One way to secure loans is through the use of Mortgages. Loans, are usually but not always backed with certain forms of security which offer the lender a level of control, assurance of repayment and recovery upon default. A mortgage is defined as a legal or equitable conveyance of title as security for the payment of debt or the discharge of some other obligations for which it is given, subject to a condition that the title shall be reconveyed if the mortgage debt is liquidated.
Types of Mortgages in Nigeria
There are two types of Mortgages in Nigeria, namely, Legal and Equitable Mortgage. A legal mortgage is the most secure and comprehensive form of security as it transfers legal title to the Mortgagee and prevents the mortgagor from dealing with the mortgaged assets while it is subject to the mortgage while an equitable mortgage involves the transfer of the borrower’s beneficial interest in an asset to the lender by way of security for the performance of particular obligations, on the express or implied condition that such beneficial interest will be retransferred when the secured obligations are discharged.
Enforcement of Mortgages
With the persistent increase in non-performing loans in Nigeria, mortgagees are faced with the challenge of realizing valuable security in the event of failure of a mortgagor to repay the loan. In addition to ensuring that the credit facility is secured, a mortgagee in exercising its rights under the mortgage agreement can undertake any of the following to recover its loan facility and interest:
a. Action to recover mortgage sum and interest;
b. Taking Possession of the security;
c. Appointing a receiver;
d. Sale of the security;
e. Action for order of specific performance;
The Operation of Foreclosure in Nigeria
Foreclosure is a judicial procedure by which the mortgagee acquires the mortgaged property for himself, free from the mortgagor’s equity
It is the procedure pursuant to which the court determines the amount due under the mortgage, orders its payment within a certain period and prescribes that in default of such payment a debtor will permanently lose his or her equity of redemption. Upon default in payment, the title of the property is conveyed absolutely to the creditor, without any sale of the property. It makes the mortgagee to become the absolute owner of the mortgaged property free from all rights of redemption. It may not be desirable for the mortgage to approach the court to foreclosure of mortgagor’s rights as a result of certain challenges surrounding it such as the cumbersome and time-consuming process in obtaining a foreclosure order from the Court.
Previously, the rights of a mortgagee to foreclose in Nigeria must be exercised in line with a Court Order. However, the Model Law passed by the Kaduna State House of Assembly in 2017 provides for Non-Judicial Foreclosure in Nigeria. Simply put, non-judicial foreclosure affords the mortgagee the opportunity to take over the property without the intervention of the court.
The Model Law of Kaduna State on mortgage while preserving the remedies of entry into possession, appointment of a receiver, power of sale and judicial foreclosure, it also provides that a Mortgagor may sign a deed in lieu of foreclosure conveying all interest in the mortgaged property to the mortgagee. This eliminates the difficulty associated with going to court to obtain a foreclosure order.
It is trite that the primary business of Banks and other financial institutions is the advance of credit, within the appropriate credit risk indices, whose interests form the bulk of the Banks’ profits. More so, in carrying out this enterprise, it is important for the Banks to be able to realize their funds in case obligors fail to pay. An effective mortgage system (enhanced by non-judicial foreclosure) has potential benefits to Banks, Business, intending homeowners and the economy at large.
It is recommended that all states in Nigeria enact laws on Non-Judicial Foreclosure so as to curb the menace of non-performing loans and reduce the incidence of bad loans in Nigeria, and their impact on the economy.