LAND LAW 2.10 REDEMPTION OF MORTGAGES
This is done when the mortgagor (or any person acting in his stead like Personal Representative, Judgment Creditor, etc.) pays the due principal sum plus interest and any other costs. See Section 26 CA–Smith V Smith. After redemption, the mortgaged property is “released” by a re-conveyance of the property to the mortgagor (a receipt or a deed of release would be executed in this regard)-Ronke V Robinson. Then the mortgagor is entitled to have his title deeds handed back to him. Everybody goes home happy.
Note that redemption does not require governor’s consent-Section 22 LUA.
ENFORCEMENT OF MORTGAGE SECURITY.
Where mortgagor fails to redeem and meet his obligations on the due date, the mortgagee is entitled to certain remedies which may include:):
- Enforce the covenant to repay: provided the property is in existence and the mortgagee is in a position to re-convey same once the due sum is repaid. This right cannot be enforced after foreclosure-Walker V Jones. This right lapses after 12 years from the date when the right to recover the money accrued-Section 28 TLLagos.
- Enter into possession: A legal mortgagee can enter into possession except parties agreed to the contrary-Fourmaids V Dudley Marshall Property. While in possession, the mortgagee can create leases and use rent derived therefrom to offset mortgage debt-Chapman V Smith. Where “physical” possession is impossible (because there is an existing lease) the lessee would be notified to pay the rent to him instead of paying the mortgagor. He is only entering to recover the loan (i.e. principal, interest and cost (if any). Equity mandates that the mortgagee in possession should account for the sums collected and (if his is in physical possession), pay rent for occupation. Moreover, he is obliged to keep the mortgaged property in a state of repairs. The Mortgagor loses his right to redeem where the mortgagee has exercised the possession for 16 years. The timer is reset where the mortgagee accepts the title of the mortgagor or receives payment for the debt before the expiration of the period.
An equitable mortgagee has not right to possession/rent except the agreement or courts authorize to the contrary in which case, the right would be exercised through a receiver. On his behalf.
- Sale of Mortgaged Property: A legal mortgagee’s power of sale is statutory and need not be expressed in the instrument-Section 123 PCL. For the power of sale to arise, the power of sale must have become exercisable. (See Section 20 Coveyancing Act, 125 PCL, 37 Lagos Law). In Essence, the mortgage debt must have become due and any of the following must have occurred.
– The mortgagor has defaulted in paying the money more 3 months after being served the notice of default. OR.
– Some interest in arrears remains unpaid for two months after becoming due… OR
– Some obligation imposed by the mortgage deed or statute has been breached by the mortgagor.
The sale may be by way of auction-Section 19 Conveyancing Act. A bona fide purchaser for value in good faith acquires a valid title notwithstanding that power of sale had not become exercisable-Section 21 CA. The mortgagor may sue for damages in such a case. In Oguchi V FMB the court held that this provision seeks to protect both purchaser and mortgagee acting in good faith.
:: The mortgagee should act in good faith. Where he has exercised his power of sale in good faith and in the absence of fraud, unfair dealing or collusion with the purchaser, it is valid. In Eka-Eket V Nigerian Development Society Ltd, the court held that mere sale at undervalue was insufficient in the absence of fraud to set aside sale. Also in ACB V Ihekwoaba, the court noted that undervalue alone would not vitiate the power of sale in the absence of fraud.
:: The mortgagee must sell at a proper price–Farrah V Farrah. It should not be at a gross undervalue.
:: Surplus money: if the amount gotten from the sale is more than the mortgage debt, the mortgagee holds the surplus as a trustee for the mortgagor-Section 21 CA, 39 LLagos.
Other duties may be imposed based on the facts and circumstances of each case-Kennedy V De Trafford.
:: Remember that if the land falls within a the territory requiring registration of titles and the title has not been registered within 2 months, the mortgage is void and the subsequent purchaser gets nothing- See Onashile V Idowu.
Where the mortgagor seeks to prevent the mortgagee from selling the property, the law now requires that he pays the full principal sum and interest (rather than the arrear alone). See Nigerian Housing Development Society V Mumuni, where the mortgagor was five months in arrears with his instalment and the defendant then sought to exercise power of sale. The plaintiff mortgagor quickly paid the E240 being the outstanding in instalments and sued to set aside the sale. The court held that nothing short of the principal and interest should be paid to institute the action.
An equitable mortgagee has no power of sale except in the following instances:
-Where there is deposit of title deeds accompanied with a memorandum under seal. Although he cannot pass a legal title to the purchaser except a power of attorney is incorporated in the said memorandum giving the mortgagor power to vest legal estate.
– Where there is an agreement to give the mortgagee a legal mortgage, then he can sue for specific performance. If successful, he obtains legal title.
Note that governor’s consent must be gotten for the sale else void-Section 22 LUA.
A lapse of 12 years from time right accrues would barr the mortgagee from exercising this power (30years if the mortgagee is governmental)-Section 24 CA. Except the person in possession acknowledges mortgagee’s title/makes any payment in that regard. Here the timer is reset to start again from the date of acknowledgment or payment.
- Appointment of a Receiver: This can be done by both legal and equitable mortgagees who cannot go into physical possession-Section 19CA. E.g. since an equitable mortgagee generally cannot enter into possession, he enters through a receiver. The receiver intercepts rent and apply them to the discharge of the mortgage debt and other costs (like taxes, rates, outgoings, commission, etc.-Section 24 CA). Before a receiver can be appointed, the mortgage debt must have become due (Section 19 CA) and any of the following must have occurred:
– The mortgagor still defaults in paying after 3 months notice. OR
– Some interest is in arrears and remains unpaid for two months thereafter. OR
– The mortgagor has committed a breach of some other covenant in the mortgage deed.
The receiver can be seen as the person that displaces the mortgagor from controlling the premises. The receiver owes a duty of good faith and must exercise due diligence-Kennedy V De Trafford (sc 390 CAMA)… Notwithstanding exclusion clauses in the mortgage deed. Where the mortgagee is dissatisfied with the reciever’s performance, he may terminate appointment.
- Action for Forclosure: Is open to a legal mortgagee or where a mortgage has been created by deposit of title deeds coupled with agreement to give legal mortgage-Ogundiani V Araba and Another. Foreclosure Occurs where (by virtue of a courts order), the mortgagee acquires the mortgaged property free from the mortgagor’s equity of redemption. The courts have maintained that a foreclosure order would not be made unless the due date has passed and debt (principal and interest) remains unpaid even after a reasonable date from demand.
:: The mortgagee applies for a foreclosure order by originating summons supported by an affidavit verifying the claim. Where the court deems it fit, a “foreclosure nisi” is first decreed and where the debt still remains unpaid after 6 months from the decree, the decree nisi is made “absolute”. Thereby vesting the estate on the mortgagee absolutely.
The foreclosure may be reopened in deserving circumstances where the court deems it just-Perry V Baker.
Where justice demands (Maybe where the mortgaged property is far more valuable than the debt), an order for sale instead of a foreclosure order may be made. The limitation period of 12 years may bar the mortgagee from exercising this right. The countdown is restarted where there is a written acknowledgment or acceptance of payment from the mortgagor-Section 11 lllagos.
Note that Note once the mortgagee exercises the remedy of “foreclosure”, he cannot fall back to the other remedies.
Refer to the discussion above on the rights of the mortgagor.