mortgages

What is a mortgage?

A mortgage is security offered for a loan. It involves a transfer of interest in land to secure an obligation, with a proviso that the interest will revert once the obligation is fulfilled.

What are the key elements of a mortgage (STOPA)?

1. Security for an obligation2. Transfer of interest3. Obligation must exist4. Proviso for cesser upon redemption5. Agreement of parties

What case supports “once a mortgage, always a mortgage”?

Yaro v Arewa Construction Ltd — any clause that removes the right to redeem is void.

What is the solicitor’s duty when a client borrows money to purchase property?

To advise the client appropriately — Lee Parker v Izzet (No. 2).

List mortgage institutions in Nigeria.

• Federal Mortgage Bank of Nigeria (FMBN)- Housing Corporations (FHA, LSDPC etc.)- Government/Employer Housing Schemes- Commercial Banks- Property Developers- Mortgage Banks- Insurance Companies- Lagos State Mortgage Board- Central Bank of Nigeria

Why is land the best security?

Because it’s stable, immovable, appreciates in value, easy to investigate, and less prone to fraud.

Factors mortgagees consider when choosing security?

• Loan amount- Nature of facility- Loan duration- Borrower’s financial strength- Nature of obligation

What are the two forms of mortgage transactions?

1. Borrowing money using property as security2. Borrowing to buy/build property that becomes the security

Steps in a mortgage transaction where loan is used to buy property?

1. Apply for loan2. Notify bank property to buy will be used as security3. Enter into sale of land transaction4. Insert “subject to mortgage” clause

What is a ‘contract subject to mortgage’ clause?

A clause that makes a sale agreement dependent on securing a mortgage; protects deposit and avoids breach if loan fails.

Contents of a valid ‘subject to mortgage’ clause (SATI)?

• Source of loan- Amount of loan- Terms/manner of repayment- Interest payable

Who are the parties in a mortgage transaction?

• Mortgagor (borrower)- Mortgagee (lender)- Guarantor/Surety (if involved)

When do we have a tripartite mortgage?

When a guarantor is involved → third-party legal mortgage.

What is the mortgagor’s legal right of redemption?

The right to redeem on or before the legal due date stated in the mortgage deed. It ends once the legal due date passes.

What is the mortgagor’s equitable right of redemption?

The right to redeem anytime after the legal due date has passed, as long as the property has not been sold or foreclosed.

Why is the legal due date important?

Because power of sale has not arisen until the legal due date passes. Purchasers only need to confirm that the power has arisen, not whether it is exercisable.

Which cases warn against inserting a legal due date too far in the future?

• Twentieth Century Banking Corp. v Wilkinson- Administrator General v Cardoso

What types of property can secure a mortgage?

Land (best security), aircraft, chattels, shares, choses in action, etc. Land is preferred.

Why is land the best security for a mortgage?

• Stable and reliable- Appreciates in value- Easy to inspect and investigate- Simple to enforce- Less fraud risk

What two basic forms can mortgage transactions take?

1. Borrowing money and using property as security2. Borrowing to buy/build property which then becomes security

What is the correct order of a mortgage used to purchase property?

1. Apply for loan2. Tell bank the property purchased will be used as security3. Enter sale of land transaction4. Insert “subject to mortgage clause” in contract

What happens if a contract is subject to mortgage and the loan is not obtained?

The contract becomes void and the purchaser gets back their deposit.

Why is a ‘subject to mortgage’ clause used?

To protect the buyer so that if the mortgage fails, they are not liable for breach and receive a refund of their deposit.

What must the vendor do in a subject-to-mortgage arrangement?

The vendor must consent because their property will serve as the security to guarantee the purchaser’s loan.

List the contents of a subject-to-mortgage clause (SATI).

• Source of loan- Amount- Terms of repayment- Interest payable

Give the standard draft of a 'subject to mortgage' clause.

A contract of sale is conditional upon the purchaser obtaining a mortgage loan from a named bank for a specified amount, to be repaid over a period with interest; and if the loan is not obtained on completion, the contract is void and deposit refunded.

