Lesson 13: Mortgages I — Fundamentals & Legal Framework

Chartered Mortgage Professional (CMP)

Lesson 13 — Mortgages I — Fundamentals & Legal Framework

Learning Objectives

By the end of this lesson you will be able to:

Define a mortgage and distinguish it from assignments, charges, liens, and pledges.

Identify the principal mortgage institutions operating in Nigeria and their regulators.

Explain the creation of legal and equitable mortgages under Nigerian law.

Walk a transaction through the nine stages from application to disbursement.

Recognise the role of solicitors, valuers, and other professionals.

Apply the Savannah Bank v. Ajilo (1989) principle on Governor’s consent.

Identify the standard covenants in a Nigerian deed of legal mortgage.

Introduction

The Central Bank of Nigeria reports that formal mortgage credit amounts to less than 1% of GDP — one of the lowest ratios in any major economy. Nigeria needs roughly 17 million housing units but formal finance reaches only a small fraction of would-be homeowners.

This lesson lays foundations: the nature of a mortgage as a security interest in land, the institutions, regulators, legislation, and case law that make Nigerian mortgage practice what it is. Lesson 14 covers remedies, transfers, and discharge.

The Nature of a Mortgage

A mortgage is a conveyance of a legal or equitable interest in property by way of security for payment of a debt or discharge of some obligation, with a proviso that the property shall be reconveyed or released on full performance.

Three defining features: (i) a debt or obligation to be secured; (ii) a transfer or charge over property; (iii) a right of the borrower (mortgagor) to redeem on performance.

The equity of redemption — the mortgagor’s right to recover the security on payment — is sacrosanct. "Once a mortgage, always a mortgage" — courts will strike down any clause that tries to convert the mortgage into an absolute conveyance on default (Kreglinger v. New Patagonia Meat). The Supreme Court echoed this in Ihekwoaba v. ACB Ltd (1998), holding that any clog on the equity of redemption is void.

Historical Origins

Nigerian mortgage law descends from English common law, modified by statute and the Land Use Act 1978. In the Western Region states (Lagos, Ogun, Oyo, Osun, Ondo, Ekiti, Edo, Delta), the Property and Conveyancing Law 1959 replaced the common-law form with the demise form: a long lease (typically 500 years) with cesser on redemption.

Mortgage Distinguished from Similar Transactions

Assignment: outright transfer of an entire interest with no right of redemption. Absolute, not conditional.

Charge: an encumbrance securing a debt, without conveyance of the legal estate. The chargee has no right to possession, only right to apply to court for sale. Under the Property and Conveyancing Law 1959, a charge by way of legal mortgage is statutory equivalent of the demise mortgage.

Lien: right to retain possession of another person’s property until a debt is paid. Doesn’t transfer title; no power of sale (save statutory liens). A solicitor’s lien over title deeds for unpaid fees is typical.

Pledge: delivery of a chattel (movable property) as security for a debt. Different principles; doesn’t apply to land.

Bill of Sale: formal document transferring title to personal chattels, used to secure loans. Registrable under the Bills of Sale Act. No application to land.

Mortgage Institutions in Nigeria

Primary Mortgage Banks (PMBs): Licensed by the CBN under BOFIA 2020 and the CBN’s Revised Guidelines for PMBs (2011, as amended). Examples: Abbey Mortgage Bank, AG Mortgage Bank, Resort Savings & Loans, Imperial Homes, Platinum Mortgage Bank. PMBs originate retail mortgages and disburse NHF loans on behalf of FMBN.

Deposit Money Banks (Commercial Banks): Access Bank, Zenith Bank, GTBank, First Bank, UBA. Under BOFIA 2020, they may provide real estate finance within prudential limits. Typically fund higher-value transactions.

Federal Mortgage Bank of Nigeria (FMBN): Established by Decree No. 82 of 1993 (now FMBN Act). The apex mortgage institution. Operates the NHF scheme and refinances mortgages from PMBs. Every Nigerian worker earning N3,000+/month must contribute 2.5% of basic salary to the Fund, against which they can apply for an NHF loan up to N15 million at 6% per annum over 25-30 years.

