PL-PRACTICE WEEK 11 MORTGAGE AND CHARGES 1

• Isochukwu
• 2
• Property Law Practice

WEEK 11 – MORTGAGES AND CHARGES I

MEANING: Where a person (mortgagor) conveys his (legal or equitable) interest in land as collateral to secure loan from another (mortgagee) with a provision for redemption upon repayment of the loan-Olowu v Miller Bros Ltd.

A company can do the above by way of debenture (unless expressly prohibited by MEMOART)… it should register every debenture/charge with CAC within 90 days[1] of the creation of the charge. Failing which the charge becomes invalid against a subsequent creditor or receiver.

MORTGAGE INSTITUTIONS:

– Federal Mortgage Bank of Nigeria (Act): which can provide as much as 60% long term[2] advance of purchase price with interest rates as low as 6% per annum and branches across Nigeria-FMB v Olloh[3].

– Mortgage Bankers: set up to specifically deal in mortgages. E.g. Union Homes Savings.

– Housing Corporations/Schemes build homes and offer them for sale by way of mortgage with ready C of O. E.g. Lagos State Property Development Corporation, Plateau State Investment and Property Company, Lagos State Mortgage Board.

– Private Developers allow payment of part of the purchase price for a ‘buyer’ to take possession and pay the balance over the years.

– Insurance Companies use life policies as collateral for long-term loans (years stated in the policy must expire).

– Commercial Banks: give short term loans with very high interest rates. Their facilities are largely unavailable in rural areas and should be the last resort. Nigerian Building Society, Housing Corporation, Banks, Insurance Companies (for loan on policies) etc.

Proper incorporation (under CAMA or enabling law) and mortgage license (under S 1 Mortgage Institutions Act are pre-requisites for these institutions to undertake mortgage business.

TYPES OF MORTGAGES: A mortgage may be Legal or Equitable.

In this sequence; both parties must be capacitated[4] with Mortgagor’s title being sound, then there should be proper documentation–execution[5], and requisite stamping, registration and governor’s consent… as all these six generally affect the validity of a mortgage. Awojugbagbe Light Industries v Chinukwe. Savannah Bank v Ajiloh.

Mortgagee’s Solicitor should competently prepare the mortgage deed after careful enquiry at the lands registry.

CREATION OF A LEGAL MORTGAGE:: Under CA (North and East) mortgage is created by:

1. By Assignment of unexpired residue (this one creates privity of estate).
2. By Conveyance of the totality of the interest (freehold) for deemed grantee.
3. By sub-lease/sub-demise of unexpired residue less at least one day[6]. The mortgagee here will need a remedial device i.e. power of attorney or declaration to sell in case of default[7]. Section 8 LUA.
4. By Deed of Statutory Mortgage-Section 26 i.e. Statutory charge expressed to be by way of legal mortgage. (may be discharged by statutory receipt).

The First three above should have provision for re-conveyance upon redemption.

:: Under PCL-Section 108-110 mortgage may be created by

1. demise (of freehold) for a term of years absolute.
2. sub-demise of freehold less at least 1 day than the term vested in the mortgagor.
3. Legal Charge (i.e. a charge expressed to be by way of legal mortgage) receipt can suffice and receipt not registerable in CA and PCL.

First two need provision for cesser on redemption while charge doesn’t as no interest is transferred.

:: Under Mortgage and Property Law Lagos State legal mortgage is created according to whether it is under a right of occupancy or leasehold.

1. By demise: if it is a right of occupancy (freehold?).
2. Sub-demise (for leasehold) for a term absolute.
3. Charge by deed expressed to be by way of legal charge or – statutory mortgage.

Advantage of Sub-demise is that successive legal mortgages can be created, it is not affected by covenants in the head lease and it encourages uniformity in both pcl and CA states. However (or disadvantages) it would need a remedial device (like declaration of trust or power of attorney) for the mortgagee to transfer title to a third party. Mortgagee not entitled to title documents or benefits of covenants in the head lease as there is no privity of estate between head lessor and mortgagee.

Charge more like gives the morgagee lien on the property which he can sell upon court order for sale.

 

CREATION OF EQUITABLE MORTGAGE:

EQUITABLE MORTGAGE.

Quite uniform around the country except under the MPL. Is better for trifling and short term loans. Equitable mortgages are created using six means:

1. Deposit of title deeds either with 1- clear intention that it be retained as security for loan OR 2- agreement to create legal mortgage in favour of the mortgagee (this one is for MPL). Deposit is evidenced by the mortgagee signing a memorandum of deposit which may be by deed[8]–Yaro V Arewa Construction Ltd.
2. By written agreement to create legal mortgage if mortgagee has already advanced money. Specific performance can be ordered for part performance-Walsh v Lonsdale.
3. Where the mortgagor mortgagees his equitable interest in land.
4. By equitable charge of mortgagor’s property-Ogundiani v Araba.
5. An imperfect legal mortgage is equitable.
6. In Section 18 MPLL2010, Items 1 and 4 must be accompanied by agreement to create a legal mortgage.

Equitable mortgagee can enforce by suing for specific performance.

The search report should contain the date of search, name of borrower and lender, description of the property and title, findings on encumbrances, advice on viability. For company, add details of the co and its shareholders (names, addresses, incorporation date, registration number), borrowing powers of the co, registered charge against its assets, last annual returns filed by the co and conclusion.

In Lagos, Section 19 and 20 LRL2014 provides for form 4 (Electronic Search Report) which should be registered under the Land Information Management System.

The consent of the governor of the state is needed for legal mortgage-Section 22 LUA, Savanah Bank v Ajilo, Awojugbabe Light Industries v Chinukwe, UBN v Ayodare. Otherwise, void or inchoate.

Consent may be delegated to the appropriate office e.g. commissioner for housing-UBN Plc v Ayodare and Sons Nig Ltd, Ugochukwu v CCB Nig Ltd. The mortgagor is usually the one to apply for consent and should be estopped from claiming transaction is void for no consent-Ugochukwu v CCB Nig Ltd.

Agreement to create mortgage needs no consent nor is consent needed for re-conveyance.

ETHICAL ISSUES INVOLVED.

 

[1] After 90 days, it owul dneed court order for CAC to accept to register.

[2] Can even reach 20 years.

[3] They also administer the National Housing Fund Act.

[4] Adults of sound mind or Liquid Statutory Corporation/Trustee.

[5] In writing (Section 5 LR (Contracts) Act. Signed by the party to be charged (i.e. mortgagor) or his agent. It should preferably be under seal to confer mortgagee with statutory power of sale and appointment of receiver failing which he would have to apply to court.

[6] Because the governor being the person that gave you would want reversionary interest. Successive legal mortgage can also be created from the same property. Provided there is still time remaining.

[7] Irrevocable until consideration for which it was given is realised. Rivers is a CA state.

[8] In such a case, the mortgagee has power of sale.