertaking mortgages.

Kinds of mortgages in Nigeria

A mortgage can either be a legal mortgage or an equitable mortgage. The classification of a mortgage as legal and equitable is dependent on the manner the mortgage is created. Nonetheless, a legal mortgage offers the mortgagee increased security on the debt than an equitable mortgage. 

An equitable mortgage takes priority over every party claiming a right to the security, except a party with a legal mortgage that had no prior knowledge of the existence of the equitable mortgage. 

Equitable Mortgage

Equitable mortgage takes varying forms. Generally, it is a type of mortgage that doesn’t comply with the provisions of the law. An equitable mortgage is a valid mortgage and does not affect the intent of the parties to create security over the property, this concept follows the equitable maxim, “Equity looks to the intent rather than the form”. 

How to create an equitable mortgage

There are generally three ways to create an equitable mortgage in Nigeria, these are: 

1. An agreement to create a mortgage: Here the mortgagor and the mortgagee draft an agreement to create a mortgage and execute it. The mortgagor also deposits the title deeds with the mortgagee. In this style, the mortgage document has not been perfected under law. The courts would treat the mortgage as an equitable mortgage and the mortgagee can go after the security if the property isn’t paid up.

2. Deposit of title deeds with an intention to create a mortgage: This is similar to the first step. At this step, the parties do not execute a contract, rather the mortgagor deposits the title deeds to his property with the mortgagee in exchange for a loan. This style of mortgage is the most predominant in Nigeria today, nonetheless, the parties must have the intention to create a mortgage; the mere evidence of title deeds cannot suffice. Witnesses must be able to testify to the existence of a loan and the deposit of the title documents as collateral for the loan.

3. An equitable charge on the property: Here there is no deposit of title deeds, the mortgagee simply places a charge on the assets of the mortgagor allowing the mortgagor to have continuous use of the property. the mortgagee can come after the property in the event of the failure of the mortgagor to pay the debt.

Legal Mortgage

A legal mortgage is in line with the provisions of the law. The legal mortgage in Nigeria is regulated by three laws: the Conveyancing Act, the Property and Conveyancing Law, and the Mortgage and Property Law of Lagos. 

Creation of a Legal Mortgage

Conveyancing Act

The Conveyancing Act guides all the states in the old Northern and old Eastern regions. There are two broad ways in creating a legal mortgage under the Conveyancing Act, these are by sub-demise and by assignment.

1. By Assignment: An mortgage by assignment occurs when the mortgagor assigns his complete interest in the property to the mortgagee with a provision for cesser upon redemption. He leaves the mortgagor with no reversionary interest on the property, this allows the mortgagor the freedom to sell the complete interest on the property to a buyer in the event of a default. Also, the mortgagor is prohibited from taking other loans with the property because the complete interest on the property rests with the mortgagee. 

2. By Sub-demise: The sub-demise occurs when the mortgagor gives to the mortgagee the unexpired residue in the property’s interest but retains some days. This system implies that the mortgagor retains the reversionary interest in the property and can subsequently create another legal mortgage on the property. Again, the mortgagor cannot sell the complete interest in the property to a buyer in the event of a default. 

Nonetheless, this can be solved with the creation of a Power of Attorney appointing the mortgagee as the agent of the mortgagor to sell the property in the event of a default and handover the excess sum from the proceeds of the sale after the loan sum and interest have been deducted or the drafting of a Trust Deed appointing the mortgagee as the trustee over the mortgagor’s property. 

Property and Conveyancing Law

The property and conveyancing law (PCL) was created and is practised by the old western states, including the states of Edo and Delta but excluding Lagos state.

Under the PCL, there exist three forms of creating a legal mortgage, these are by sub-demise, demise and a charge by deed expressed to be by way of a legal mortgage. Since sub-demise has been explained under the Conveyancing Act stated above, we shall move to explain demise and the charge by deed expressed to be by way of legal mortgage. 

1. Demise: The demise is similar to the assignment. The entire term of the property is given to the mortgagee to hold.

2. Charge expressed to be by way of legal mortgage: In this creation, the interest in the property isn’t transferred to the mortgagee, rather some proprietary rights are given to the mortgagee, for instance, the right to sell the property. 

The Mortgage and Property Law of Lagos

As the name implies, this law applies to Lagos only. Under the Mortgage and Property Law (MPL) a legal mortgage can be created in three ways, by demise, by charge by deed expressed to be by way of legal mortgage and by charge by deed expressed to be by way of statutory mortgage. We shall seek to explain the charge by deed expressed to be by way of statutory mortgage only.

1. Charge by deed expressed to be by way of statutory mortgage: this occurs when the mortgage is created using the forms as contained under the MPL. Here the mortgagee need not take an interest in the property but is protected as the owner in law.

Conclusion

The mortgage practices in Nigeria cuts across varying means, with equitable mortgage practices gaining popularity among a majority of the Nigerian populace.