Understanding Mortgages in Nigeria

The idea of mortgages has been in existence for quite a while as a means of raising capital and financing on the leverage of rights to land which has been regarded as one of the most dependable assets to own.

However, the legal framework surrounding mortgages has been seen in many quarters as scanty enough to warrant an almost non-existent understanding of what mortgages are or how they are even created.

While previously mentioned in some of my other write-ups, this article will be focused on the topics of :-

– What mortgages are and the legal framework governing mortgages in Nigeria.

– How mortgages are created in Nigeria.

– How mortgages are dissolved or recovered in Nigeria.

What is a mortgage?

A mortgage is a monetary loan secured by a conditional conveyance or transfer of a right to real or landed property, with the borrower being referred to as “The mortgagor” and the lender being referred to as “The mortgagee”. The major condition in this case is that the borrower’s right to the mortgaged property returns fully to him upon a full repayment of the loan obligation, otherwise ownership can be fully vested in the lender.

What are the components of the Regulatory & Legal framework governing mortgages in Nigeria?

Mortgages are governed by the Land Use Act of Nigeria, adopted former common law (English) legislation like the Property & Conveyancing law(adopted in many Southwestern states in Nigeria), the Conveyancing Act(adopted in many Southeastern states in Nigeria) as well as the various land title registration laws of various states and the Banks and Other Financial Institutions Act (BOFIA).

Are mortgages registrable?

Yes they are. Mortgages are required by the Land Use Act to be registered with the Land title registry of the state where the mortgaged property is located.

What are the types of mortgages in Nigeria?

Mortgages can be either :-

– legal :- created in the manner prescribed by statute (Documentation and Registration), or;

– equitable :- created by virtue of a simple agreement and principles of equity or in a manner that would fall outside the requirements of mortgage law but being valid under contract law e.g. documenting an unregistered mortgage.

How are mortgages created in Nigeria?

Mortgages can be created by :-

– A registered deed of mortgage.

– By filling the required statutory form in some states.

– An unregistered deed of mortgage.

– By the creation of a charge in the case of real property owned by a company which must be registered with the Corporate Affairs Commission (CAC).

What are the effects of not creating a legal mortgage?

A mortgage that is equitable and not legal or statutory will rank lower in priority against a legal mortgage on the same property even though the legal mortgage was created later in time.

Secondly, recovering an equitable mortgage will require going through the more tedious route of a foreclosure suit unlike a legal mortgage that can confer a quicker and more legally backed Power of Sale.

Is it possible to take more than one mortgage on the same property?

Yes it is. This is a process known as “Upstamping” which requires a separate deed and which is also required to be registered by law.

What are the rights of a mortgagor in a mortgage transaction?

The rights of a mortgagor/borrower are :-

1. The equity of redemption :- This is the right of a mortgagor to redeem his property once the loan obligation is discharged.

2. The legal right to redeem :- This refers to the right of a mortgagor to recover his property before the due date stated in a mortgage agreement deed.

3. The equitable right to redeem :-  This is the right of a mortgagor to recover his property even after the due date in a mortgage agreement has passed.

What does the law say in cases of more than one property being used as security in a mortgage transaction between a mortgagor and the same lender/mortgagee?

This situation would be eligible for an arrangement known as a consolidation whereby the borrower would have to redeem the security properties as a whole and not separately.

Mortgage Banking in Nigeria

Mortgage banking is a specialized and licensed banking service focused on rendering financial services in support of mortgage transactions.

This article will be looking at mortgage banking in Nigeria, with a focus on the following:-

– The Regulatory Framework governing mortgage banking in Nigeria.

– The permissible and non-permissible activities of mortgage banks in Nigeria.

– Licensing requirements for mortgage banks in Nigeria.

What is the main Regulatory Framework governing mortgage banking in Nigeria?

Mortgage banking in Nigeria is governed mainly by the Central Bank of Nigeria (CBN) Revised Guidelines for Primary Mortgage Banks in Nigeria.

What are the permissible and non-permissible activities of mortgage banks in Nigeria?