Microfinance Banks: Offer small-ticket housing improvement loans. Growing role in informal housing sector.

Nigeria Mortgage Refinance Company (NMRC): Public-private partnership established 2013 to deepen the secondary mortgage market. Refinances qualifying mortgages from PMBs and commercial banks. The NMRC’s Uniform Underwriting Standards have become the de facto qualification criteria for market-rate mortgages.

Building Societies and Cooperatives: Group-based housing finance — common in university staff housing, public service unions, trade cooperatives.

Regulatory Framework

Constitution of the Federal Republic of Nigeria 1999 (as amended), ss. 43, 44 (property rights), s. 315

Land Use Act 1978 — vests land in Governors; s. 22 requires Governor’s consent for alienations including mortgages

Banks and Other Financial Institutions Act (BOFIA) 2020

CBN Revised Guidelines for PMBs (2011, updated)

NMRC Uniform Underwriting Standards

Federal Mortgage Bank of Nigeria Act

National Housing Fund Act

Conveyancing Act 1881 — applicable in northern and eastern states

Property and Conveyancing Law 1959 — applicable in western states

Lagos State Mortgage and Property Law 2010

Stamp Duties Act and Land Registration Laws of each state

NDIC Act

Consumer Protection Framework (CBN, FCCPA 2018)

The Role of Solicitors in a Mortgage Transaction

The Legal Practitioners (Remuneration for Business and Professional Matters) Order sets the fee scale. The solicitor’s duties span:

Pre-contract advice on the form of security and consequences of default

Title investigation — searches at Lands Registry, Probate Registry, CAC, Court Registry

Drafting the offer letter, deed of legal mortgage, and related documents

Obtaining Governor’s consent under s. 22 LUA

Stamping the deed at FIRS within 30 days of execution

Registering the mortgage at the state Lands Registry

Handling post-completion correspondence, endorsements, and custody of deeds

Advising on discharge on full repayment

Creation of a Legal Mortgage

Under the Conveyancing Act 1881

In states where the Act applies (most states outside the former Western Region), a legal mortgage is created by deed of assignment of the mortgagor’s interest to the mortgagee with proviso for reassignment on repayment. The mortgagee takes the legal estate until redemption.

Under the Property and Conveyancing Law 1959

In the former Western Region states, three forms available:

(a) Demise for a long term (usually 500 years) with cesser on redemption.

(b) Charge by way of legal mortgage — creates a charge with same protections and remedies as a mortgagee by demise.

Under the Lagos State Mortgage and Property Law 2010

Lagos introduced a streamlined Deed of Legal Mortgage form using the charge by way of legal mortgage model with standardised covenants. Now the most common form in Lagos State.

The Landmark: Savannah Bank v. Ajilo (1989)

No Nigerian mortgage case is more consequential than Savannah Bank of Nigeria Ltd v. Ammel O. Ajilo & Anor (1989) 1 NWLR (Pt 97) 305.

Ajilo, holder of a Lagos State statutory right of occupancy, mortgaged his property to the bank without obtaining the Governor’s consent required by s. 22 LUA. When Ajilo defaulted, Savannah Bank attempted to exercise its power of sale.

The Supreme Court held the mortgage was void for want of consent, destroying the bank’s security. Justice Karibi-Whyte, while applying the law as written, lamented the hardship the consent requirement imposes.

The modern practical response has been state-level reform. Lagos State, through successive laws culminating in the Mortgage and Property Law 2010, has simplified consent practice — providing that consent once obtained for a first mortgage covers subsequent dealings within its terms.

Stages in a Mortgage Transaction

Nine distinct stages, each with its own documentation and risk:

Loan application — borrower completes application with income, employment, identity (KYC), and property details.

Offer letter — lender issues conditional offer stating loan amount, tenor, interest rate, security required, conditions precedent.

Valuation — registered estate surveyor and valuer prepares forced-sale and open-market valuations. Lender lends at LTV typically 70-80% for owner-occupied homes.

