11.1.1 What Is a Mortgage?

A mortgage is a transfer of, or charge on, property as security for a debt. From Old French mort gage — “dead pledge”.

Two elements: personal covenant (borrower’s promise to repay) + security interest (lender’s right over the property). Belt-and-braces analogy.

Parties: mortgagor (borrower giving security) + mortgagee (lender). The equity of redemption is the borrower’s right to recover property on repayment — fiercely protected.

11.1.2 Types of Mortgageable Interests

• Freehold interests — pre-LUA interests still in some southern states; strongest security
• Leasehold interests — unexpired residue matters
• Statutory Right of Occupancy — most common; requires Governor’s consent (Section 22 LUA)
• Customary Right of Occupancy — granted by local government; informal documentation
• Equitable interests — beneficial interest under trust; resulting mortgage is also equitable

11.2.1 Methods of Creating Legal Mortgages

(a) Conveyance or Assignment with Proviso for Redemption — oldest method; transfers entire legal estate to lender with re-conveyance on repayment. Cumbersome.

(b) Demise for a Term of Years — borrower grants lender a long lease (typically 3,000 years) with proviso for cesser on redemption. Borrower keeps legal estate.

(c) Charge by Deed Expressed to Be by Way of Legal Mortgage — preferred modern method. No transfer; statutory grant of all rights, powers, remedies of legal mortgagee. Most common in Nigerian practice.

11.2.2 Requirements for a Valid Legal Mortgage

1. Deed — signed, sealed, delivered
2. Governor’s Consent — Section 22 LUA. Savannah Bank of Nigeria Ltd v. Ajilo (1989) 1 NWLR (Pt. 97) 305 — without consent, mortgage is null and void ab initio
3. Stamping — under Stamp Duties Act; unstamped deed inadmissible in evidence
4. Registration at the Land Registry — notice to the world
5. Filing at the CAC — for corporate borrowers, CAMA 2020 Section 222 requires registration within 90 days; failure renders charge void against liquidator/creditors

11.3.1 Methods of Creating Equitable Mortgages

(a) Deposit of Title Deeds — borrower hands over originals to lender
(b) Agreement to Create a Legal Mortgage — Walsh v. Lonsdale (1882) doctrine
(c) Mortgage of an Equitable Interest
(d) Defective Legal Mortgage — e.g., absence of Governor’s Consent

11.3.2 Deposit of Title Deeds — Common Banking Practice

Most common in Nigerian banking. Advantages: speed, no cost, simplicity. Disadvantages: no automatic power of sale (court order needed); weak priority; not registered. Banks use for short-term facilities (overdrafts, working capital, trade finance).

11.3.3 Legal vs. Equitable Mortgage Comparison

11.4.1 The Equity of Redemption

The mortgagor’s right to recover the property free and clear upon repayment. Principle: once a mortgage, always a mortgage. Any provision “clogging” the equity of redemption is void.

Examples of clogs (void):
– Lender’s option to purchase
– Postponing redemption for unreasonably long period (40 years on 30-year asset)
– Conditions unrelated to debt (e.g., requiring purchase of goods from lender for 5 years after repayment)

11.4.2 Other Rights of the Mortgagor

• Right to possession until lender takes possession on default
• Right to lease consistent with mortgage terms
• Right to sue in trespass and nuisance
• Right to grant further mortgages (later lenders take subject to prior charges)
• Right to inspect title deeds
• Right to redeem after exercise of power of sale — until sale completed

11.5.1 Right to Sue on the Personal Covenant

Direct action against borrower personally. Limitation: 12 years from cause of action (6 years for interest). Useful where borrower has other assets.

11.5.2 Right to Possession

Legal mortgagee’s right is immediate in theory; exercised only on default in practice. Mortgagee in possession held to strict standard of accountability — liable for rents received AND what ought to have been received. Lenders prefer receiver or sale.

11.5.3 Power of Sale

Most commonly exercised remedy. No court order required.

When does the power ARISE? As soon as mortgage money becomes due (usually 6 months from date).

When does the power become EXERCISABLE? Section 20 CA 1881 + PCL — any ONE of:
1. Notice requiring payment served, and mortgagor fails to pay within 3 months
2. Some interest in arrears and unpaid for 2 months after due
3. Breach of mortgage deed provision or statute (other than principal/interest covenant)

Duty to obtain the best price. ACB Ltd v. Obmiami Brick and Stone (Nig.) Ltd — sham auction or sale to friend at undervalue triggers liability for the difference.

Sale to the mortgagee prohibited — voidable at instance of mortgagor.

Application of sale proceeds:
1. Costs and expenses of sale
2. Discharge of prior encumbrances
3. Mortgage debt (principal, interest, costs)
4. Surplus → mortgagor or next encumbrancer

11.5.4 Right to Appoint a Receiver

Common for investment properties. Receiver is agent of the mortgagor (legal fiction protecting lender from strict accountability of mortgagee in possession).

11.5.5 Right to Foreclose

Most drastic. Two stages: foreclosure order nisi (gives borrower ~6 months to pay) → foreclosure order absolute (extinguishes equity of redemption). Rare in Nigeria — power of sale is simpler.

11.6.1 Methods of Discharge

• Deed of Release / Deed of Discharge — cleanest method
• Reconveyance — for old conveyance-style mortgages
• Endorsement on the mortgage deed — less formal
• Registration of discharge at land registry; CAC filing for corporates
• Return of title documents

11.6.2 The Six-Month Notice Rule

Borrower must give 6 months’ notice of intention to redeem, OR pay 6 months’ interest in lieu of notice. Many modern deeds modify this. After contractual redemption date, the right continues as an equitable right.

11.7.1 Rules of Priority

• First in time — qui prior est tempore potior est jure
• Registration can affect priority — registered prevails over unregistered
• Notice (actual and constructive) — later legal mortgagee with notice of earlier equitable cannot claim priority
• Legal over Equitable — legal mortgagee without notice + value takes priority over earlier equitable
• Tacking and Further Advances — consolidating charges to improve priority

11.7.2 Practical Implications for Lenders

• Prompt registration
• Title searches (Lagos Lands Bureau; AGIS for FCT)
• Priority agreements / inter-creditor agreements
• Subordination by agreement

A mortgage combines personal covenant + security interest. The equity of redemption is fiercely protected. Legal mortgages can be created by conveyance, demise, or — most commonly — charge by deed. Valid creation requires deed, Governor’s consent (Section 22 LUA), stamping, land registry registration, and CAC filing for companies (90 days under CAMA 2020).

Savannah Bank v. Ajilo — absence of Governor’s consent renders mortgage void, not voidable.

Equitable mortgages (deposit of deeds, agreements, defective legal mortgages) are quicker/cheaper but weaker.

Mortgagee remedies: sue on personal covenant; take possession; power of sale (no court order, but must satisfy 3 statutory conditions); appoint receiver; foreclose.

Discharge by deed of release + registration. Six-month notice rule applies in default.

Priority: first in time, modified by registration, notice, and legal-over-equitable.

1. Explain the three methods of creating a legal mortgage. Why is charge by deed most common today?
2. What is the equity of redemption? Give two examples of provisions courts treat as clogs.
3. Describe the conditions for exercising the power of sale. Difference between “arising” and “becoming exercisable”?
4. Compare advantages and disadvantages of legal vs equitable mortgages from a lender’s perspective.
5. Explain the priority rules where multiple mortgages exist over the same property.