Articles

Introduction

Are you longing for your very own home instead of constantly renting? Understanding Nigeria’s mortgage landscape can make your dreams come true. In this comprehensive guide to obtaining a mortgage in Nigeria, we will walk you through eligibility criteria and documentation requirements while shedding light on various mortgage types available in the country.

What is a Mortgage Transaction?

Simply put, a mortgage transaction occurs when you borrow money from a lender (preferably a bank) to purchase property. The property serves as collateral. If you fail to repay the loan, the bank has the right to take possession of it. In the case of Bank of the North Limited v. Bello, the court described a mortgage transaction as the creation of an interest in a property defeasible upon performing the condition of paying a given sum of money with interest at a certain time for security debt or some other obligation.

Types of Mortgage Transactions in Nigeria

According to the mode of creation, there are two ways of creating mortgages in Nigeria:

1. Legal Mortgage
2. Equitable Mortgage

Legal Mortgage

A legal mortgage involves the transfer of the legal title in land from the mortgagor to the mortgagee in exchange for a sum of money, which is to be repaid by a certain date. Failure to make the repayment would lead to the mortgagor losing possession of the property.

In Atiba Iyalamu Saving & Loans Limited v. Suberu, the court described a legal mortgage saying,

“…in a legal mortgage, title to the property is transferred to the mortgagee subject to the proviso that the mortgaged property would be re-conveyed by the mortgagee to the mortgagor upon the performance of the conditions stipulated in the mortgage deed and upon repayment of the debt at the time stipulated therein.”

Creating a Legal Mortgage in Nigeria

Creating a legal mortgage in Nigeria depends on the location of the property. Four laws dictate the creation of mortgages in Nigeria:

1. The Conveyancing Act, 1881
2. The Property and Conveyancing Law, 1959
3. Mortgage and Property Law, 2010
4. Mortgage and Foreclosure Law, 2017

The Conveyancing Act, 1881 applies to the old Northern states (except Kaduna), Eastern regions, and places outside the old Lagos Colony. Under this Act, a legal mortgage can be created in three ways:

• By an Assignment of the unexpired residue with a provision for redemption.
• By Sub-Demise of less few days with a provision for redemption.
• By Statutory Mortgage.

The Property and Conveyancing Law, 1959 applies to Edo, Delta, Ondo, Osun, Oyo, and Ogun State. Under this Law, a mortgage transaction can be created in two ways:

• By Demise.
• By Sub-demise (Sub Lease).
• By Legal Charge by way of Legal Mortgage.
• By Special Form of Charge by way of Legal Mortgage.

Mortgage and Property Law, 2010 applies to properties located in Lagos State. Here, the mode of creation depends on the nature of interest:

• Right of Occupancy: A mortgage transaction can be created by Demise for a term of years absolute subject to a provision on cesser on redemption, Charge by deed expressed to be by way of legal mortgage, or Charge by deed expressed to be by way of statutory mortgage.
• Leasehold: A mortgage transaction can be created by Sub-demise for a term of years absolute less by at least one day than the term vested in the mortgagor, Charge by deed expressed to be by way of legal mortgage, or Charge by deed expressed to be by way of statutory mortgage.

Mortgage and Foreclosure Law, 2017 regulates the creation of mortgages in Kaduna State. Here, a legal mortgage can be created by:

• Demise subject to a provision for cesser on redemption.
• Sub demise subject to a provision for cesser on redemption.
• Charge expressed to be by way of a legal mortgage.
• Statutory mortgage.

Advantages of a Legal Mortgage

• Priority in Law: The holder of a legal mortgage generally gets priority over other creditors.
• Ease of Enforcement: Legal mortgages are easier to enforce compared to equitable mortgages due to clearly stated terms.
• Security Against Fraud: Legal mortgages involve the registration of title documents with appropriate authorities, ensuring clear ownership.
• Versatility: Suitable for all kinds of loans, whether big or small.

Setbacks of a Legal Mortgage

• Formalities: There are numerous formalities making the creation of legal mortgages more complex compared to equitable mortgages.
• Jurisdictional Differences: The creation process varies by jurisdiction.
• Covenants in Head-Lease: Mortgagees might be affected by covenants in the head-lease, limiting control.