Who are the parties to a mortgage transaction?

• Mortgagor- Mortgagee- Guarantor/Surety

What is a tripartite (third-party) legal mortgage?

A mortgage involving a guarantor who provides additional security for the mortgagor’s loan.

What is meant by “the procedure must be properly arranged” in a mortgage-to-purchase transaction?

You must first apply for the loan before entering the sale transaction. You don’t say “contract of sale subject to mortgage”… instead, you say you enter into a sale of land transaction subject to obtaining a mortgage.

Why is the order important in mortgage-to-purchase transactions?

Because the contract of sale is just one step in the sale of land process. The correct legal structure ensures the purchaser isn’t in breach if the loan isn’t granted.

What is the legal effect of including a ‘contract subject to mortgage’ clause?

• Contract is conditional- Purchaser is protected from breach- Deposit is refundable if loan isn’t granted

Who guarantees the loan facility in a subject-to-mortgage clause?

The vendor, by allowing the property being sold to be used as the security for the purchaser’s loan.

When will a tripartite mortgage arise?

When a guarantor is included in the mortgage transaction → becomes a third-party mortgage.

What are the two rights of redemption a mortgagor has?

1. Legal right to redeem — on or before legal due date2. Equitable right to redeem — after legal due date

When does the power of sale arise?

Only after the legal due date has passed. Purchasers only check that the power has arisen, not whether it’s exercisable.

What happens if the legal due date is set too far in the future?

It may cause hardship because the mortgagor can delay payment while the bank is stuck — see: - Twentieth Century Banking Corp v Wilkinson- Administrator General v Cardoso

Why do mortgagees insert shorter legal due dates (legal fiction)?

To bring the power of sale forward and keep the mortgagor on their toes. It does NOT affect instalment payments.

What types of security can be used for mortgage transactions?

• Land (preferred)- Aircraft- Shares- Chattels- Choses in action

Why is land preferred as mortgage security?

• Stable, appreciated asset- Easy to inspect and investigate- Simple to enforce- Less fraud risk

What factors influence the mortgagee’s choice of security?

1. Loan amount2. Nature of facility3. Loan duration4. Borrower’s financial strength5. Type of obligation

What are the two forms of mortgage transactions?

1. Using property you already own as security2. Borrowing to buy the property that becomes the security

In what situations do mortgage procedures often get examined in Bar Finals?

When the loan is used to buy property — examiners love asking about the sequence and the subject-to-mortgage clause.

What are the key covenants in a mortgage?

1. Covenant to repay2. Punctual payment of interest3. Insurance4. Repair5. Restriction on leases/subleases6. Consolidation7. Observe conditions in head lease8. No redemption for a term certain

Why include a covenant to repay the principal sum & interest?

Because the mortgagee needs to know:a. When the right of sale arisesb. When action to recover the loan can be broughtc. When mortgagor’s right to redeem endsd. When limitation begins to run

When is repayment “payable on demand”?

When no legal due date is included in the mortgage deed.

What is the effect of defaulting on instalments before legal due date?

The mortgagee cannot exercise the power of sale before the legal due date.(Twentieth Century Banking Corp v Wilkinson)

What is “legal fiction” in mortgage repayments?

A shorter legal due date inserted to allow the mortgagee’s powers (including sale) to arise earlier—NOT to prejudice the mortgagor.

What happens when interest rate is not stipulated?

The court will impose a reasonable interest rate.

What is the difference between penalty and encouragement interest clauses?

• Penalty: Low interest initially → higher rate if late (NOT enforced)- Encouragement: High interest initially → reduced rate if paid punctually (VALID)

What case defines “punctual payment”?

McLane v Garty — means payment on the date due, not a day after.

Who has statutory power to insure the mortgage property?

The mortgagee, where the mortgage is by deed. (S.35 MPL, S.19(1) CA, S.123 PCL)

What should a proper insurance covenant contain?

