Mortgage Transactions In Nigeria: Borrower And Lender Rights Explained

A mortgage is a conveyance or lien over a property for the security of the repayment of a loan facility, which is discharged after the liquidation of the loan facility. It should be noted that there is always a provision for redemption on repayment of the loan or discharge of such other obligation.¹

Mortgage transactions in Nigeria are a key means of securing credit, allowing borrowers to access funds while protecting lenders through security over property. The legal framework, guided by laws such as the Land Use Act 1978, the Property and Conveyancing Law, and judicial precedents, defines the rights and obligations of both parties.

Understanding these rights is essential, as disputes often arise around consent, title perfection, and enforcement.

DEFINITION OF BASIC TERMS IN A MORTGAGE TRANSACTION

MORTGAGOR: A party to a mortgage that uses his property as security to collect a loan facility or discharge an obligation. A mortgagor is also known as a “Borrower.”

MORTGAGEE: A party in whose favour a mortgage is created and is entitled to the payment of the money secured to him by the mortgage. Also known as a “Lender.”

DEED OF MORTGAGE: A mortgage deed is a legal document in which the mortgagor transfers an interest in real estate to a mortgagee for the purpose of providing a mortgage loan. It can also be TRIPARTITE, meaning a party bringing in a Surety who usually owns the Mortgage property used as Security.

TYPES OF MORTGAGE

There are two broad types of mortgages, namely, Legal and Equitable

1. LEGAL MORTGAGE: This mortgage is created pursuant to statutory provisions. It is usually by Deed. There are three operative laws regulating the creation of legal mortgages in Nigeria, namely, The Conveyancing Act, 1881 (for States created from the old Northern and Eastern regions and some parts of Lagos), Property & Conveyancing Law, 1959 (for the States created from the old Western and Midwestern regions,) and the Registration of Titles Law, Cap R4 Laws of Lagos state 2003, (for some parts of Lagos, especially Victoria Island, Ikoyi and Surulere, Lagos Island, Yaba, Bariga, Somolu, Apapa, Oyingbo, Badagry).

The form and contents of the instrument creating such a mortgage are prescribed by law, and non-compliance with the law may be fatal to the entire transaction. Subject to the relevant laws and due execution, a legal mortgage conveys the legal estate of the mortgagor over the property to the mortgagee as security for a loan on the condition that the mortgagor is entitled to redeem the mortgaged property upon fulfillment of his obligations under the mortgage.

2. EQUITABLE MORTGAGE: An equitable mortgage is a type of mortgage created under the rules of equity. It confers equitable interest on the mortgagee. An equitable mortgage is more suitable for short-term loans. An equitable mortgage is not as secure as a legal mortgage, but in practice, the mortgagee protects his/herself by requesting that the mortgagor at the time of creating the equitable mortgage, sign a legal mortgage and Consent Form.

BORROWER AND LENDER RIGHTS IN A MORTGAGE TRANSACTIONS

a. MORTGAGOR'S RIGHT TO REDEEM: This is the right the Mortgagor has to recover his property upon the fulfillment of his obligations. Thus court of equity will not allow the mortgagee to take any undue advantage of the mortgagor; equity will not give effect to any clause in a mortgage deed that is a clog to the mortgagor's right to redeem; this principle has been extended to include any clause that delays redemption.² Upon creation of a valid mortgage, legal or equitable, a mortgagor possesses three distinct potential rights to redeem the mortgaged property. One of these rights is in law, while the other two are rights in equity. The rights are:

1. Legal right to redeem; and
2. Equitable right to redeem;
3. Equity of redemption.

LEGAL RIGHT TO REDEEM: This is the right specifically reserved for the mortgagor to recover his property as the owner upon discharging his obligations under the mortgage. The mortgagor to be entitled to exercise this right must comply punctiliously with the proviso for redemption at a fixed date; repayment must be made precisely on that date for the mortgagor to be entitled to exercise this very right. However, in practice, the date for redemption is usually short because it is an advantage to the mortgagee to place the mortgagor in default as soon as possible.

