LAND LAW 2.7 MORTGAGES (CREATION)
- Preliminary Enquiries: as to the Capacity of the Parties. Can they validly make and take a mortgage? E.g. under Section 1 Infant Relief Act 1874, a loan by mortgage is not recoverable from an infant. But See Nottingham Permanent Building Society V Thurstan. Generally, an insane person cannot transact a mortgage except during his licid interval-Hall V Warren, Campbell V Hooper A statutory corporation can enter into a mortgage agreement where empowered by its enabling law. A company too can-Section 39 of the CAMA. Trustees empowered by the trust instrument can also enter into a mortgage transaction.
After ascertaining capacity, you have to;
- Investigate the Mortgagor’s title: to ascertain whether the land in question has another existing right on it (E.g customary tenancy. See Lasisi V Tubi or inalienable land (E.g.Family land (which requires consent of family head and principal members for alienation)-Ekpendu V Erika, Solomon V Mogaji, communal land, and so on) Inspect the documents, land registry, companies registry, court registry, etc. to know if there are existing encumbrances on the land.
- The mortgagee should examine issues of acquisition and compensation.
- The mortgagee should ensure that the land and buildings on it are covered by planning permissions.
- The mortgagee should ensure that the value of the property is sufficient to liquidate/repay the debt in the event of default.
The Mode of Creation: May be at common law, may be legal/statutory, may be equitable, or may be by operation of the law.
- At common law: initially, it was through a pledge. Here the lender would enter into possession and take rents and profits to discharge the debt. Later it became by conveyance of fee simple (i.e. total interest in property) which can only be annulled by full repayment within the stipulated time after which the mortgagor can re-enter (i.e. regain possession of) his land. However, equity intervened with “equity of redemption” to allow redemption (i.e. repayment) even after the agreed date.
The common law position prevails in States that operate without property legislations. When read together with the LUA, it entails an assignment of right of occupancy (or sublease thereunder) subject to cesser upon redemption. (The right of occupancy is assigned… such right assigned shall be relinquished back to the mortgagor once the mortgagee repays (i.e. upon redemption)).
- Creation of Legal Mortgage.
Under the Property Legislations (I.e. Legal):
– A mortgage of right of occupancy can only be effected by granting a demise of a term of years absolute subject to cesser upon redemption–Sc 108 PCLWN.
– where the mortgagor has a term of years absolute, a mortgage shall be effected by sub demise for a term of years less (at least) one day than the term vested in the mortgagor subject to cesser upon redemption-Sc 110 PCL LWN.
– Created by a charge by deed expressed to be by way of legal mortgage-Section 110 PCL.
You may read up the position under the Conveyancing Act.
III. Equitable Mortgage:
May be created by:
– Mortgage of Equitable Interest: A mortgagor with equitable interest can only create an equitable mortgage.
– Agreement to create legal mortgage: Where the owner of a legal estate agrees to create a legal mortgage in favour of a creditor who has actually advanced money-Walsh V Lonsdale (Equity regards that as done which ought to be done. Specific performance can be ordered-Ogundiani V Araba).
– Where title deeds relating to the debtor’s land is delivered to the creditor with the intention that it be treated as security-Russel V Russel. Deposit is evidenced by the mortgagee signing a memorandum of deposit If this memorandum of deposit is by deed, then the mortgagee shall be entitled to exercise power of sale-Yaro V Arewa Construction Ltd.
- Mortgage by Operation of the Law.
Mortgage may be inferred in agreements involving “installmental payment” by an allottee of property. (E.g. these housing estate arrangements where they tell one to pay 2million now and pay the rest monthly till the full price of the property has been paid). In Anambra State Housing Development Corporation V Emekw the allottee defaulted in paying his instalments. The defendants sought to revoke the agreement. The court held that the buyer was entitled to equity of redemption even after contractual date for payment had passed.
Note the following:
:: That in creating a mortgage, the governor’s consent should be obtained in accordance with Section 22 LUA.
:: Where an equitable mortgage has been created with governor’s consent, consent would not be necessary where the same equitable mortgage is sought to be converted to a legal mortgage.
:: There is a total bar on alienation of land in non-urban area-Section 36 LUA. Where it is in relation to undeveloped land in urban area, the mortgagee’s title may be diminished by the half hectare rule where he would be entitled to only half hectare and the rest relinquished to the state-Section 34 LUA.