1. Start date of policy2. Person to insure3. Insurance company4. Amount insured5. Risks covered6. Application of insurance money

When may mortgagee NOT exercise insurable interest?

1. Where parties agree not to insure2. Where mortgagor already insured3. Where mortgage deed is silent

What is the risk if mortgagor insures only in their own name?

The mortgagee may NOT be able to access insurance money in case of loss.

What clause prevents the mortgagor from using insurance payout to rebuild?

A clause prohibiting exercise of rights under S.67 Insurance Act, often paired with an Irrevocable Power of Attorney.

Why include a covenant to repair?

To preserve the value of the property. Mortgagee may repair and charge to the mortgage if mortgagor defaults.

Who can create leases after a mortgage?

Depends on who is in possession (mortgagor or mortgagee). But mortgagor MUST seek mortgagee’s consent for leases created after the mortgage.

What is the purpose of the covenant restricting leases?

To prevent the mortgagor from diminishing the value of the security by granting undesirable or lengthy leases without consent.

Can mortgagees restrict granting of licences too?

Yes — especially where retaining control over the property is crucial (Rhodes v Dalby).

What is the covenant to consolidate different mortgages?

It's the right of a mortgagee with two+ mortgages on different properties from the same mortgagor to refuse allowing redemption of one without redeeming the others.

Is consolidation automatic under Nigerian law?

NO. Consolidation is prohibited unless expressly agreed by the parties in the mortgage deed.- S.115 PCL- S.17 CA- S.28 MPL

What are the conditions for consolidation to apply?

The famous “same—same—different—express—due date” combo:a. Same mortgageeb. Same mortgagorc. Different mortgages affecting different propertiesd. Express covenant to consolidatee. Legal due date must have passed for ALL mortgages

When will consolidation be valid even if only one deed contains the clause?

Where multiple mortgages exist, only ONE needs to contain the consolidation clause for it to bind all.

Does Lagos allow consolidation?

Yes — S.51 LRL of Lagos permits consolidation (but it only takes effect from registration).

What is the covenant to observe and perform head-lease conditions?

A covenant that requires the mortgagor to continue performing the obligations contained in the head lease after the mortgage is created.

When is the head-lease covenant particularly relevant?

Where the mortgage is created by assignment of a statutory right of occupancy.(Assignment creates privity of estate → mortgagee becomes liable unless this covenant exists.)

Why is this covenant necessary?

Because assigning the legal estate to the mortgagee makes the mortgagee automatically liable for the covenants in the head lease — unless the mortgage deed shifts that liability back to the mortgagor.

What is the covenant that mortgagor will not redeem for a term certain?

A clause preventing the mortgagor from redeeming the mortgage until after a fixed period.

When is a ‘no redemption for term certain’ clause enforceable?

Only when: - It does NOT amount to a clog- The term is not excessively long- Parties negotiated it freely and independently(Multi-Service Banking Ltd v Meriden — 10 years was acceptable.)

When is a “no redemption for term certain” clause invalid?

When it clogs the equity of redemption — except in the case of perpetual debentures under S.196 CAMA.

Are mortgages allowed to be totally irredeemable?

No. ALL mortgages must remain redeemable. A clause making redemption impossible is void — “once a mortgage, always a mortgage.”

What is the exception to the anti-clog rule?

Perpetual Debentures — a company may issue debentures redeemable only on remote contingencies or long durations (S.196 CAMA).

What case warns against clogging the equity of redemption?

City Land & Property (Holdings) Ltd v Deborah — right of redemption must remain realistic.

What is the Declaration of Trust & Power of Attorney clause used for?

It’s used where the mortgage is created by sub-demise, to enable the mortgagee transfer the whole property when exercising the power of sale.

What statutory powers automatically vest in a mortgagee by deed?

1. Power of sale2. Power to insure3. Power to appoint a receiver(These arise automatically in a legal mortgage unless excluded.)

What are the 5 major rights/remedies of a mortgagee?

