AN APPRAISAL OF MORTGAGE OF LANDED PROPERTY AS SECURITY FOR LOAN FROM BANKS IN NIGERIA
INTRODUCTION
1.1 Background to the Study
The Legal atmosphere in any given society affects business operation. Business strives well when business legislation are well defined and aimed at creating a favourable environment for business to thrive. These pieces of legislation will further national goals, stimulating the economy, conserving foreign exchange, enhancing competition among business entities, by prohibiting monopolistic tendencies and unfair method of competition by firms. It will also ensure that contracts are entered into and executed, with justice done to the parties and their right adequately protected.
In Nigeria, there is a plethora of business and commercial laws that govern different aspects of business environment for example, banking, insurance, capital market, etc. At this point, it is important to know what “law is”. For the purpose of this study, we shall adopt some definitions.
The definition by an eminent Nigerian jurist is that, “the law of a given society is the body of rules, which are recognized as obligatory by its members”
It is therefore the entire body of principles, norms or regulation that governs human conduct, the observance of which can be enforced.
Also “law” is defined by Cicero 1959 as, “the highest reason implanted in nature, which commands what ought to be done and forbids the opposite . . . what is right and that is also eternal, and does not begin or end with written
statutes. ..”
This means natural or moral laws which accord with our basic sense of justice of what is wrong and right in the state of nature, as opposed to or in contrast with legislative or man-made law.
Another definition is that, “law is a body of rules designed or formulated to guide human conduct or action which are enforced among members of a
given state or society.”
This refers to man-made law which exists to ensure legal order and due administration of justice in an organized society.
During the period of the state of nature, man and animals wondered about in the bush, forest, searching for food, a place to rest and eventually to lay head when it is night in order to sleep. Sleep at that time (state of nature) used to be at any place in the bush, like animals without shelter. This was prone to attack by animals, reptiles, birds and even stronger human beings. Later, the state was established or founded. This brought the nomadic lifestyle of the man of the state of nature to stagnation by way of shelter. By shelter, it means any enclosure used for resting or sleep built purposely by man for that purpose. This took the form of gathering of grass, sticks, and leaves. Later, with the advancement in technology of that time, mud, wood, stones were gathered to form enclosures and shelter . With further sophistication of technology, man developed skill to build houses, with wood, mud, stones, bricks, just like we have today, with all amenities for comfort and pleasure. Some people nowadays cannot have shelter without assistance from financial institution, though it is a right to have shelter in the Nigerian Constitution . This leads us to the need for mortgages as transaction to secure loan from banks with any given security. The Mortgage Institution Act provides for the establishment of mortgage institution in the country. S. 7 (a) provides that, “a mortgage institution shall not grant a loan or advance for the building, improvement of extension of dividing houses unless adequate securities have been taken on an existing property in respect of which the loan or advance is being granted”
The Bank and Other Financial Institution Act also provides for the establishment of loan by banks as follows:
a bank shall not without the prior approval in writing grant any advance, loan, credit facilities against the securities of its own share or any unsecured advances, loan, or credit facilities unless in accordance with the bank rules and regulations and where any such rules and regulations require adequate securities such securities shall be provided or, as the case may require deposited with the bank.
The securities are of diverse kinds, among which are land and other real estates, ships, debentures on assets of a company, life insurance policies, stocks and shares. “The general principles underlying these diverse forms of security are the same, regardless of the different modes of effecting them, as well as the fact that in some instance, the legal rules applicable vary from one kind of security to another” .
Landed property has been chosen as the security for loan for the purpose of this work for the following reasons. First, land is a more stable asset.
Secondly, the value of land is more likely to appreciate than other assets. Thirdly, arguably, it is easier for the banks to enforce their security in the case of landed properties than other assets such as debentures, insurance securities, guarantees, stock and shares, charge over fixed deposit account, trust receipts, bill of sale, letter of set off, trust deed8.Also physical control of the property is hardly necessary and its characteristic feature of immovability affords the creditor a reassuring grip on the security.
The banking industry is one of the major institutions involved in mortgage transactions and so there is need to ensure that it has the proper legal frame work for mortgage transactions to thrive. Alongside comes the Land Use Act, which is the single law that defines land rights, obligations and specific conditions precedent for any alienation or encumbrance of land rights in Nigeria. Inspite of this, title to land appears to be more insecure than the ever was. This research therefore seeks to unravel the problems and proffer plausible solutions considering the importance of mortgage transactions to the development of any nation.
1.2 Statement of Problems
As important as mortgage of landed property is to the economy of this nation Nigeria, it is beset with a lot of problems which has discouraged investors and bankers, making mortgage transactions difficult and unattractive. In view of which this research work has come up with the following research questions, that will eventually serve as an enablement to mortgage market development.
i. The enactment of the Land Use Act has seriously eroded the relative security enjoyed by a creditor (the bank) in a mortgage transaction.
This is because of the provisions of some sections of the Act like Section 28 which deals with the power of the Governor to revoke rights of occupancy. The commercial banks are uncertain as to the value of a certificate of occupancy, which they are being asked to take as security for loan, bearing in mind that these certificates can be revoked at the
Whims and caprices of the Governors.
ii. The Land Use Act appears to hinder economic progress.
This is because of the unwillingness and inability of banks and other financial institutions to give out loan on mortgage due to the fact that if a right of occupancy is revoked, a mortgagee has no right to the compensation payable, as the definition of “holder” or “occupier” in section 51 of the Land Use Act does not include a mortgagee.
iii. The Land Use Act has reduced considerable the efficacy of land as security for loan in a mortgage transaction and invariably it’s value and
reliability.
This is because of the consent requirement of section 22, which has been criticized for being responsible for the delay and cost which both mortgagor and mortgagee usually face in mortgage transaction.
iv. The uncertainties surrounding the enforcement of mortgage transactions has remained unsolved.
This is because default by mortgagor is a common practice due to the fact, that the laws on ground to protect mortgagees from defaulting mortgagors who breach their mortgage covenant and vice versa are
ineffective.
1.3 Aim and Objectives of the Study
The fundamental aim of this research is to critically analyze and attempt to unravel the problems associated with mortgage transaction in Nigeria.
In line with this, it seeks:
i.To identify the provision of the Land Use Act that has hindered the use of land as security for loan in mortgage transaction. ii.To examine the reasons for default by mortgagors of their essential obligations and proffer plausible solutions that will make mortgage transactions more secure, favourable and rewarding.
iii. To examine the reasons for some of the hardship encountered by mortgagors and how it has discouraged prospective businessmen from embarking on a mortgage transaction to secure loan from banks.
iv. To identify hindrances to the enforcement of legal provision in mortgage transactions and examine the legal machinery and laws on ground and its inability and inadequacy to prevent, enforce and nip in the bud default by mortgagors to liquidate indebtedness. Presently the mortgage industry is struggling with government and law markers to put in place the right legal framework for the industry to be a safe haven, hence the foreclosure bill and mortgage finance corporation.
AN APPRAISAL OF MORTGAGE OF LANDED PROPERTY AS SECURITY FOR LOAN FROM BANKS IN NIGERIA
