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 :-
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– 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 :-
- The equity of redemption :- This is the right of a mortgagor to redeem his property once the loan obligation is discharged.
- 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.
- 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
- Mortgage financing services.
- Real Estate construction finance services within permissible limits.
- The acceptance of savings & time/term deposits.
- The acceptance of mortgage-focused demand deposits.
- Drawing from mortgage funds e.g. The National Housing Fund facility for on-lending.
- Financial advisory services for mortgage customers.
Non-permissible Activities
1.Consumer or commercial loans.
- Estate Agency/Facility management services.
- Pension fund/scheme management.
- 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
- A written application in writing to the governor of the CBN.
- Evidence of payment of a non-refundable application fee of 2 Million Naira or any prescribed amount in bank draft to the CBN.
- A detailed feasibility report.
- A copy of the Memorandum/Articles of Association of the proposed bank.
- A list of the names of the promoters and shareholders of the proposed bank.
- 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.