Due diligence and title investigation — searches at Lands Registry to confirm title, encumbrances, caveats. Probate, CAC, Court searches where relevant.

Drafting and negotiation — deed of legal mortgage and ancillary documents (guarantees, deed of undertaking, cross-default clauses).

Execution — deed executed by mortgagor (and spouse where required for matrimonial home), attested, delivered.

Governor’s consent — application to state Lands Bureau under s. 22 LUA, supported by deed, valuation report, tax clearance, consent fee.

Stamping — deed stamped at FIRS at prescribed rate within 30 days of execution.

Registration — deed registered at state Lands Registry. Registration confers priority; an unregistered instrument may be defeated by a later registered instrument.

Only on completion of all nine stages is the mortgage fully perfected. Disbursement often happens at registration or at signed-ready-for-lodging stage depending on lender’s risk appetite.

The Equitable Mortgage

An equitable mortgage is a charge enforceable only in equity, arising where formalities for a legal mortgage have not been completed or where only an equitable interest exists. Cheaper and faster to create but weaker in enforcement.

Methods of Creation

Deposit of title documents with the lender, usually with a memorandum of deposit — long the commonest form of informal mortgage in Nigeria.

Agreement to create a legal mortgage — equity looks on as done that which ought to be done (Walsh v. Lonsdale).

Equitable charge — an express charge creating no legal estate.

Mortgage of an equitable interest.

Weaknesses

No automatic power of sale under s. 123 PCL — must apply to court.

Priority may be lost to a subsequent legal mortgagee without notice.

Title documents may be lost or challenged.

Covenants in Mortgages

Covenants by the Mortgagor

To pay principal and interest at the contractual rate and on agreed dates.

To repair and keep the property in good and tenantable condition.

To insure the property in joint names of mortgagor and mortgagee against fire, flood, and other agreed perils.

Not to lease, sublet, or otherwise part with possession without mortgagee’s consent.

Not to create further encumbrances without consent.

To pay all rates, taxes, land use charges, and ground rents punctually.

To permit inspection by or on behalf of the mortgagee.

To observe all covenants in the head-lease (where leasehold).

Covenants by the Mortgagee

Implied covenant for quiet enjoyment until default.

To discharge the mortgage on full repayment and execute a deed of release.

To exercise the power of sale in good faith and for a proper price.

Case Study 1: A Standard Lagos PMB Mortgage

Mrs. Folake Adeyemi, 36-year-old Lagos banker earning N8.2 million/year, applies to Abbey Mortgage Bank for a N120 million mortgage to buy a four-bedroom semi-detached house off Admiralty Way, Lekki Phase 1. Property valued by COREN-registered valuer at N160 million (open market), N128 million (forced sale). Abbey offers 70% of open-market value (N112 million) at 23% per annum over 15 years.

Abbey’s solicitors confirm vendor holds registered Deed of Assignment executed 2019 with Governor’s consent endorsed. No encumbrances. Deed of Legal Mortgage drafted under Lagos State Mortgage and Property Law 2010 using charge-by-way-of-legal-mortgage form.

Mrs. Adeyemi and husband (consenting party under Matrimonial Causes Act) execute the deed. Solicitors apply for Governor’s consent at Lands Bureau, paying 0.5% of loan amount (Lagos simplified schedule). On consent, deed stamped at FIRS (0.375% of loan value) and registered at Lagos State Lands Registry. Total perfection cost: approximately 1.5% of loan value plus professional fees. Abbey disburses N112 million to vendor’s solicitor on receipt of stamped and lodged deed.

Case Study 2: An Equitable Mortgage Gone Wrong

Alhaji Bello, Ibadan textile trader, borrowed N25 million from Chief Oladapo in 2018 on security of title documents to his Bodija property, depositing Deed of Assignment plus original survey plan with a one-page Memorandum of Deposit. No formal deed of legal mortgage executed. The memorandum not stamped or registered.