Permissible activities

1. Mortgage financing services.

2. Real Estate construction finance services within permissible limits.

3. The acceptance of savings & time/term deposits.

4. The acceptance of mortgage-focused demand deposits.

5. Drawing from mortgage funds e.g. The National Housing Fund facility for on-lending.

6. Financial advisory services for mortgage customers.

Non-permissible Activities

1.Consumer or commercial loans.

2. Estate Agency/Facility management services.

3. Pension fund/scheme management.

4. Project management services for real estate development.

What are the requirements for mortgage bank licensing in Nigeria?

Mortgage Bank licensing in Nigeria is obtained in 2 stages which are the Approval-in-Principle (AIP) stage and the Final Licensing stage.

The requirements for mortgage bank licensing in Nigeria are :-

The AIP stage

1. A written application in writing to the governor of the CBN.

2. Evidence of payment of a non-refundable application fee of 2 Million Naira or any prescribed amount in bank draft to the CBN.

3. A detailed feasibility report.

4. A copy of the Memorandum/Articles of Association of the proposed bank.

5. A list of the names of the promoters and shareholders of the proposed bank.

6. A refundable Capital deposit payment to the CBN of the minimum capital requirement of 5 Billion Naira (for national authorization) & 2.5 Billion Naira (for state authorization)

– A copy of the proposed bank’s draft manual of operations

The Final Licensing stage

This involves registration of the bank with the Corporate Affairs Commission CAC after obtaining an AIP from the CBN and then having the option of applying for a payment of 20% of its capital deposit to enable pre-operational expenses without having to borrow same.

The following documents will have to be submitted to the CBN :-

– A copy of the shareholders register and shareholding details.

– A copy of the share certificate issued to each shareholder.

– A Certified True Copy (CTC) of statutory CAC forms for the statement of share capital, return of allotment, a notice of the bank’s registered address and the particulars of its directors.

– A licensing fee of 2 Million Naira.

How many directors are required for a mortgage bank under the CBN Guidelines?

The guidelines require a minimum of 7 and a maximum of 15 directors.

The whole elemental pillars and anchors upon which Adam Smith postulated on the “invisible hand“, via the lens of industrial-age economics, cannot necessarily work optimally in modern digital economics. Yes, the old factors of production and comparative advantages of nations remain, but their impacts are not as catalytic as before; knowledge has since emerged as the most powerful factor of production, and a man or a woman with knowledge is a FACTOR. 

Industrial age business is about controlling supply to shape prices. Manufacturers work to provide supply, but dominance actually comes by owning supply through distribution. Dangote Group’s most important competitive weapon is that it controls more than 40% of all active trucks in Nigeria, in a nation, where goods are shipped via roads, with inadequate air, rail and waterways for distribution.

The implication is clear in industrial age business: winning in markets becomes managing and controlling distribution as most businesses are bounded and constrained by geography, creating advantages which are largely localized.

But today, the game has shifted from control of supply to control of demand for web-anchored consumer firms. And only companies with capabilities to control demand are going to win big. If you check, most of the greatest internet companies are simply controlling demand, and that means controlling how supplies reach users and consumers. 

It comes down to aggregation: if the suppliers of local news are many, the challenge moves from the scarcity of the news to sorting out the supplier that adds value, since no person can technically visit all the individual websites before arriving at the most valuable one. Welcome Google which now becomes a gatekeeper, helping to make sense of the whole thing by guiding users to the right contents once they search. This is an evolution, shifting power from the old suppliers to a new set of entities which control access to demand.

Yes, the old companies which used to control distribution lose power [Google decides what content it shows users based on its algorithm]. Magically within the relationships, aggregators like Google and Facebook which make the unbounded supply manageable become the kingmakers. In the process, Google becomes more important to users than the newspapers (the suppliers of news) since Google helps to discover the papers. Because advertisers were all interested in access to demand (the users), the papers are cut-off (yes, disintermediated) as advertisers now spend more money advertising in Google.

If you plan to run an internet business, think about how you can control demand. You have already lost the power and capacity to control supply. Yes, the quantity you bring will not have material impact in the total pool in the market.

Nonetheless, you still need to find ways to create a separation. That could be by creating perception demand or simply by building massive data ecosystems which will give you access to be the digital kingmaker in a specialized sector since the ICT utilities like Google and Facebook, as I noted in a recent Harvard Business Review piece, have control of the broad internet.

