By Amaka Ezeno, MCLArb,
In the course of business, banks lend money to its customers, and they expect to be repaid as and when due. However, it is not possible for them to know which would turn out bad. Thus, security is usually required for lending. It is an assurance for repayment of debt. Mortgage is one of the ways of executing security.
Mortgage is a conveyance of interest in a property as security for the payment of a debt or for the discharge of some other obligation. The borrower is called the mortgagor while the lender is known as the mortgagee. The most common mode of creating banking security affecting land is by mortgage.
Land includes everything on it, such as houses or economic trees. The law requires that the consent of the governor must be obtained before creating mortgage on land. Failure to meet this requirement rendered the mortgage null and void in the case of Savannah Bank of Nigeria Ltd v. Ajilo (1989) 1 NWLR.
Legal mortgage is created by the customer/mortgagor executing a prescribed deed of mortgage in which the mortgagor’s interest in the mortgaged property is absolutely conveyed to the bank, giving the bank several specific remedies.
It involves an agreement which transfers the title deeds to the mortgaged property to bank. Legal mortgage ensures that the right of the mortgagee to sell the land is unfettered.
It also grants the mortgagee the power to execute his remedies without the assistance of the mortgagor or a court of law.
Legal mortgage makes the remedies available to the mortgagee immediately or automatically on default by the mortgagor. However, upon the default of the customer, the law requires that he must be given a notice which expires at the end of three months before any statutory remedy can arise.
REALIZATION OF LEGAL MORTGAGE
- Right to sue the customer: the mortgagee bank may sue the mortgagor on his personal covenant to pay the loan with the agreed interest and costs within the contractual period.
- Right to sell: the mortgagee has a statutory right to sell the mortgaged property. However, if the amount due under the mortgage agreement is in dispute, then the power to sell cannot be exercised. Again, a notice requesting for payment or threatening sale, once given, will remain valid until the mortgagee exercises his right of sale.
- Appoint a receiver: the mortgagee also has the right to appoint a receiver of the rents and profits accruing from the mortgaged land. It is the law that such a receiver is an agent of the customer mortgagor to whom he is accountable. This right crystallizes when the power of sell becomes exercisable and can be exercised only on the proceedings before a court of competent jurisdiction. A duly appointed receiver is entitled to remuneration payable from the money received by him.
- Right of foreclosure: this right confers on the mortgagee the power to assume ownership, thereby cancelling the mortgagor’s right of redemption of the mortgaged property. The right of foreclosure is granted by the court, and once granted, the property becomes that of the mortgagee.
Once the mortgage loan is repaid, the bank’s right in the property is extinguished and he is under obligation to convey the property back to the mortgagor. Until this is done, he becomes the mortgagor’s trustee for the custody and preservation of the title deeds. When the bank returns the title deeds, he shall execute a deed of release.