When Alhaji Bello defaulted in 2021, Chief Oladapo sought to sell. His solicitors discovered Alhaji Bello had since executed a formal Deed of Legal Mortgage in favour of a PMB for N40 million, perfected through Governor’s consent, stamping, and registration at the Oyo State Lands Registry. The PMB had no actual notice of Chief Oladapo’s equitable mortgage.

The court applied the priority rule: where the legal mortgagee takes without notice, the legal mortgage defeats the equitable mortgage. Chief Oladapo was left with only a personal claim against Alhaji Bello.

Lesson: equitable mortgages should be converted to legal mortgages or at least registered and notice given.

Summary

A mortgage is a conveyance or charge over land as security for a debt, with a right of redemption that cannot be clogged.

Nigerian mortgage law draws from English common law, modified by the Property and Conveyancing Law 1959 in Western states and the Conveyancing Act 1881 elsewhere, and significantly reshaped by the Land Use Act 1978.

Savannah Bank v. Ajilo (1989) is a permanent reminder that Governor’s consent is essential.

The industry is delivered through PMBs, commercial banks, FMBN, NMRC, and microfinance banks under supervision of CBN, NDIC, and FCCPC.

The lesson for practitioners: respect each of the nine stages, use the form appropriate to the jurisdiction, never treat consent, stamping, or registration as mere paperwork. In Nigerian mortgage practice, paperwork is power.

KEY TAKEAWAYS

A mortgage is security only — the equity of redemption is sacred.

Three institutions: PMBs, commercial banks, and FMBN — each with different roles.

Conveyancing Act governs in the North and East; Property and Conveyancing Law in the West.

Lagos has its own streamlined Mortgage and Property Law 2010.

Savannah Bank v. Ajilo (1989) — no Governor’s consent, no valid mortgage.

Nine stages: application, offer, valuation, due diligence, drafting, execution, consent, stamping, registration.

Equitable mortgage is quick and cheap but weaker; convert to legal mortgage where possible.

Covenants discipline the conduct of both parties throughout the loan life.

Knowledge Check (10 Questions)

Which of the following is the defining feature of a mortgage (as opposed to an outright sale)?
1. The loan amount exceeds the property value
2. The mortgagor retains an equity of redemption
3. The mortgagee takes possession immediately
4. The property is sold at auction
Under section 22 of the Land Use Act 1978, a mortgage of a statutory right of occupancy requires:
1. Stamping only
2. Registration only
3. The Governor’s consent
4. Valuation only
In Savannah Bank v. Ajilo (1989), the Supreme Court held that:
1. Mortgages are invalid in Nigeria
2. A mortgage without Governor’s consent is void
3. Banks may lend without documentation
4. The Land Use Act is unconstitutional
Which law introduced the streamlined Deed of Legal Mortgage for Lagos State?
1. Lagos State Tenancy Law 2011
2. Lagos State Mortgage and Property Law 2010
3. Conveyancing Act 1881
4. Property and Conveyancing Law 1959
The equity of redemption is the mortgagor’s right to:
1. Increase the loan after default
2. Recover the security on payment
3. Sell the property without consent
4. Refuse to pay interest
Which institution refinances qualifying mortgages from PMBs in Nigeria?
1. NDIC
2. FMBN only
3. NMRC
4. SEC
The Property and Conveyancing Law 1959 applies in:
1. All 36 states
2. Only Lagos State
3. The former Western Region states
4. The Federal Capital Territory
Which of these is NOT a standard covenant in a Nigerian mortgage deed?
1. To insure the property
2. To repair the property
3. To surrender the property immediately on signing
4. To pay rates and taxes
An equitable mortgage by deposit of deeds is weaker than a legal mortgage because:
1. It is illegal
2. It may lose priority to a subsequent registered legal mortgage without notice
3. It cannot be stamped
4. It carries no interest
Under the National Housing Fund Act, workers earning above N3,000 per month contribute:
1. 1% of basic salary
2. 2.5% of basic salary
3. 5% of basic salary
4. 10% of basic salary

Answers