ChatGPT, Microsoft As A feature

That brings me to OpenAI’s decision to use Microsoft as a distribution partner for its product by structuring a way to bake the AI into Microsoft products like Microsoft 365, Bing search and others. That distribution is going to become the main element of success for ChatGPT. Yes, while the creation of AI is an amazing engineering breakthrough in the consumer technology space, the ability to influence demand via the large Microsoft ecosystem is what will deliver economic value for OpenAI, the creator of ChatGPT.

Indeed, because of Microsoft, ChatGPT has a promise. If not, it has no chance. ChatGPT would have been a mere supply product in a digital that wins on influencing and controlling Demand. But with Microsoft, it has supply and an avenue to influence demand. When you combine both, you #transform markets.

For the past two decades, search engines have answered most users’ queries in the same way: with a ranked list of webpages. But Microsoft’s unveiling of its AI-powered Bing search engine this week suggests this period of stasis is over, tech critic Kevin Roose writes. Using natural language, a user can ask Bing to do tasks as diverse as planning a dinner party — it’ll serve up a menu with links to sources — to drafting a social media post or summarizing a financial report. “It’s an entirely new way of interacting with information on the internet,” Roose writes. (LinkedIn News)

Alibaba has jumped on the AI-powered chatbot trend, currently being led by OpenAI’s ChatGPT – rattling the tech industry.

ChatGPT has riled up development of chatbot in China where it is currently unavailable. Alibaba is joining other Chinese companies such as web search giant Baidu to develop AI-powered chatbots that will be included in their tech services, in response to ChatGPT.

Alibaba said it is testing its chatbot internally in the company’s research institute Damo Academy, without providing further details.

“Frontier innovations such as large language models and generative AI have been our [focus] areas since the formation of DAMO in 2017,” an Alibaba spokesperson told CNN in a Thursday statement.

“As a technology leader, we will continue to invest in turning cutting-edge innovations into value-added applications for our customers as well as their end-users.”

Previously, Baidu had said it expects to complete testing of its chatbot dubbed “Wenxin Yiyan” in Chinese or “ERNIE Bot” its ChatGPT-like service, in March. But outside China, Google is also accelerating Bard, its chatbot that it announced days ago following the frenzy of ChatGPT.

Alibaba’s shares jumped 1.4% on Thursday morning in Hong Kong, following the news.

OpenAI’s ChatGPT has set the public and industries on a frenzy since it was launched late last year. With a record 100 million users in just over two months, companies around the world are racing to develop and release their own AI-powered chatbot.

ChatGPT won hearts across all sectors with its ability to automatically develop human-like answers to queries, giving authentic answers to questions unlike search engines. The chatbot also writes essays, poems and codes, providing an automatic alternative to critical thinking.

With its ability, built on a large language model, ChatGPT has seen growing interest from investors and the public. But experts have warned that it cannot be trusted at this time, as it has the potential to spread misinformation.

However, its unprecedented growth poses a threat to web search giants like Google and Baidu. For Google, which dominates the online search industry, there is concern that the sudden rise of ChatGPT may significantly deplete its ad revenue in a few years. For Baidu, ChatGPT has prompted the Chinese web search giant to push its AI language model forward, creating the experience for millions of its Chinese users who don’t have access to ChatGPT.

Alibaba jumping the bandwagon underscores the influence of ChatGPT around the world. The ChatGPT Index, compiled by Shanghai-based data service provider Wind based on nearly 30 AI companies listed in mainland China, jumped over 16 percent in the past five trading days, according to SCMP.

Google’s Bard, expected to be rolled out in coming days in response to the swift rise of ChatGPT, flopped this week after it provided inaccurate information to a query during a public demonstration. The company lost as much as $100 billion on Wednesday as a result.

With the tense competition ChatGPT has created in incorporating chatbot into services, Microsoft has positioned itself to occupy a dominant position in the game. The tech giant has betted billions of dollars on OpenAI, with an aim to incorporate ChatGPT into Bing, its search engine. It has also incorporated ChatGPT into its Teams Premium.