Equitable Mortgage

An equitable mortgage is a legal arrangement where a borrower offers their property as security for a loan without transferring ownership to the lender. It is usually in mere written form, without deed or perfection.

Creating an Equitable Mortgage

The process of creating an equitable mortgage follows a similar pattern to that of a legal mortgage and is regulated by one or more of the statutes mentioned earlier.

The Conveyancing Act, 1881 & The Property and Conveyancing Law, 1959 allow the creation of equitable interests by:

• Mere deposit of title deeds with a clear intention that the deeds should be used as security.
• Agreement to create a legal mortgage.
• Deposit of title deeds accompanied by an agreement to execute a legal mortgage.
• Mortgage of an equitable interest in a property.
• Defective legal mortgage.
• Mere equitable charge of the mortgagor’s property.

Mortgage and Property Law, 2010 in Lagos allows the creation of an equitable mortgage by:

• Deposit of title deeds accompanied by an agreement to create a legal mortgage.
• Charge accompanied by an agreement to create a legal mortgage.
• Assignment of an equitable interest.

Mortgage and Foreclosure Law, 2017 in Kaduna allows the creation of an equitable mortgage by deposit of a certificate of title or any instrument creating a Registrable Interest or any document evidencing or constituting a proprietary interest in land.

Advantages of an Equitable Mortgage

• Simplicity: Fewer formalities make it easier to create.
• Flexibility: Successive equitable mortgages can be created with the same property.
• Less Restriction: Not affected by covenants in the head lease.

Setbacks of an Equitable Mortgage

• Transfer Issues: Difficulty in transferring/selling the mortgaged property to a third party.
• No Priority: Takes no priority over a legal mortgage.
• Sale Requires Court Order: The power of sale can only be exercised upon a court order.
• Lack of Legal Protection: No legal protection for the mortgagee’s interest.

Perfection of a Legal Mortgage

To protect the interest of the mortgagee and validate the mortgage transaction, three steps are necessary:

1. Obtaining Governor’s Consent
2. Stamping the Deed of Legal Mortgage
3. Registration of the Deed of Legal Mortgage

Governor’s Consent

The procedure depends on the state but generally requires:

1. Application letter for Governor’s consent.
2. Title documents.
3. Duly executed deed of legal mortgage.
4. Tax clearance certificates.
5. Receipts of payments for ground rent, consent fee, inspection fee, tenement rate, etc.
6. Valuation report.
7. Approved building plan.
8. Insurance policy of the property.

Registering Your Mortgage Deed

Registration is crucial as it puts the whole world on notice of the mortgage. It gives the mortgage instrument priority in law in cases of conflicting interests and should be done within 60 days of execution.

Rights of Mortgagor and Mortgagee

Rights of a Mortgagor

1. The right to inspect documents related to the mortgage.
2. The right to sell the mortgaged property.
3. Legal right of redemption.
4. Equitable right of redemption.
5. Equity of redemption.

Rights of a Mortgagee

1. The right to institute action to recover the mortgage sum and interest.
2. The power of sale.
3. The right to take possession of the security.
4. The right to appoint a receiver.
5. The right to foreclosure.
6. The right to specific performance.

Redeeming a Mortgage Property

Documents required for redemption depend on the property’s location. They include:

• Conveyancing Act: Deed of discharge, deed of release, deed of surrender.
• Property and Conveyancing Law: Simple receipt, re-assignment, surrender, release of transfer.
• Mortgage and Property Law, 2010: Statutory receipt, deed of re-conveyance, deed of surrender.
• Mortgage and Foreclosure Law, 2017: Deed of discharge, deed of release.
• Equitable Mortgage: Simple receipt of payment (underhand).
• For a Company: Certificate of discharge and memorandum of satisfaction (Form CAC 9) at the CAC.

Conclusion

A perfect mortgage transaction is crucial to avoid legal trouble and complications. With economic crises and inflation, mortgages may be the way for Nigerians to own properties and for commercial entities to expand the mortgage industry. This guide aims to equip you with the necessary information to navigate through the mortgage process in Nigeria. fairness, equity, and justice.