1. Action in court for principal & interest2. Power to take possession3. Appointment of a receiver4. Power of sale5. Foreclosure(+ Specific performance for equitable mortgage + Winding up if company involved)

Are these remedies mutually exclusive?

No — they are cumulative. But one exception:Foreclosure & action for principal are mutually exclusive.

When can a mortgagee sue for principal sum & interest?

Anytime after the legal due date to recover the liquidated sum under the covenant to repay.Applies to both legal & equitable mortgagees.

What procedure applies when suing for the mortgage sum?

Because it’s a liquidated sum:- Undefended List (Order 35 Abuja) OR- Summary Judgment (Order 11 Abuja / Order 13 Lagos)

What is the limitation period for recovering mortgage debt?

• Principal: 12 years- Interest: 6 years(S.29, 26, 30, 31(1) Limitation Law of Lagos)

Can a mortgagee sue to recover interest only?

Yes — but the preferred remedies are:- Go into possession, or- Appoint a receiver(because interest arises from income of the property).

Who can take possession automatically?

Only a legal mortgagee — the right arises immediately once the mortgage is created.No default is required.

How can an equitable mortgagee take possession?

By court order only.

Is default required before taking possession?

No. The right exists from the moment the mortgage is created.

Advantages of a mortgagee taking possession?

1. Can create leases2. Can evict trespassers3. Can gain title by adverse possession after 12 years

Disadvantages of taking possession?

1. Must insure2. Must repair3. Must account strictly for rents/profits (even lost profits!)4. Raises presumption that repayment is in instalments(White v City of London Brewery matters here a LOT.)

What is a receiver in mortgage law?

A neutral person appointed to take income from the property and use it to discharge the mortgage debt & interest.

Who can appoint a receiver?

1. Mortgagee — if mortgage is by deed2. Court — especially for equitable mortgages3. Statute — S.123 PCL, S.19 CA, S.35 MPL

When can a receiver be appointed?

Only when:1. Mortgage is by deed2. Legal due date has lapsed3. Mortgagee is entitled to exercise power of sale(Awojugbagbe Light Industries v Chinukwe is the big case here.)

When is a receiver the agent of the mortgagor?

When appointed by the mortgagee, the receiver is agent of the mortgagor.When appointed by court, receiver is personally liable.

Powers of a receiver?

1. Take possession2. Recover income3. Retain money for costs/remuneration4. Insure (if agreed)5. Pay outgoings (taxes, service charges)6. Apply residue to person entitled to income

Duties of a receiver?

1. Manage security2. Act in good faith3. Avoid collusion4. Stay within authority5. Exercise duty of careA undervalue sale can be set aside.(Standard Chartered Bank v Walker is your key case.)

Who has the power of sale?

All mortgagees by deed (legal or equitable), unless expressly excluded.

Does a legal mortgagee need a court order to sell?

No.Legal mortgagee sells without court order, once conditions are met.

When can an equitable mortgagee sell WITHOUT court order?

Only if ALL are satisfied:1. Mortgage is by deed2. No contrary intention3. Contains remedial devices (in CA states)

When does power of sale ARISE?

(All must exist → CONJUNCTIVE test)1. Mortgage is by deed2. Legal due date has passed3. No contrary intention(Payne v Cardiff RDC supports this.)

When does power of sale become EXERCISABLE?

(Any one → DISJUNCTIVE test)1. Notice served + 3 months default (2 months in Lagos)2. Interest is in arrears for 2 months (no notice needed)3. Breach of fundamental term (no notice needed)(ACB v Ihekwoaba matters here.)

Must the purchaser verify compliance?

No — purchaser only needs to confirm that power has arisen, not that it is properly exercisable.

What are the duties of the mortgagee during sale?

1. Act in good faith2. Do NOT sell to itself or agent3. No collusion4. Must not sell at gross undervalue(Okonkwo v CCB Ltd is key for undervalue issues.)

Is mortgagee required to carry mortgagor along?

NO.They don’t need to inform, consult, or seek approval.