EQUITABLE RIGHT TO REDEEM: This is the right that arises after the legal date for redemption has passed. The mortgage agreement will provide a legal date by which the mortgagor should have paid. If he fails to pay on or before the legal due date, his legal right to redeem will be extinguished on that date, and his equitable right kicks off and extinguishes upon foreclosure. Equity will allow redemption on a date later than the contractual date.

EQUITY OF REDEMPTION: Equity of redemption is different from the equitable right to redeem. Equity of redemption is the equitable interest which a mortgagor has in the land as the owner. The mortgagor can redeem his property by paying to the mortgagee the principal money and the interest that has accumulated on the principal money. Where the mortgagor has paid to the mortgagee the amount that is due, the mortgagee shall re-convey the property to the mortgagor.

A Deed of Release is usually prepared, and the particulars of the document of title of the property that is being re-conveyed to the mortgagor shall be stated in the Deed of Release. The deed of release shall be registered in the Land Registry. Equity of redemption arises in favour of the mortgagor as soon as the mortgage is created, and continues until the property is sold or foreclosure occurs. Equity from the onset treats the mortgagor as continuing to be the owner of the property, subject only to the mortgagee's interest, which is not a right to the mortgaged property but to the mortgage debt.³

b. MORTGAGEE'S RIGHT OF REDEMPTION: These are means by which the mortgagee may enforce the security so as to recover the loan facility granted to the Mortgagor. There are basically three such rights:

• Statutory power of sale
• Foreclosure
• Appointment of Receivers⁴

STATUTORY POWER OF SALE: Under sections 19 (1) of the Conveyancing Act and 123 (1) of the Property & Conveyancing Law, every mortgagee (legal or equitable) whose mortgage is created by deed may enforce its/his security after the legal due date by sale of the mortgaged property. Power of sale here is automatic; the mortgagee does not require a court order before he/it can sell. However, for the mortgagee to be entitled to exercise its power of sale, the power must have arisen and become exercisable. For the power of sale to arise, the following three conditions must exist:

1. The mortgage must have been created by a deed.
2. There must be no contrary intention against sale in the mortgage deed; and
3. The legal due date, which is the date of redemption of the mortgage, must have passed.

FORECLOSURE: Foreclosure is a judicial process through which the mortgagor's equity of redemption is terminated, and all the interests in the mortgagor property become vested in the mortgagee, subject to the right of other mortgages that rank in priority above him. An interim order called “a foreclosure nisi” is first decreed, giving the mortgagor six months within which to redeem the mortgaged debt. At the expiry of the six months, the order is made absolute.

In the case of a successive mortgage, all subsequent mortgagees and the mortgagor should be made parties to the action.

APPOINTMENT OF RECEIVERS: A mortgagee can take possession of a mortgaged property without selling it entirely in the event of a borrower's default by designating a receiver. Property management, income collection, and debt repayment are all handled by the receiver. By doing this, the borrower's right to redeem the property when the debt is paid off is maintained while the lender recovers money.

Mortgage transactions in Nigeria balance the borrower's right to redeem property with the lender's right to enforce repayment. While laws like the Land Use Act 1978, Property and Conveyancing Law 1959, and judicial precedents provide guidance, issues such as delays in title perfection and enforcement hinder efficiency. Strengthening the system through reforms and modernization will better protect both parties and enhance confidence in Nigeria's credit and property markets.

Footnotes

1. Suberu V. Aisl Ltd (2007) 10 NWLR (pt. 1043) 590

2. Morgan v. Jefferys (1910) 1 Ch. 620; Ejikeme v. Okonkwo (1994) 8 NWLR (pt 362) 266

3. OKONKWO v. CCB (2003) 8 NWLR (pt. 822) 347; U.B.A. v. OKEKE (2004) 7 NWLR (pt. 872) 393.

4. Section 19(1)(iii) of the Conveyancing Act and Section 123(1) of the Property & Conveyancing Law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.